FAQ on the Federal Financial Aid Application
December 30, 2011 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
If you have a child who’s attending college in the fall, it’s time fill out the federal government’s Free Application for Federal Student Aid, the FAFSA. The FAFSA, should be filed as soon after January 1 as possible in the year your child will be attending college. The reason is that some federal aid programs operate on a first-come, first-served basis, so filing the application early ensures your child has the best chance of receiving the most favorable aid package.
Even if you don’t expect your child to qualify for federal aid, you should still consider filing the FAFSA because colleges often require it as a prerequisite for students to be eligible for the college’s own institutional aid.
Here are some common questions and answers regarding the application process.
What documents will I need to fill out the FAFSA?
The FAFSA relies on financial information from your previous year’s federal income tax return; for example, a FAFSA completed in 2012 will rely on information contained in your 2011 return. So the papers and statements you use to file your tax return are generally the same ones you would need to fill out the FAFSA, such as Social Security numbers, W-2 information, and information on savings, investments, and business assets. Your child will also need to have this information.
But here’s a dilemma: since most parents probably won’t complete their federal income tax return in January, how can they fill out the FAFSA, which relies on figures from their tax return? There are two possible solutions. The first is to prepare your tax return earlier. The second is to prepare (or hire a tax professional to prepare) an estimated tax return, which can then be used to complete the FAFSA–a practice the federal government deems acceptable. If you use an estimated tax return, keep in mind that you will need to provide a final tax return later on.
How do I file the FAFSA?
You can complete a paper FAFSA or file it electronically. The way you submit the FAFSA does not affect your child’s eligibility for aid.
You can get a paper FAFSA at your child’s high school or your local library. Once it’s complete, you should make a copy for your records and mail it in the preaddressed envelope that comes with the form.
You can file an electronic FAFSA at www.fafsa.ed.gov. You’ll need to apply for a PIN before you can actually start filling out the online application. Electronic FAFSAs offer several advantages over paper FAFSAs: detailed online help screens, an online chat option with a customer service representative, built-in error detectors, confirmation that the application was transmitted successfully, and faster processing–one week as opposed to two to four weeks for paper FAFSAs.
If you’ve previously filled out the FAFSA4caster, the federal government’s online financial aid forecasting tool, the online FAFSA will be automatically populated with your data.
What happens after I file the FAFSA?
After your FAFSA is processed, you will receive a Student Aid Report (SAR) either in the mail or electronically (depending on how you filed the FAFSA). This document summarizes data from your FAFSA and indicates your official expected family contribution (EFC), which is the amount of money the government expects your family to contribute to college costs for the current year to be eligible for financial aid. For example, “EFC25000″ means that your expected family contribution is $25,000.
You should review the SAR carefully to make sure it contains your correct income and asset information. Any corrections should be made immediately and sent back for reprocessing. If you have questions, you can contact the Federal Student Aid Information Center at 1-800-433-3243.
If there is an asterisk (*) next to your EFC figure, you have been selected for verification. FAFSAs are selected for verification randomly, or because the FAFSA is incomplete or contains estimated tax information. If you are selected for verification, you will need to provide additional documentation that might include a final tax return, household information, or appraisals for certain assets listed on the FAFSA. Not all families selected for verification will need to submit the same documents.
The SAR is also sent to each college you listed on your FAFSA. Once the college receives your child’s SAR, the financial aid administrator at each school that has accepted your child will craft an aid package that tries to meet your child’s financial need (remember, colleges aren’t obligated to meet all of it). To determine your child’s need, the administrator subtracts your EFC from the cost of attendance at that particular college. Your child will then be notified of the college’s aid package in an award letter sent out in the spring. The package typically includes various combinations of federal and college loans, grants, scholarships, and work-study jobs.
Education Funding Recap
August 10, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The world of higher education has received some attention in Washington this year. I’ve done several posts on the topic, but wanted to offer this summary of both what’s passed and what’s proposed in the budget for FY 2010.
The American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law by President Obama in February. This legislation, along with President Obama’s proposed budget for FY 2010, contains several provisions related to higher education.
Hope credit
The Hope credit is a tax credit for college tuition and related expenses. ARRA changed the Hope credit significantly. For 2009 and 2010, the Hope credit is renamed the American Opportunity tax credit and can be worth $2,500 per student per year, up from $1,800. (President Obama’s FY 2010 budget blueprint proposes making the credit permanent.) In addition, the credit now applies to the first four years of a student’s post-secondary education, provided he or she attends at least half-time (previously, the credit applied only to the first two years of college). And the income limits for qualifying have been increased:
- A full credit is available to single filers with a modified adjusted gross income (MAGI) below $80,000 (previously $50,000) and joint filers with a MAGI below $160,000 (previously $100,000)
- A partial credit is available to single filers with a MAGI between $80,000 and $90,000 (previously $50,000 and $60,000) and joint filers with a MAGI between $160,000 and $180,000 (previously $100,000 and $120,000)
Other points to note about the new credit:
- The credit may be claimed against an individual’s alternative minimum tax liability
- Up to 40% of an individual’s allowable credit may be refundable
- For purposes of the credit, the definition of “qualified tuition and related expenses” is expanded to include course materials
- By increasing both the amount of the credit and the income limits to qualify for it, and by expanding the availability of the credit to all four years of college, the federal government has put the focus on helping traditional college students pay for college. (Congress did not increase the amount of the Lifetime Learning credit, which is geared more toward occasional courses taken by students who are enrolled in school less than full-time.)
Qualified expenses and 529 plans
ARRA has expanded the definition of “qualified higher education expenses” for 529 plans to include expenses paid or incurred in 2009 or 2010 for computer technology, equipment, and Internet access, provided they are used by the 529 plan beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution. This means you can take a tax-free withdrawal from your 529 plan to pay for these items. (Previously, a computer had to be required by the college in order to be considered a qualified education expense.) This carve out for computer-related expenses is similar to the existing provision for K-12 computer expenses currently allowed by Coverdell education savings accounts.
Pell Grants
ARRA increased the maximum Pell Grant to $5,350 for 2009/2010 and to $5,550 for 2010/2011. President Obama’s FY 2010 budget proposes making the Pell Grant program a mandatory spending program with automatic increases tied to the Consumer Price Index.
Federal Family Education Loan program
President Obama’s 2010 proposed budget seeks to eliminate the Federal Family Education Loan program in 2010. If it passes, all student loans would be made through the federal government’s Direct Loan program.
Financial aid
According to www.whitehouse.gov, President Obama wants to simplify the federal financial aid application process by eliminating the current FAFSA application and allowing families to apply by simply checking a box on their tax form, authorizing their tax information to be used. Stay tuned to see whether this major time-saving objective will happen in 2010.
How much financial aid?
December 5, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
You can now get an estimate of how much financial aid your child will qualify for before you actually apply. The U.S. Department of Education offers an online financial aid tool to help families better prepare for the cost of college. Called the FAFSA4caster (catchy, isn’t it?), it’s modeled on the government’s official aid application, the FAFSA (Free Application for Federal Student Aid). The tool examines a family’s financial data and estimates how much aid a student might expect to get. To use the tool, visit www.fafsa4caster.ed.gov.
- Social Security numbers
- Federal tax information or tax returns, including W-2 information
- Information on savings, investments, and business and farm assets
- Records of any untaxed income (such as Social Security or welfare benefits)
To get as accurate an estimate as possible, you should answer all the questions on the tool, even if you have to estimate or guess.
Using the FAFSA4caster isn’t exactly a quick process, but when you’re ready to apply officially for federal aid, the FAFSA4caster will automatically transfer all of your data (that’s password protected and saved securely) to your online FAFSA application, saving you the hassle of keying in all your information again. And, if your financial circumstances change, you’ll get the opportunity to update any answers on the FAFSA that you originally submitted on the FAFSA4caster.
By providing an advance estimate of federal aid eligibility, the FAFSA4caster can help you forecast how much money you and/or your child may need to come up with to meet college costs–information that can also come in handy in the college selection process. By having an idea of the numbers ahead of time, you can help minimize unwelcome surprises. You can also work with your child sooner rather than later to fill the gaps between financial aid and the cost of their desired school.