Wednesday, January 30, 2013

Who Should Apply for Financial Aid?

“If we aren't likely to qualify for need-based aid, should we file a FAFSA?”  “Is it true that everyone should complete financial aid forms, regardless of need?” “Do I need to complete the FAFSA to receive merit aid?” These are questions I often get from parents who are trying to determine whether there is any benefit to filling out this "black box" form.  The Free Application for Federal Student Aid, more commonly known as the FAFSA, is the federal form that all colleges require students to complete in order to qualify for certain types of financial assistance and any federal student aid.  (Nearly 400 colleges also require submission of the CSS/Profile form, found on the College Board website, for the allocation of their own institutional aid). You will need to fill out the FAFSA to receive need-based aid, but that is not the only reason to spend the time and effort.

Who should complete the FAFSA?  Anyone who believes he or she may qualify for need-based aid should invest the time; filling out the form is the only way to know for sure.  There is no maximum income or set amount which precludes one from qualifying.  Rather, many factors in addition to income influence eligibility including the age of parents, assets owned, family members living in the household and number of children in college.  Yet the FAFSA is not only required to calculate demonstrated need.  Any student or parent who wishes to borrow under the federal Stafford loan program, regardless of financial situation, must file a FAFSA.  This even applies if a parent chooses to take out a PLUS loan.  A handful of colleges require that students complete the FAFSA in order to receive merit aid awards.  The single best way to find out a college’s documentation requirements is to visit the financial aid pages on its website.  
Completing the FAFSA is relatively straight forward for those who have already filed a tax return and meet the eligibility requirements to take advantage of the IRS Data Retrieval Tool.  This enables filers to fill in much of the financial information on the FAFSA automatically by transferring data from their tax return.  But here’s the Catch-22:  You must wait approximately 2 weeks if you process your return electronically, or 6-8 weeks if you file by mail before you can access this feature.  By then the college financial aid deadline might well have passed (check individual college websites) so you may still be faced with the challenge of estimating your prior year tax information (a word of advice: better to under than over-estimate earnings).  For those who estimate, you will ultimately have to amend your FAFSA with the actual numbers, and can take advantage of the data retrieval tool at that point.  If you are certain you will not qualify for need-based aid yet will complete the FAFSA in order to borrow either a Stafford student loan or PLUS loan, you are not constrained by college financial aid deadlines so file your tax returns first to simplify the process. 

For a helpful guide on filling out the FAFSA form, you may want to view the 7 Easy Steps to the FAFSA tutorial before you get started.

Keep in mind that qualifying for financial aid is not a guarantee that you will receive lots of free money so go into the process with realistic expectations.   As I have emphasized in many of my blog postings, your personally estimated need, your FAFSA determined “demonstrated need,” and the amount of assistance you might actually receive can and will likely be three different numbers.  Financial aid formulas may yield a higher Expected Family Contribution (EFC) and lower demonstrated need than what you believe you can afford. The FAFSA is not frequently updated and consequently underestimates today's cost of living, especially for those who reside in expensive regions of the country. Furthermore, most colleges won’t fully plug the gap between the Cost of Attendance and what you are expected to pay. Like many of us managing our personal finances, colleges struggle to judiciously allocate a finite pool of resources.  So embark on this process with tempered hope and expectations.