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Planning Your Child's College Fund: Don't Forget About FAFSA!

| February 26, 2016
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Are you sending a student off to college in the near future?

If so, it can be a bit overwhelming to know where to begin, besides knowing the obvious - that college today is downright expensive.

Here is one (fairly) simple - and free - place to start: the online FAFSA. Even if you don’t think you will qualify for financial aid, read on to learn why you should file a FAFSA anyway …

What is the FAFSA? It stands for “Free Application for Federal Student Aid” and is the federal form which must be filed to determine how much your student will qualify for in federal student aid.  And not only is it essential for being considered for need-based aid, it must also be filed in most cases for merit-based scholarships as well. 

Who should apply? That’s easy – basically everyone!  In other words, those who might need some financial help, and even those considered “wealthy.” Many schools require a FAFSA to even consider a student for an honor, or merit-based, scholarship.  And if you have multiple children in college at the same time, you just might qualify for some type of aid.  It is also important to remember that your situation may change due to a job loss, illness, divorce, etc.

How does it work?  It takes about an hour (or so) to fill out the online form at www.fafsa.ed.gov, where you will list your financial assets.  Some will count and some won’t (see below).  Once the FAFSA is submitted and processed, you will be sent a Student Aid Report (SAR), which will have your EFC, or “Expected Family Contribution,” on it.  The school(s) you listed on your FAFSA will then take their Cost of Attendance (COA), less your EFC, to determine your student’s eligibility for federal and other financial aid; in other words, the amount of your student’s financial need at their school.

When should you apply? Short answer – as early as you can.  The updated FAFSA will be available on January 1 of each year, and you should apply on that date or soon thereafter of your student’s senior year of high school.  You don’t need to wait until your federal income taxes are filed; just estimate and then go back and fill in the actual amounts later. Also, some awards are given on a first-come, first-served basis, so waiting could hurt your chances.

Should I apply each school year? Yes, for each year that you have or plan to have a student in college, because “eligibility for federal student aid does not carry over from one award year to the next,” according to the federal FAFSA website, www.fafsa.ed.gov/help.htm.

What assets count on the FAFSA? In a nutshell, some, but not all.  Cash, bank accounts, stocks, bonds, CDs and 529s DO; your home, retirement accounts and life insurance policies DON’T. Here is a quick, but not exhaustive, summary:

What assets MUST be reported on the FAFSA*: 

  • Cash
  • Bank accounts, including checking and savings
  • Brokerage accounts
  • Certificates of Deposit (CDs)
  • Stocks, bonds, money market accounts, mutual funds, and other investments
  • College savings plans, such as 529s
  • Trust funds
  • Other assets including custodial accounts, real estate (not the family home), etc.

What you DON’T have to report on the FAFSA*:

  • The family home (i.e. principal place of residence)
  • Qualified retirement plans including IRAs, 401ks, etc.
  • Life insurance policies
  • Small businesses owned and controlled by your family
  • Personal possessions, including cars, computers and the like

In short, college is a major expense for just about every family, and filing a FAFSA is free, fairly quick, and will only help you and your student.  Even if you aren’t sure, go ahead and file one.  What about a family, for example, who has been saving for college since birth and has significant assets but has multiple children who will overlap during their college years?  Even for them, we would say:  “Don’t delay; file your FAFSA today!”

*The information contained in this article is general in nature.  For more details, the following resources may be helpful:

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