Here is some important advice from a financial aid expert on how to avoid making the most common financial aid mistake for college-going families. It was written by Mark Kantrowitz, senior vice president and publisher of Edvisors.com, a web site about planning and paying for college. He is also co-author of the bestselling book, “Filing the FAFSA,” which is available for free download at www.edvisors.com/fafsa-book
By Mark Kantrowitz
The Free Application for Federal Student Aid (FAFSA) is a gateway to money for college. Not only is it used to apply for federal student aid, such as the Federal Pell Grant, Federal Work-Study, Federal Perkins Loans and Federal Stafford Loans, but it is also used to apply for student financial aid from state governments and most colleges and universities.
But, applying for financial aid can be complicated. Financial aid involves an alphabet soup of acronyms, like FAFSA, EFC and SAR, and is like speaking a foreign language. Edvisors.com has more than 750 terms defined in its financial aid glossary. The FAFSA itself has more than 100 numbered questions, presenting many opportunities for potential errors. The “Filing the FAFSA” book, available for free download at www.edvisors.com/fafsa-book, offers hundreds of pages of advice and insights into completing the FAFSA correctly.
Some of the most common errors involving the FAFSA that affect financial aid eligibility include:
- Failing to apply for financial aid using the FAFSA. You can’t get aid if you don’t apply. Unfortunately, many students disqualify themselves by failing to file the FAFSA. In 2011-12, about 2 million students would have qualified for a Federal Pell Grant, if they had only filed the FAFSA. Of these, 1.3 million would have qualified for the maximum Federal Pell Grant.
- Filing the wrong year’s FAFSA. The FAFSA has an 18-month application period, running from January 1 to June 30 of the following year. From January to June of each year there are two versions of the FAFSA that could be filed, the FAFSA for the current academic year and the FAFSA for the upcoming academic year. About 90 percent of the applicants should be filing the FAFSA for the upcoming academic year. But, sometimes applicants get confused and file the previous year’s FAFSA instead.
- Missing financial aid deadlines. Students who file the FAFSA in January, February and March get more than twice as much grant funding, on average, as students who file the FAFSA later. This is because many state and college aid programs have very early deadlines. In 2015-2016, nine states award state aid on a first-come, first-served basis, three states have February deadlines and eleven states have March deadlines. Do not wait until you file your federal income tax returns or are accepted by a college to file the FAFSA. It is ok to use estimated income and tax information to file the initial FAFSA. You will be required to update this information after you file your federal income tax returns, and the IRS Data Retrieval Tool makes this easy.
- Transposing digits in numbers and dollar amounts or inserting extra digits. Last year, several hundred thousand applicants temporarily lost eligibility for need-based financial aid because they tried entering cents in the online FAFSA, causing their income to appear much higher than it really was. Income and tax figures should be entered as whole dollar amounts, without cents. Double-check to make sure the numbers are correct and that you’ve entered them in the correct field. A $10,000 error in income might lead to as much as a $5,000 reduction in student aid eligibility.
- Using the wrong Social Security Number (SSN). The name, date of birth and Social Security Number must match the information on the student’s Social Security card. Use your full legal name, not a nickname. Any discrepancies will lead to a database mismatch, which could add delays to processing your FAFSA.
- Reporting the wrong student or parent marital status. The student and parent marital status should be reported as of the date the FAFSA is filed. Do not anticipate a future change in marital status.
- Submitting the wrong parent’s financial information. When a student’s parents are divorced or separated and do not live together, only one parent is responsible for filing the FAFSA. This parent, often called the custodial parent, is not necessarily the parent who has legal custody of the student. Rather, it is the parent with whom the student lived the most during the 12 months ending on the FAFSA application date, or, if the student lived equally with both parents, the parent who provided more financial support to the student. To the extent that the family can control which parent is responsible for completing the FAFSA, choosing the parent with the lower income may enable the student to qualify for more financial aid.
- Not including a stepparent’s income and assets. If only one parent is responsible for filing the FAFSA, but this parent has remarried, the stepparent’s income and assets must also be reported on the FAFSA, regardless of any prenuptial agreements. This can cause a significant reduction in the student’s eligibility for need-based financial aid, depending on the stepparent’s income and assets.
- Not counting stepchildren in household size or number in college. If a stepparent’s information is reported on the FAFSA, the stepparent’s children may also be included in household size on the FAFSA if the stepparent provides more than half of their support, even if they don’t live with the stepparent. Also, if any of these children are enrolled in college on at least a half-time basis, they may also be included in the number of children in college. This can cause a significant increase in the student’s eligibility for need-based financial aid, because the parent contribution portion of the expected family contribution (EFC) is divided by the number of children in college. Increasing the number of children in college from one to two is almost the equivalent of dividing the parent income in half.
- Incorrectly claiming head of household status. Families sometimes incorrectly file federal income tax returns as head of household because it leads to a lower tax liability, even though they do not satisfy the Internal Revenue Service (IRS) tax requirements.
- Including retirement plans and the net worth of the family home in investments. Qualified retirement plans, such as a 401(k), 403(b), traditional IRA, Roth IRA, SEP, SIMPLE or KEOGH, are not reported as assets on the FAFSA, although prior tax year contributions are counted as untaxed income. Do not include them in the answer to the questions about student and parent investments. Likewise, the net worth of the family home and small businesses with less than 100 full-time or full-time equivalent employees that are owned and controlled by the family are not reported as assets on the FAFSA. The FAFSA deliberately ignores these three types of investments, so they should not be reported as assets on the FAFSA.
- Not telling the financial aid office about unusual circumstances. The FAFSA does not have any space for the family to discuss unusual circumstances that affect the family’s ability to pay for college. Instead, the family should appeal to the college’s financial aid administrator for a professional judgment review, sometimes called a special circumstances review or financial aid appeal. Provide copies of documentation of the special circumstances, including the financial impact of the special circumstances on the family. Special circumstances include anything that changed from last year to this year and anything that distinguishes the family from other families. Examples include job loss, salary reduction, high unreimbursed medical and dental expenses, and high dependent care costs for a special needs child or elderly parent. If the financial aid administrator decides to make an adjustment, the amount of the adjustment will be driven by the financial impact of the special circumstances. For example, if the parent’s income varies a lot from year to year, the financial aid administrator might substitute an average of income during the last three years. Families can appeal for more financial aid at any time, even if their financial circumstances change mid-year.