In this lesson, I'm focusing on the Free Application for Federal Student Aid (FAFSA) because families, regardless of the type of school their children want to attend, must complete this application to qualify for need-based aid. The FAFSA is the federal financial aid form that roughly 20 million financial aid applicants complete every year. Here is a breakdown of who requires the FAFSA:
The federal government relies on the FAFSA to determine who qualifies for federal financial aid.
The Pell Grant represents the major source of federal aid grants. It’s rare for a family with an income of $50,00 or higher to qualify for a Pell Grant. The vast majority of recipients have adjusted gross incomes of $40,000 or under.
Even if eligibility for a Pell Grant or other smaller federal programs such as the TEACH Grant or the FSEOG Grant, is out of the question, parents will want to file the FAFSA if they wish to be eligible to borrow through the federal Direct Subsidized and Unsubsidized Loans and the Parent PLUS Loan. The FAFSA is also required if a child hopes to obtain a campus work-study job.
States also require families to complete the FAFSA to be eligible for state financial aid grants. I'll be covering state aid in the Sources of College Money module.
The vast majority of colleges and universities also require families to file the FAFSA to be considered for their own in-house, need-based financial aid.
FAFSA Nuts & Bolts
Families must access the application at FAFSA on the Web. As you can see in the screen capture below, all you need to create an account is the student's name, date of birth and Social Security number.
Before submitting the FAFSA, a parent and the student must each obtain a FAFSA PIN. These PIN numbers are required to electronically sign the FAFSA form online and retrieve the family’s financial aid records.
When To File the FAFSA
The federal government releases the latest FAFSA on January 1 each year. It's best to complete the FAFSA as soon as possible because colleges have financial-aid deadlines and so do states. Some states, such as Illinois, Kentucky, North Carolina, Vermont and Washington, dispense money to eligible students on a first-come, first-serve basis until the money runs out.
You can find out what the deadlines are for many states by looking on the front page of the federal government's FAFSA on the Web Worksheet 2014-2015. The worksheet contains some of the FAFSA questions so it's smart to check it out before tackling the real application. Here is a snapshot of the worksheet’s front page that always contains the state deadlines on the front page:
The FAFSA filing period is always 18 months and for the coming 2015-2016 school year, it will range from Jan. 1, 2015 to June 30, 2016. Students eligible for the Pell Grant will receive the assistance after they submit the FAFSA during this period. There is a huge sense of urgency, however, to apply for the Federal Supplemental Educational Opportunity Grant, which has limited funding. You'll learn more about this grant in the Sources of College Money module.
To complete the FAFSA, families will need their latest income tax return, as well as non-retirement investment accounts and bank statements. When families are up against an early aid deadline, they can file the FAFSA using estimated income tax figures. Once their taxes are completed, they will update the FAFSA by using the IRS data retrieval tool.
Families which have lower adjusted gross incomes – below $50,000 — may qualify for something called the Simplified Needs Test, which doesn’t require that households disclose assets on the FAFSA. To be eligible for the Simplified Needs Test, you must be able to file a 1040A or 1040EZ tax form.
The ability to avoid revealing assets can be a lifesaver for a family with little income (perhaps due to unemployment), but which possesses significant wealth. It can also be helpful for a divorced parent who has assets from a divorce settlement, but who does not have a good paying job. You'll learn more about divorce in the module entitled, A Closer Look at Financial Aid Formulas.
IRS Retrieval Tool
Families completing the FAFSA can speed up the process by using the IRS Data Retrieval Tool. When parents reach questions concerning tax information, they will be asked if they have already completed their federal tax return and then they'll be screened for their eligibility to use the tool. If eligible, they'll be transferred to the IRS website to confirm the data transfer and then returned to the FAFSA.
Parents can use the tool approximately two weeks after filing their taxes electronically. The tool does not become available until early February. You can also use the tool to update a FAFSA application which was completed with estimated taxes.
Besides speeding up the FAFSA process, any data transferred from the IRS unmodified won't be subject to verification.
You can't use the tool if:
If you are married and filing separately.
If you filed an amended return.
If you filed a foreign tax return.
If your home address on the FAFSA doesn't match the tax return address.
When completing the FAFSA, families need to be careful about how they list the colleges that their child will be applying to because colleges can use that information against them.
Some schools — no one knows how many – check the FAFSA to see in what order an applicant lists his or her schools. A family can designate up to 10 schools at one time on the FAFSA. The U.S. Department of Education shares the FAFSA information with all the designated schools on an applicant’s list, as well as applicable state agencies that award aid.
The federal government never intended for this information to be used as a tip sheet for colleges, but it’s apparently become one.
The issue came to the forefront in the fall of 2013 when Inside Higher Ed published the following story on the phenomenon:
Using FAFSA Against Students
The story suggested that schools could be denying admission and reducing aid to students based on the order of colleges listed on the FAFSA. Some schools might deny admission or wait list students who put their institutions close to or at the bottom of their lists. Schools could take this step because they are interested in maximizing their yield, which is a figure that represents the number of accepted applicants who actually attend their institution. Schools want their yields to be as high as possible.
Equally troubling, some schools could be giving less aid to students who put their No. 1 choice at the top of the FAFSA list. Schools could conclude that they don’t have to offer as much money to those kids because they are eager to attend.
I had heard about this practice, but had never seen a story regarding it, which prompted me to write the following post for her college blog at CBS MoneyWatch:
Be Careful What You Share on the FAFSA
One person whom I interviewed for the piece was David Hawkins, the director of public policy and research at the National Association for College Admission Counseling. He started making inquiries about the practice after an Inside Higher Ed journalist contacted him. Hawkins told me that he was “surprised how quickly” these insiders were confirming the use of the FAFSA lists.
How You Can Fight Back
I always wondered how schools used this information which is why when I applied for financial aid for my son Ben in 2010, I listed his schools in alphabetical order. It just so happened that his No. 1 school – Beloit College — was also first on the alphabetized list. And that’s what I would suggest that you do. Alphabetize your list.
Some families wonder if they could just list one school at a time on the FAFSA to avoid other schools getting this information. That, however, would be time consuming and it also wouldn’t work. Each time a family submits the FAFSA to another school, an update goes out to all the previous schools on the student’s list.
In reaction to the Inside Higher Ed report, the Department of Education began exploring whether it should stop sharing college lists with schools. I think that is a no brainer.
Do you have any questions about FAFSA nuts and bolts?
Common FAFSA Mistakes I wish that I could reassure you that completing the FAFSA is easy, but it won't be for many parents. Even more disconcerting is that parents make mistakes all the time and don't even realize it.
Some of the mistakes in this lesson may seem obvious, but others will probably surprise you. Here are 12 FAFSA mistakes to avoid:
1. Reporting an incorrect household size.
This one might seem puzzling. After all, parents should know who lives under their roof, but it’s not that easy. Here are some reasons why:
If a stepparent has children from a previous marriage those children could potentially be included in the household size even if they don’t live in the residence. They would qualify as household members if the parent provides more than half of his or her support and will continue to do so during the financial aid award year.
A parent should also include an unborn child on the FAFSA, if the baby would be born before the end of the award year and will receive more than half of the support from the student or parent. There must be medical documentation of a current pregnancy.
Parents can also include other relatives, such as grandparents, grandchildren or aunts or uncles, if they currently live in the household and will be doing so between July 1, 2015 and June 30, 2016. These dates correspond with the federal financial aid season for the 2015-2016 school year.
Parents also wonder if they can include older children who are now in graduate school when reporting household size. You can include these grown children in the household size if you are providing more than half of their support. Keep in mind that student aid, including scholarships and loans, will count as student support so this is a higher hurdle than you might assume.
2. Not filing the FAFSA.
Many parents assume that they won’t qualify for need-based aid so they don’t even bother wrestling with the form. This is a huge mistake because families often have no idea whether they will qualify for financial assistance.
Parents will sometimes wonder if they should not seek financial aid for their child's freshman year but make the request before the child’s sophomore year. They think this might help their child get into the school and then seek aid once the student has a year under his/her belt. I once had a parent, who had saved $70,000 for a private college education, ask me about that approach.
I told him that delaying the request for aid until the second year would be a poor idea. What if the child received a mediocre package that was simply stuffed with loans for her second year of college. Can you imagine parents having to tell a child that he/she will have to leave for a cheaper school because they can’t afford it?
A friend of mine recently provided this 2015 example of a school playing hardball with a family when an aid deadline is overlooked:
I met with a family today whose son was accepted to NYU early decision, but his fin aid application was late. I really don’t think the family noticed it was due, they weren’t trying to play the game ‘get in and then ask for money’. NYU said tough luck, you missed the deadline. He asked to be put in the regular admissions group, and they said he still would not be eligible for aid this year. The family is not sending him to NYU, as money is an issue for the family.
When parents need financial aid, they should apply up front.
3. Sharing the wrong marital status.
It’s easy to make this mistake if a parent’s marital status has changed. The FAFSA requires that parents note what their marital status is as of the day the FAFSA is filed. So if the parents are married in 2014, but they separate in 2015, the financial aid form filed in 2015 should state that the parents are separated. This rule is different from what the IRS expects. In this same example, the estranged parents would have filed their federal income taxes for the 2014 calendar year as a married couple.
Also, if a parent has died, only the income and assets of the surviving parent should be reported. The deceased parent's income, including Social Security income, should not included.
4. Filing the wrong FAFSA.
It’s easy to make this mistake because for much of the year, two different FAFSA forms are available online. Parents who are submitting the FAFSA for the school year that starts in the fall of 2015 should submit the 2015-2016 FAFSA. The 2014-2015 FAFSA, however, will still be available on the federal website until July 1, 2015.
5. Reporting the wrong assets.
The FAFSA asks about the student and parents’ investments, but your clients should not include any qualified retirement assets such as Individual Retirement Accounts, 401(k)’s, 403(b)’s, KEOGH, SIMPLE, pension plans and annuities.
It's also critically important to report 529 plan savings as a parent asset. If your clients report this money as their child's assets, the financial aid formulas will treat this money more harshly.
6. Reporting home equity.
Parents should also not include equity in their primary home on the FAFSA. Families, however, must report the equity of other real estate. Rental property is usually considered an investment and not a business. It’s an important distinction since the aid formula treats business assets less harshly. To be considered a business, the real estate must be part of a formally recognized business. A hotel is a business while renting out a home, timeshare or room is generally considered an investment.
7. Sharing the wrong name.
The federal government is very picky about the names that filers share on the FAFSA. Students and parents must provide the legal names that are on their Social Security cards. A filer, for instance, shouldn’t use Jim on the form if his legal name is James. If the Social Security Administration has a woman’s maiden name on file, she must use that name until she’s updated the Social Security Administration with her married name. If the names don’t match up, the government won’t process the application.
8. Not expressing an interest in a work-study job.
A student who says he is interested in a work-study job on the FAFSA isn’t obligated to obtain one later, but students need to answer in the affirmative to be eligible. At some schools, most or all of the campus jobs are reserved for students eligible for work-study.
9. Lying on the FAFSA.
For parents who are considering lying on the FAFSA in hopes of getting financial aid, it’s not only a bad idea, it’s a crime. The federal government selects one-third of FAFSA filings for verification each year and colleges may select additional aid applications for review. In fact, some colleges verify 100% of their applications. Lying on the FAFSA can generate fines of up to $20,000 and a maximum of five years in prison. Also the family could face repaying all their financial aid.
10. Failing to list all colleges on the FAFSA.
Families are permitted to list up to 10 schools on the FAFSA. If a parent or child fails to include any schools, these institutions will not receive the financial information that the FAFSA generates. And that means the student wouldn’t be eligible for need-based aid from an overlooked school. If you are applying to more than 10 schools, the parents can add additional names after they have received their electronic Student Aid Report (SAR) from the federal government.
11. Listing schools in order of preference.
Keep in mind that each institution on a student's FAFSA will be able to see all the other schools that a student is applying to. Some institutions, no one knows how many, use the order that a student lists his or her schools to help make admission and financial aid decisions. Your family's best bet is to avoid tipping your hand and simply list the colleges alphabetically.
You'll learn more about a strategy to deal with this in the lesson entitled, FAFSA Basics.
12. Not knowing who should file the FAFSA
Who should file the FAFSA may seem like it should be straightforward, but it often won't be. Here is the breakdown of the rules about who should file:
Traditional Married Couples
If your clients are part of a traditional family -- married husband, wife and kids - it's easy to answer who completes the financial aid forms. Both parents will share their financial information on the FAFSA.
Unmarried Parents Living Together
Unmarried parents who live together have traditionally enjoyed a FAFSA perk. Only one of the parents has had to complete the FAFSA and share his/her financial figures, but this has changed. Both parents, who live together, are now required to complete the financial aid application jointly.
A Parent Has Died
If a parent dies during the year, do not include his or her financial information on the FAFSA. If the parent has died after filing the FAFSA, contact the school immediately with this information.
Divorced and Separated Parents
If your clients are divorced, the ex-spouse who has taken care of the child the majority of the year will continue to complete the FAFSA. You are considered the custodial parent, with the responsibility of completing the FAFSA, based on where the child has physically lived during a 12-month period ending on the day the FAFSA is completed.
Separated parents don't have to be "legally" separated to be treated the same as divorced couples, but they can't be living in the same residence.
You will learn more about the rules for divorced and separated parents in a lesson (Divorce/Separation and Financial Aid) in the module entitled, Financial Aid Basics.
A new federal rule requires that married, single-sex partners must both include their financial information on the FAFSA. To reflect this change, the FAFSA now asks for information for "Parent 1" and "Parent 2." In the past, only the biological parent had to share his or her assets and income.
What if the single-sex couple is not married? Both partners will have to submit financial data if one of them has adopted the other partner's child. If a partner has not adopted the child, only the biological parent will complete the FAFSA.
Here is a story that I wrote for my CBS MoneyWatch blog in 2013 on this rule change:
Feds Push Diversity in Financial Aid
If the student is living with a guardian, such as a grandparent or an older sibling, the student is considered an independent student. The federal government does not consider a guardian (or foster parent) a parent. As such, the student will only include his or her information on the FAFSA.
Any support a legal guardian or foster parent gave to the student should be reported on Worksheet B as the student's income.
Can you think of any other FAFSA mistakes? Do you know families who have made FAFSA errors?
7 Ways to Get Help With the FAFSA It can be intimidating for families filling out the Free Application for Federal Student Aid, but here are seven resources that can help:
1. Use FAFSA on the Web.
The federal government can help with questions about the FAFSA, which families must complete to be eligible for need-based aid and federal college loans.
The FAFSA hotline number is (800) 433-3243. Families can also obtain help via email.
When you are working on the FAFSA online, you can also click the Live Help button for assistance.
2. Download the Edvisors Network's FAFSA Guide.
I recommend that you tell your families to check out a valuable guide for the 2015-2016 school year, Filing the FAFSA: The Edvisors Guide to Completing the Free Application for Federal Student Aid.
Mark Kantrowitz, a nationally recognized financial aid expert, and David Levy, the former financial aid director at Cal Tech, as well as Scripps and Occidental colleges, wrote this exhaustive guide, which will likely contain the answers that you are looking for. Filing the FAFSA is a lengthy guide that provides a line-by-line explanation of the FAFSA, as well as advice on how to maximize financial aid, avoid errors and complete the application painlessly.
The guide is free for your families, as well as yourself, and you don't have to share any information to get the downloadable version. If they prefer, they can purchase the 2015-2106paperback version on Amazon or an electronic copy for a Kindle, iPad or other devices.
Edvisors.com aims to be the go-to source for information on financial aid, just like FinAid has traditionally been. In 2013, Kantrowitz, the creator of FinAid, became publisher of Edvisors, which is an umbrella organization of student loan entities, a scholarship website, and other higher-ed ventures. Last summer, Edvisors launched an website containing lots of financial aid articles and the site will continue to add more.
3. Visit FAFSA Community - Nerd Scholar.
The folks at Nerd Scholar developed the FAFSA Community to provide parents and students with advice on how to complete the FAFSA. The site also includes a FAFSA guide based on these four family situations:
Student's parents are married.
Student's parents are divorced/never married/same sex partners/one parent is dead.
Student doesn't depend on one or both parents.
Student has immigration issues.
4. Use the FAFSA Worksheet.
Completing the FAFSA will be easier for families if they know what documents to gather and what type of questions to expect.
That’s no problem if they use the FAFSA worksheet. The government publishes its latest version every year at about the same time that the new FAFSA is released on Jan. 1.
Here is the most recent worksheet available: 2015-2016 FAFSA Worksheet.
5. Check Out Federal Student Aid Information for Counselors.
This federal site includes a great deal of information about the FAFSA for high school counselors and college consultants. On the site, you can find a PDF of the FAFSA, FAFSA deadlines, FAFSA updates, a FAFSA demo and more.
You will also see this resource:
2015-2016 Counselors and Mentors Handbook on Federal Student Aid
Here is a great guide (54-pages) for questions you will inevitably have about the latest CSS/Financial Aid PROFILE:
PROFILE 2015-2016 FAQs and Glossary 6. Pay a Preparer.
Stories about receiving FAFSA assistance will inevitably include some variation of this admonition: NEVER, EVER, EVER, EVER pay anyone to complete your FAFSA or CSS/Financial Aid PROFILE.
Frankly, I don’t understand why the higher-ed industry is so focused on scaring people away from getting help completing these complicated documents. Why shouldn’t people seek out advice just as they would seek out professionals to fix their transmission, sell their home or file their taxes?
The danger, as I see it, is that families could end up paying someone an obscene amount of money for a service that should be easy for a professional.
Unfortunately, some of the people who promote their services boast that they can save families thousands of dollars by filling out the FAFSA and PROFILE in a special way. Many of these people are insurance salesmen who are really interested in selling families annuities and life insurance to hide their assets. You should tell your families to stay away from these guys.
There is safe and inexpensive place to get help completing the FAFSA – Student Financial Aid Services. The cost is less than $100 and for many people I think it would be worth it for the peace of mind.
If you know of other low-cost resources, please let me know and I will share it.
7. Take advantage of College Goal Sunday.
Scattered across the country are events scheduled to help families with their FAFSA in the weeks after January 1. College Goal Sunday events are held in dozens of states and the District of Columbia. The California Student Aid Commission also offers help through its California Cash for College workshops.
Have you used any of these resources? What was your experience? Can you suggest any other FAFSA resources?
CSS/Financial Aid PROFILE The CSS/Financial Aid PROFILE is the College Board's financial aid application that roughly 260 colleges and universities use, as well as some private scholarship providers.
Nearly all the schools that use the PROFILE are private, but the following state institutions also require families to submit the PROFILE:
College of New Jersey
College of William and Mary
Georgia Institute of Technology
University of Michigan
University of North Carolina, Chapel Hill
University of Virginia
Western Kentucky University
Here is the list of all the schools and scholarship programs that require a PROFILE submission:
CSS/Financial Aid PROFILE schools PROFILE vs. FAFSA
Many families wonder why they have to go through the hassle of completing the PROFILE when they've already submitted the Free Application for Federal Student Aid. It's a good question and here is the answer:
All PROFILE schools use the FAFSA to determine which of their applicants will qualify for federal and/or state financial aid. Most public and private colleges and universities also rely upon the FAFSA to determine who is eligible for the institutions' own need-based financial aid. The PROFILE schools, however, want to dig deeper than the FAFSA allows when assessing who qualifies for money from their own financial-aid kitties. These schools insist on a more thorough assessment of the financial wherewithal of their applicants.
The FAFSA, for instance, doesn't ask applicants if they own a primary home. The PROFILE does. The FAFSA doesn't care about assets in a family business that employs less than 100 full-time employees. The PROFILE does. The FAFSA doesn't inquire about assets and income from the noncustodial parent in cases of divorce and separation, the PROFILE schools often do.
Customizing the PROFILE
Schools that use the PROFILE can customize this aid application in endless ways. In fact, the schools can choose from hundreds of different questions and how they treat the answers can differ significantly.
Here is just one example of how institutions handle home equity in very different ways:
Some schools don't consider home equity at all. On the other extreme, some schools use the full weight of parents' home equity to help determine financial need. Some schools that take this draconian approach will consider parent appeals. Other institutions use a home-equity cap that's tied to the family income so it's less likely that someone who is house rich, but cash poor will be penalized. The home-equity caps typically range from 1.2% to 3%.
These caps only apply to equity in your primary residence. If you have equity in other real estate, such as a vacation home or income property, it will be treated like other assets.
What is especially irritating about the PROFILE is that some of its aid formula is secret. The College Board doesn't feel compelled to share its entire formula.
The College Board, however, releases a lengthy publication every year that tries to anticipate many questions that parents and professionals would have. I would urge you to take a look at this 54-page PDF:
2015-2016 PROFILE FAQs & Glossary
Dramatically Different EFCs
Because there isn't a uniform set of PROFILE questions, the Expected Family Contribution (EFC) that this application generates for individual schools can vary significantly for a family. A family's EFC alerts a school's financial aid office to how much financial assistance a student needs.
Important: Because the PROFILE aid results can be so different, it's essential that parents use net price calculators to identify whether schools may be a good financial fit or not.
To minimize dramatically different aid results, 24 prestigious private schools, which require the PROFILE, say they treat a family's information on the financial aid application in a standardized way by using the so-called Consensus Methodology.
The schools that use the Consensus formula, including University of Chicago (pictured at right), Northwestern University, University of Notre Dame, Amherst College, Grinnell College, Vanderbilt University, Duke University and four Ivies, belong to the 568 Presidents Group. Presidents of these schools formed the group in the 1990s when the federal government ruled that a decades-old practice of need-blind schools consulting with each other about need-based financial aid for accepted students was an anti-trust violation. If you're interested, you can learn more here.
Under the Consensus methodology, parent and student assets aren't assessed as harshly as they are with the FAFSA and other PROFILE schools. Parent and student assets are assessed at 5% for financial aid purposes. With other PROFILE schools, parent assets are assessed at 5%, but student assets are assessed at 25%. The FAFSA assesses parents' assets at a maximum 5.64% and student assets at 20%. Many of the schools in this group cap home-equity calculations at 1.2 percent of income.
You will learn more about how the PROFILE and FAFSA treat assets for financial-aid purposes in the lesson entitled, Investments and Financial Aid in this module - A Closer Look at Financial Aid Formulas.
PROFILE Nuts & Bolts
The PROFILE is available much earlier than the FASFA, which is always released on Jan. 1. The PROFILE release date is October 1. If your child or client will be applying for schools through Early Action or Early Decision, you will probably have to file the PROFILE weeks or even months before students who submit their college applications through the regular decision process.
To file the PROFILE early, parents must estimate their taxes. They can use the previous year's tax return if their financial data will be similar, but they will have to update the application later. Many PROFILE schools will request a copy of their completed income tax return to check their figures.
Important: Have the parents ask the schools where their child is applying when their financial aid deadlines are because you absolutely don’t want to miss a deadline. Parents may forfeit their chances for financial aid if they do so. Failing to file their aid applications on time can jeopardize their financial aid award.
The College Board estimates that it will take between 45 minutes and two hours to complete the PROFILE. Before beginning, parents should download and use the pre-application worksheet and instructions.
Here are the documents families will need to complete the PROFILE:
2013 federal income tax return(s)
W-2 forms and other records of money earned in 2013
Records of untaxed income and benefits for 2013
Current bank statements
Current mortgage information
Records of savings, stocks, bonds, trusts, and other investments
The noncustodial parent's email address, if applicable.
Getting Help With the PROFILE
If you need clarification on application questions there are several ways to find help within the application itself or from the College Board.
For specific application questions use the question-mark help icon or use the help code next to the question itself. You can also use a search help feature that's located at the top part of the screen. In addition, you can find answers from the PROFILE Application Help Desk.
You should also read the following CSS Financial Aid Student Guide.
If you require further assistance, here is how you can contact the College Board’s customer service department:
To complete the PROFILE, you must register with the College Board. Your child already has an account if he or she has taken the SAT.
PROFILE Fee and Fee Waivers
While the FAFSA is free, the PROFILE costs $25 for the initial application and college report and all additional reports are $16 each.
The College Board grants fee waivers automatically based on information that the family includes on the PROFILE. The waiver covers the application fee and the reporting fees for up to eight colleges or scholarship programs.
Applicants who are orphans or wards of the court under the age of 24 are automatically eligible for fee waivers. For a family of four, students are generally eligible for a fee waiver if parent income is around $40,000 or less. Eligibility for a family of three is usually household income of $35,000 or less and $27,000 or less for a two-person household.
For a four-person household, a family typically won't be eligible for the fee waiver if assets exceeds $30,000 and home equity exceeds $100,000.
Anyone have any questions or comments about the PROFILE?