Top Eleven Common FAFSA Mistakes
October is now the month that millions of families disclose their financial data to the Department of Education through the Free Application for Federal Student Aid (FAFSA). Filing used to be in the month of January prior to the fall admission for most all students. This change was made by Executive Order by President Obama as an attempt to more appropriately align the FAFSA filing with the availability of actual tax data filed with the IRS. This new procedure has been a recommendation of industry professionals to undo the need for estimating income and assets, since, generally speaking, tax returns are filed before the due date of April 15th and, thus, do not have the authenticity of the filed tax return, subjecting the filing to changes if the estimates are off - a serious problem in qualifying for Federal financial aid.
In essence, this Order has extended the planning horizon from a base year of the student’s junior year to his/her sophomore year. Moreover, because there is a two year differential between when the filing is made and the student actually needs the money for school, it is anticipated that many more Special Circumstances appeals will be made. Things may change over this timeline which will have an impact on parental ability to pay! There is a right way and a wrong way to make these appeals. Contact me for detailed explanation of your specific situation.
Specifically, more than 20 million FASFA applications are submitted each year. Depending on the statistic you prefer to use, anywhere from 70—90% are submitted with errors. An error-filled FASFA will likely reduce the amount of aid you might receive. Given that the FAFSA has been called the gateway to financial aid, and with the ever increasing costs associated with college, it is imperative to minimize mistakes in completing it. Here are eleven ways to reduce the likelihood of your FAFSA containing errors:
1. Failure to Submit Because Of Income (high or low).
Many times families will not submit a FAFSA believing they make too much money to qualify or they make less and think they will get everything covered because of income. Income is one of seven factors to determine aid eligibility...you should always complete the FAFSA regardless of income. Contact me for a personal explanation of these factors.
2. Waiting to Submit
A misconception of many is to wait until they have all of their financial documents in place and taxes done before submitting their FAFSA. As stated above, this is a moot issue now but qualifying for many grants and scholarships has a due date to apply in the fall. Since some money is on a first-come, first-served basis, it is imperative to submit as early in October as possible.
3. Divorce Situations
In this situation, whose financial information is used? It is the income and assets of the household (including step-parent info) in which the student spends the majority of their time and receives a majority of their support.
4. Understating Income
If you contribute to a 401K, 403B, etc. or any other pre-tax retirement account, you must add back any contributions in the previous year to your income for FAFSA purposes. This in effect produces a higher FAFSA income than what might be shown on your tax return.
5. Overstating Assets
Many families mistakenly include retirement assets as part of their investments or net worth when in fact retirement assets should not be included here.
6. Real Estate
Another common way families overstate their assets is by including the equity they have in their primary residence. For FAFSA purposes, primary residence home equity is not included. However, equity in rental property and vacation homes can be included although there are ways to mitigate this situation.
Contact me to discuss how to legitimately change the appearance of income and assets
7. Misplaced Information
Always remember the FAFSA is written from a student perspective as if they are the one completing it. When the FAFSA refers to “you” and “yours”, it is in fact referring to the student.
8. Not Submitting Electronically
Online submission provides built-in edits to help prevent errors, is timelier, provides an online help feature, and allows for a much simpler renewal process. And do not forget to use the Internal Revenue Data Transmission system (IRDT) to accelerate the auditing of your filing.
9. Taking Your Time When Answering Questions
Give yourself time to think through the questions and what they are asking. Answering questions a certain way can preclude you from receiving aid or valuable information. The following three questions highlight this fact:
· When asked if you are interested in work study, always answer “yes”. It does not mean you will get it nor does it mean you have to take it. But what if the award is a great offer for the hours expected?
· When it asks for the student's email address, always put your email address. This ensures all information communicated to you or your student comes to you to review.
· Question 89 should be answered subject to what is indicated on Line 1 of your W-2 or, if self-employed, follow the list of items on the 1040 prompts on the FAFSA on-line. The FAFSA calculates your social security taxes which are actually a deduction from AGI and, therefore, an improvement in Expected Family Contribution (EFC).
10. Failing to Save as You Go
Be sure to save your file every couple of pages as you go. You don't want to get halfway through and find your computer or the government's server has locked up.
11. Using the right Form
Complete the FAFSA for the year your student will be in college for the upcoming fall school year, NOT the school year you are currently in. This is a huge but common mistake. Make this one and your student will receive no aid for the following school year. Your FCPR advisor can help you minimize mistakes with your FAFSA submission so that you maximize your potential aid award.
We are in the business of helping families through the major life transition of sending their children to college. For many, it will be the most expensive time of their lives and, if not handled properly, could cost them their retirement. If you or someone you know needs the help and guidance of a trained financial professional, don’t hesitate to contact me: bud@floridiancpr.com. Remember, you shouldn’t have to choose between your child’s college and your retirement.