EACH NEW YEAR MARKS a turning point for college applicants and returning students. On Jan. 1, the government released the latest version of the document critical to applying for federal aid for the upcoming academic year.
The release of the Free Application for Federal Student Aid, or FAFSA, prompts many students to begin planning their strategies for locking in as much financial aid as possible. This year's FAFSA is similar to last year's with only a few minor changes in it. How a student fills it out determines their expected family contribution (EFC) – a rough estimate of how much money the student’s family will be expected to contribute for a year of college education. Many factors determine the EFC, including the number of family members in college, a family’s savings, earnings and assets.
The EFC is critical because college financial aid offices use it to determine a student’s financial need -- a calculation that varies by school each year. (Need is the difference between the cost of attending a given school and the student’s EFC. In most cases, students with a lower EFC receive more aid.)
Regardless of how a university crunches the numbers though, financial aid experts and college advisors say there are some key moves to help maximize the amount of financial aid that you or your child receives. Here are six strategies to keep in mind.
File early
Technically, students have plenty of time to meet the FAFSA deadline; for the 2010-11 academic year, applications filed online must be submitted by midnight Central Daylight Time on June 30, 2011.
But most colleges set their priority deadlines between early February and mid-March in the preceding the academic year, says Jim Boyle, a college financial aid advisor to IvyWise, an independent college counseling company.
So students should file their FAFSA as early as possible to be in the running for the maximum amount of aid. High school seniors who apply to multiple colleges will need to meet each college’s deadlines.
“This year, more than ever, there will be limited financial aid dollars with a lot of pressure on school budgets,” Boyle says. “If you miss a deadline, that’s an easy way for a college to keep you on the outside looking in.”
Do your taxes early
Much of the information that you’re required to fill out on the FAFSA will come from your tax returns.
Parents with children applying to college (or returning students) should try to get their taxes done before they file the FAFSA; that will require end-of-year pay stubs and statements from banks showing interest earned.
In some cases, preparing your taxes before a February college deadline can be difficult. Parents who submit the FAFSA before completing tax returns can estimate their earnings. A good strategy is to be realistic with income and expenses and use last year’s tax papers as a reference.
An EFC based on estimates could end up rising or falling, depending on the actual numbers. Should the EFC increase, the college will probably take away some financial aid – a more palatable scenario than having to appeal for more aid down the road. “There’s going to be more pressure on financial aid budgets, so appeals will be that much tougher with limited sources available at most schools,” Boyle says.
Show that you have more than one child in college
When parents transition from having one child in college to having two or more in college simultaneously, the change has a big impact on their EFC.
With two children in college at the same time, the colleges will typically divide the parents’ contribution between the kids and make up the difference with a larger aid package. For example, a family with an EFC of $10,000 with one child in college typically would have the same tuition liability when two children are attending school; each college would receive $5,000 from the family.
Play with retirement numbers
Parents who are retired and taking normal distributions from their 401(k) accounts or IRAs will have to count those withdrawals as income in the FAFSA.
Parents who can control their income and live off savings could make their children eligible for more financial aid. For example, in households where parents’ combined adjusted gross income (AGI) is less than $30,000, their EFC is typically zero, which qualifies the student for a Pell grant.
In households where the parents report a combined AGI of less than $50,000 and are eligible to file the 1040A or 1040EZ tax forms, their assets will likely be ignored on the FAFSA.
Highlight unusual financial circumstances
After submitting the FAFSA and receiving a college’s financial aid award, families can appeal to the college to adjust their financial aid based on an unusual circumstance like a layoff, salary reduction or expensive medical bill.
“Schools focus on circumstances that distinguish a family,” says Mark Kantrowitz, founder of FinAid.org, a web site that follows financial aid trends. “There has to be something unusual about it.”
Parents will need to provide documentation, such as a copy of their layoff notice or their unemployment benefits, he says. Should the college determine that the circumstance merits an adjustment, it may offer more aid.
By the same token, parents who had an unusually good year (say, one in which they received a bonus or a lot of overtime pay) can write to the college’s financial aid office to explain that income was unusual and unlikely to recur.
Prepare year-round
The FAFSA takes into account information pertaining to income for the calendar year. That means for the 2010-11 academic year, the numbers crunched are from 2009.
But when it comes to assets, the FAFSA looks at what is listed as of when the application is filed. “You need to do enough before you file the FAFSA to have a bank statement that reflects the balance,” says Kantrowitz.
Here are some tactics to consider: Move money out of your child’s name. For tax purposes, parents often move assets into their children’s names. But when it comes to financial aid, child assets are assessed by the federal means analysis formula at a rate of 20%, while parents’ assets are assessed at a maximum of 5.64%, says Kantrowitz. When assets are in the child’s name, the family’s EFC tends to be higher than when those assets remain under the parents’ name. (One option is to move the child’s assets into a custodial version of a 529 college savings plan, which is treated as a parent’s asset.) Pay down consumer debt. Much of the EFC is determined by how much you have in savings. Parents who are considering paying down their debt have another reason to do so since it will bring their savings balance down and potentially help decrease their EFC.
