Saturday, January 10, 2015

Paying for College - Don't Overlook Financial Aid Forms

If you are the parent of a high school senior, it's time to turn your attention to another set of online submissions: financial aid forms. With the cost of college reaching new heights annually, many parents of college students today cannot ignore the financial aid piece of the college process. In order to qualify for financial aid or even to borrow under a federal loan program, you will have to complete at least one and perhaps two financial aid applications.  The Free Application for Federal Student Aid, more commonly known as the FAFSA, is the form that colleges require students complete in order to qualify for certain types of financial assistance and for any federal student aid.  More than 300 institutions also require submission of the CSS/Profile form, found on the College Board website, for the allocation of their own institutional resources.

Completing the FAFSA and; CSS/Profile (if also required) is the only way you will know for certain whether you qualify for need-based financial aid. College net price calculators and other online tools may give you a ballpark figure, but there are too many variables that these simplified calculators won’t capture. While parent income will be the most significant determinant, there are several factors in addition to income that influence eligibility including the age of the older parent, assets owned, number of family members living in the household and the 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 loan program, regardless of financial need, must file a FAFSA.  This even applies for parents who may choose to cover college costs with a Parent Loan for Undergraduate Students or PLUS loan.  A small handful of colleges also 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 where you will also find the college specific deadlines. They may be as early as February 1.
FAFSA completion is relatively straightforward, especially 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 the IRS.  But there is a catch. This feature is not available until two weeks after processing an electronic return and can take up to eight weeks if you file by mail.  Furthermore, the data retrieval feature will not be active until early February, too late for colleges with February 1 financial aid deadlines. This means you may still be faced with the task of estimating your prior year income and expenses. A word of advice if you estimate: better to under than over-estimate earnings since this is what will be used for the initial calculation of the financial aid award. Your FAFSA must ultimately be amended with the actual tax return numbers, so you can take advantage of the data retrieval tool at that time.  If you are certain you will not qualify for need-based aid yet will complete the FAFSA in order to borrow either a federal student loan or PLUS loan, you are not constrained by college financial aid deadlines so file your tax returns first to simplify the process. 

I also recommend that you take advantage of other resources available that can guide you through the form completion process and shed additional light on the factors that will influence your eligibility.  For a helpful guide on filling out the FAFSA form, there are online tutorials such as the FAFSA tutorial offered by Edvisors, a college financial aid website.  On the College Board website you will find the CSS/Profile and tips  for completing the form as well as the list of colleges that require it. 

Keep in mind that qualifying for financial aid is not a guarantee that you will receive a lot of free money so go into the process with realistic expectations.  Your own estimated need, your formula 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 formulas are not frequently updated and consequently, underestimate today's cost of living, especially for those who reside in more expensive regions of the country. Furthermore, most colleges won’t fully plug the gap between the Cost of Attendance and what the formulas determine you should pay. Like many of us managing our personal finances, colleges struggle to equitably allocate a finite pool of resources.  So embark on this process with tempered hope and expectations. But don’t put it off. Familiarize yourself with financial aid requirements and deadlines to give yourself the best chance to receive any aid for which you may qualify.