FAFSA and easy are not two words that one generally finds in the same sentence. However, come February 1, families that have filed their tax returns might be able to take advantage of the IRS Data Retrieval tool which should simplify the process and allow them to complete the FAFSA form by accessing data from their 2011 return. This is good news for those who are organized and fortunate enough to receive all of their W-2 and 1099 statements early. The ability to use tax returns when completing financial aid forms is just one of several things families should know as they begin the 2012-2013 financial aid process for their students who will be enrolled in college next fall.
If you are new to the financial aid process, then you may only first be learning all of the buzz words and acronyms such as FAFSA, SAR, EFC, COA and CSS/Profile. Here’s a quick primer for beginners and a review for the financial aid veterans: All colleges require that students complete the Free Application for Federal Student Aid (FAFSA) in order to qualify for federal aid. It is available January 1 each year at http://www.fafsa.gov. Both student and a parent must complete and sign the form and each must apply for a pin (http://www.pin.ed.gov) which serves as the electronic signature. Once the form is submitted, preferably electronically, families will receive a Student Aid Report (SAR) which notifies them of their Expected Family Contribution or EFC, deemed to be the amount they can afford to put towards the Cost of Attendance, or COA. Some private colleges may also require a CSS/Profile form for allocation of their institutional aid. This form is administered by the College Board and can be found on its website: http://www.collegeboard.com. Whether you must complete the FAFSA, CSS/Profile or both, you will be required to present parent and student income (prior year only for the FAFSA, two prior years for the Profile) and assets (as of the date of filing).
When is the right time to complete financial aid forms? If you are hoping to be considered for need-based aid, the time is now! And before you put this off any longer, visit the websites for each college to which your son or daughter is applying and check to see which forms the school requires as well as the submission deadlines. They may be as early as February, so do not delay!
Pressure to simplify the financial aid process has led to the development of the IRS data retrieval feature for the FAFSA. However, before you get too excited, take note of the drawbacks which may preclude you from taking advantage of this easier filing method. Married couples must file jointly, have filed their taxes at least two weeks before the college financial aid deadline (which may mean as early as January), and any subsequent amendments to the return will not be captured. If like mine, your 1099 statements inevitably arrive late in February or even March, you may be out of luck. For those up against tight deadlines, you will need to estimate your income for 2011 and amend your financial aid documents after you file your taxes.
Even if you do not qualify for need-based financial aid, you will still need to file a FAFSA if your child will borrow through the federal Stafford loan program or if you plan to take out a PLUS loan. Though neither of these loans requires that students demonstrate need, they are part of the Federal Direct Loan program (Note that some colleges also require the FAFSA for their institutional merit aid). A college’s posted filing deadline does not apply for non-need based federal aid so timing is less critical. Therefore, I recommend waiting and submitting the FAFSA after filing a tax return to avoid having to estimate income.
I welcome reader questions and specific topics you might want me to address (email@example.com). Check back here for future posts regarding financial aid changes and updates.