If you have kids in college, or kids who are going to be in college, you want to read this advice on how to get financial aid without making big mistakes. It was written by Mark Kantrowitz, senior vice president and publisher of Edvisors.com, a group of web sites about planning and paying for college. He has written three bestselling books about financial aid, including “Filing the FAFSA: The Edvisors Guide to Completing the Free Application for Federal Student Aid.” This book is available for free download in PDF format for students and parents who register (also for free) on Edvisors.com. The book is also available for purchase in paperback and Kindle formats on Amazon.com.
By Mark Kantrowitz
Tens of millions of students file the Free Application for Federal Student Aid, or FAFSA, each year to apply for student financial aid from the federal and state governments as well as most colleges and universities. Making a mistake on this form can have drastic financial consequences for the student and his or her family.
Not applying for financial aid is one of the biggest errors students make. You can’t get financial aid if you don’t apply. The number of FAFSAs filed in the 2011-12 award year increased by a third since 2007-08. Nevertheless, an estimated 2 million students would have qualified for the Federal Pell Grant in 2011-12 but did not file the FAFSA. Of these, 1.3 million would have qualified for a full Federal Pell Grant. Nearly half [MK1] of the students who did not apply thought that they were ineligible.
About a third of the Pell-eligible students who did not file the FAFSA had two or more family members in college. Perhaps these families applied in the previous year with just one child in college and didn’t qualify for much aid other than low-cost loans. During the second year, however, they didn’t apply. Why bother to reapply if they didn’t get aid the first year? But, financial aid formulas are complicated, and subtle changes in a family’s financial circumstances can have a big impact on aid eligibility. In particular, the parent contribution portion of the expected family contribution (EFC) is divided by the number of children in college. So a family that doesn’t qualify for aid with one child in college might qualify in a subsequent year with two or more children in college. Changes in income, assets, household size and marital status can make a difference in aid eligibility, as can annual changes in the financial aid formula. Even an unborn child can affect the amount of financial aid a student will receive. Families should file the FAFSA every year, even if they got no aid the previous year.
Unusual family financial circumstances can also affect the student’s financial aid package. The FAFSA is a one-size-fits-all form, with nowhere to tell the government or the colleges about how their ability to pay has changed from last year or differs from the typical family. Instead, families should appeal to the college’s financial aid office and provide explanations and copies of documentation of the special circumstances. Some colleges call this a “professional judgment review” or a “special circumstances review.” Examples of special circumstances include job loss, salary reduction, death of a wage-earner, high unreimbursed medical or dental expenses, high dependent care expenses for a special needs child or elderly parent and private K-12 tuition for the student’s siblings. If the college financial aid administrator feels that the special circumstances merit an adjustment, the adjustment will be related to the impact of the special circumstances on the family’s finances. For example, when a parent loses his or her job, the financial aid administrator might choose to switch from considering prior-year income to an estimate of income during the current year, including any severance pay and unemployment benefits. Families should tell the college’s financial aid office about any special circumstances, even if they occur in the middle of the academic year.
A change in the treatment of divorced parents may lead to more errors this year. Previously, if a dependent student’s parents were divorced, only one parent was responsible for completing the FAFSA. This parent is the parent with whom the student lived the most during the 12-month period ending on the FAFSA application date. If that didn’t distinguish the parents, perhaps due to joint custody with an even number of days spent with each parent, as might occur in a leap year or a recent divorce, then the parent who provided the most support to the student is responsible for completing the FAFSA. This treatment still applies to parents who maintain separate residences. But, starting with the 2014-15 award year, if divorced parents (or parents who never married) are living together, they are treated as though they are married. Information from both parents must now be reported on the FAFSA.
Note that if the student’s parents are divorced and the parent who completes the FAFSA has remarried, the stepparent’s information must be reported on the FAFSA, even if there is a prenuptial agreement. Normally this works against the family, since every $10,000 increase in income reduces aid eligibility by about $3,000. However, it can lead to an increase in aid eligibility if the stepparent’s children from a previous marriage are enrolled in college. The stepparent can count these children in the student’s household size and number in college even if they don’t live with the stepparent, as long as the stepparent provides more than half of their support. Families often incorrectly assume that children must live with the family to be counted on the FAFSA. Other dependents must live with and receive more than half their support from the parents to be counted on the FAFSA, but children only have to pass the support test.
Financial aid formulas can be very complicated and intimidating. The FAFSA doesn’t need to be this complex. All that’s really necessary to determine aid eligibility is family income, family size and the number of children in college. The financial aid formula could then assess a portion of discretionary income, the amount by which income exceeds 150 percent of a poverty line. Students with family income at or below 150 percent of the poverty line would get a full Federal Pell Grant, while the amount of the grant would be proportionately phased out as income increased to 250 percent of the poverty line. This would enable the FAFSA questions to fit on the back of a postcard or even be integrated into the federal income tax return. While this wouldn’t necessarily be as precise as the current FAFSA, it would yield an assessment of demonstrated financial need that is reasonable for most students. Better yet, the FAFSA should be based on income the year before the student applies for college admission, so that the family can apply for financial aid before applying for admission, instead of afterward.
[MK1]Of the students who would have qualified for a Pell Grant, 46.7% thought they were ineligible, 37.5% said that they had no need, 34.1% did not want to take on the debt, 13.6% had no information on how to apply and 9.4% said that the forms were too much work. (Figures may sum to more than 100% due to overlap. After eliminating overlap, these five reasons account for 91% of the reasons why Pell-eligible students did not file the FAFSA. The first three reasons account for 89% of the non-applicants.)