New FAFSA, New Timing

New FAFSA, New Timing

Imagine shopping for a new car and having no clue until the moment you pull out your credit card or sign the lease agreement what the vehicle will cost. College list prices, like those for cars, are readily available on websites, but what a family will actually pay is often a mystery until only a few weeks before a student must make a decision.  The lack of transparency in the cost of attendance has been a common gripe among families of college going students. This year the federal government decided on a simple though limited fix: move the availability date for filling out the Free Application for Federal Student Aid, or FAFSA, from January 1^st to October 1^st of the prior year.  Submission of the FAFSA is required in order to be eligible for all federal aid, and many colleges also use it as the primary determinant for allocation of their institutional need-based aid. The change goes into effect on October 1, 2016, just a few weeks from now. The actual impact on colleges and families is still not fully clear, but the change in timing should make filing the FAFSA easier and less of a scramble.

What eases the burden of completing the FAFSA is the move to prior prior year income reporting.  No longer will parents be pressed to estimate adjusted gross income in January for the calendar year just ended, often weeks before receiving W-2s and other necessary statements for filing taxes. Families of students applying for financial aid for fall 2017 will be asked to report their 2015, or prior prior year income instead. Most filers can take advantage of the IRS Data Retrieval Tool and, by merely clicking the Link to IRS button on the FAFSA, populate the required fields with their income data.  The timing of asset reporting will not change, meaning that parents and students will still report balances as of the date the FAFSA is submitted.  

The change in FAFSA timing accelerates some, but not all aspects of the college process. Applying for financial aid is now done concurrently with applications to colleges rather than two or three months later.  Families will benefit by no longer having to estimate income and update the FAFSA at a later date.  The earlier date also encourages students and their parents to address financial need and expectations earlier in the process.

Yet the question remains: will the advent of prior prior year income and the early FAFSA availability actually accelerate financial aid decisions to truly assist a family’s college planning? It’s too soon to tell.  Many colleges are moving up their deadlines for submitting financial aid forms to coincide with the FAFSA and CSS Profile’s October 1 availability date (the CSS Profile is an additional form required by roughly 400 primarily private colleges).  But are families really likely to know their financial aid packages sooner? Not unless admission decisions are accelerated as well.  Financial aid awards generally accompany or follow notification of acceptance. Clearly more will have to change than merely making it easier for families to complete and submit the FAFSA earlier. Under the current system, it’s unlikely that the timing of financial aid notification will change materially. 

Nevertheless, families would be wise to take advantage of the earlier filing date and get the forms submitted as soon as possible.  Checking financial aid requirements on each college’s website is necessary in order to confirm and meet the anticipated earlier deadlines.  It will probably take a few more tweaks to the process before families will be able to truly gauge the cost of college well in advance of making a final decision.

Awarding Institutional Funds - The Black Box of Financial Aid

How colleges use their own institutional funds to provide assistance to students is often the black box of the financial aid process. Just consider the 500 or so private colleges and programs that make use of the CSS/Profile form to determine the allocation of institutional aid. If your son or daughter is applying to one of these schools or is currently attending one, then you may already be familiar with this comprehensive form that asks for multiple years of earnings and a full list of your family assets, including your home. But what you may not realize is that colleges pick and choose which pieces of this collection of data they wish to consider in the calculation of their applicants’ financial need. Colleges take advantage of a practice known as Professional Judgment. While the Expected Family Contribution (EFC) for federal aid purposes is standard regardless of the college, professional judgment allows schools some flexibility to set their own terms for distributing their institutional funds. This is one of the reasons that financial aid packages for the same student can vary significantly from college to college (that, and the fact that many colleges “gap” students, meaning that they do not fully cover demonstrated need).

Don’t waste your time trying to decipher the formula or determine which of your assets a college will consider. The process is far from transparent and few colleges actually disclose on their websites the factors that come into play in their decision making process. While admittedly I have not done an exhaustive search, Princeton is one of the few exceptions I have found. And for anyone interested, Princeton does not consider home equity in its calculation. As an aside, you might want to inquire with the financial aid offices on your child’s college list as to how they treat home equity in today’s economy, given that banks have made tapping that resource increasingly difficult.

So why is any of this worthy of mention? Understanding how colleges use financial aid formulas and why aid may vary from school to school can partially demystify an often perplexing process. It also underscores the fact that if you are applying for financial aid, you won't know what college will really cost until you have the award letters in hand. The bottom line is that it may be as important to apply to financial safeties as it is to include colleges where the probability of admission is high.

If cost is a factor for you, then hedge your bets by having your child apply to both public and private colleges, recognizing that the private option may turn out to be the better deal. How do you identify the financial safeties? You should approach it the same way you find right fit colleges. First, know that this is an art, not a science; there are no magic formulas so you won’t know for sure until your child is accepted and receives an aid package. So start by understanding your student’s chance of being accepted. The more desirable he or she is as a candidate, the more likely the school will be generous with money. The most obvious way to get a preliminary idea for one’s chances is to compare grades and test scores to those of the average student admitted.

Recognize that schools which state they fully meet demonstrated need are less likely to gap. However, keep in mind that for colleges using either the CSS/Profile or a proprietary form, the specifics of their calculations will not likely be disclosed to you. You can, however, make use of resources such as College Navigator to get a sense (not an assurance) for how generous your child’s college choices are likely to be with need-based aid. You can search colleges by name and look at the net price for different income ranges. The major shortcoming, however, is that there are virtually no details for families making above $110,000 annually, but the website can still provide some insights into what students pay.

While the lack of transparency makes it tough to project your true out-of-pocket expenses when it comes to paying for college, there are ways to get a better handle on the probable cost. Approaching the financial aid process strategically will hopefully lead to more affordable choices and less disappointment in the final analysis.

The ABC's of Financial Aid

It’s mid-December, two weeks away from the New Year. Many of us live by milestones that remind us how quickly time flies...birthdays, holidays, change of seasons. One of mine, I shamelessly admit, is the start once again of the financial aid cycle. With college applications hopefully finished or in the final stages, it is time to look ahead to the next set of deadlines, those for submitting financial aid forms. Bemoaning and complaining about the financial aid process is a yearly ritual. Yet it need not be so cumbersome and daunting. Familiarization with concepts, knowing deadlines and being organized is the key to successfully navigating aid forms and triumphing over the process. Here is my annual college financing primer which highlights some of the critical terms you will need to know.
The Cost of Attendance, or COA, refers to the total annual cost of college, not just tuition and fees. Don’t forget to factor in room and board, books, transportation, and other personal expenses when trying to estimate what a year of college will cost. College financial aid officers look at the total COA when they package aid awards. Come October 2011, colleges will be required to post the COA on their website.
The Free Application for Federal Student Aid, better known as the FAFSA, is used by colleges and universities to determine eligibility for financial aid. All students must file a FAFSA in order to receive any federal student aid. This includes the non-need based unsubsidized federally guaranteed Stafford student loans, so if you anticipate borrowing for college, you will have to complete the FAFSA. It becomes available online January 1, 2011 for the 2011-2012 school year at http://www.fafsa.gov/. Prior to filling out the form, both the student and one parent must each obtain a pin number which is in essence your electronic signature. You can register for a pin at http://www.pin.ed.gov/. Be sure to record your pin in a place where you can easily retrieve it for future use.
The Expected Family Contribution or EFC which is calculated from the information you provide on the FAFSA is the amount determined to be what the family can and should contribute to the cost of the student’s education. The EFC is based on the family’s current assets and prior year's income, including both the student’s and parents’ financial data.
After completing and submitting your FAFSA, you will receive a Student Aid Report, or SAR, which will show your EFC.
Nearly 600 schools also require that families complete the CSS/Profile form for the allocation of their institutional funds. The CSS/Profile is administered by the College Board and can only be filed online. Families can currently access the Profile for the 2011-2012 academic year by going to the College Board’s website: http://www.collegeboard.com/.
Now that you are familiar with these terms, there are some additional things that you should know about financial aid awards.
- Your “demonstrated need” (the COA minus your EFC) won’t necessarily be the amount shown on your SAR if the college also uses the CSS/Profile or another financial aid form. These methodologies are not the same, and therefore will produce different results. Institutions allocating their resources will naturally rely on the methodology that sets a lower threshold for your financial needs, so don’t be surprised if the aid package is less than you expected, even from schools that claim to meet demonstrated need.
- Colleges tailor the CSS/Profile formula to their specific institutional requirements. In other words, your demonstrated need may vary from school to school. For example, some colleges consider the equity in your home; others do not.
- The college offering the most financial aid may not necessarily be providing the best package. One has to look at the composition of each award. A financial aid package that meets need with grants which do not have to be repaid is far more attractive than one comprised entirely of loans.
- If your financial situation changes materially after you’ve filed the forms, such as loss of employment, you should notify the colleges immediately.
Lastly, be sure to visit the tuition and financial aid page of each school’s website (often buried in the Admission section) to check on requirements, deadlines and merit aid, if awarded. Meeting these deadlines is crucial. Since financial aid is a limited resource, getting things in early can make a difference. The sooner you complete the FAFSA, CSS/Profile and any other required forms, the better your chances of receiving financial assistance.

CSS/PROFILE - The Other Financial Aid Form

In earlier postings on the financial aid application process I have mentioned that schools may require applicants to submit different or even more than one form, especially if the colleges are allocating both federal money and their own institutional funds. Virtually all colleges and universities use the FAFSA which my faithful readers know is required for all federal aid. However, there are roughly 300 private institutions that also have families complete a form called the CSS/PROFILE which they use to award their private grant money and scholarships. The PROFILE, as it is known in shorthand, is administered by the College Scholarship Service (CSS), the financial aid division of the College Board, and it is only accessible through the College Board website. One can find the form most directly by going to http://www.profileonline.collegeboard.com/. The College Board website is also the place to go to find the list of the colleges and universities that require the PROFILE. I would still advise families to visit the websites of each college to which your child is applying to check the form requirements and deadlines for submission.

In many respects, the FAFSA and PROFILE take similar approaches to the way they determine the Expected Family Contribution. Like the FAFSA, the PROFILE looks at both the student and parents’ income and assets. The good news is that much of the information that you gather to complete the FAFSA will also be necessary for the PROFILE. However, there are a few major differences in the type of information required and in the methodologies, both of which may have a material effect on the outcome.

Some of the key differences are:
- The FAFSA, which is referred to as the Federal Methodology or FM, asks the same questions of all applicants, regardless of the college. The PROFILE or Institutional Methodology (IM) questions may vary from school to school, as colleges have some discretion to tailor the form to their specific institutions. As long as college financial aid officers remain within their institutional policies, they have the flexibility to exercise their “Professional Judgment” as they see fit.
- In general, the PROFILE requires more information than the FAFSA, particularly in terms of assets and expenses. For example, the IM considers the equity in the family’s primary residence (though a handful of colleges have elected to exclude this from the calculation, Princeton among them).
- The FAFSA asks for income information for only the tax year prior to the year of enrollment (e.g., the 2009 tax return information for the 2010-2011 academic school year); the PROFILE requires 3 years of income disclosed: the two prior to the year of enrollment and a projection for the coming year.
- The PROFILE permits an allowance for secondary and elementary school tuition of siblings and also one for medical expenses. The FAFSA does not.
- With the Institutional Methodology students, regardless of income, are expected to contribute to the cost of their education, though it may be a nominal amount. The FM makes no such requirement.
- For students with divorced parents, the FAFSA never requires financial information of the non-custodial parent (the one with whom the student resides less than 50% of the time). However, if the custodial parent has remarried, the stepparent’s income is considered. Not so for the PROFILE: many schools that use the IM require financial information of both the custodial and the non-custodial parents. Check with the individual colleges to find out their requirements.
- The FAFSA, as its name implies (Free Application for Federal Student Aid) is free while the PROFILE costs $5 to process plus $18 for each school.
- Lastly, the FAFSA does not become available online until January 1. The PROFILE is accessible in the fall of the year prior to matriculation. In other words, it is available NOW!

One last thought: Most colleges use these financial aid forms for awarding need based aid, not merit aid. There are exceptions, however. The best thing to do is to check with each school’s financial aid office to find out what is required to be eligible for both need and merit aid. As I have previously noted, the FAFSA must be completed for any students who wish to borrow under the Stafford loan program, regardless of need. And truly one last thing: financial aid deadlines at many schools follow close on the heels of college application due dates, so please look carefully at websites to make sure that these important deadlines are met.