Chances are, if you are reading this article you are likely a student, or parent doing your best navigate your way through a stack of paperwork put together with the same attention given to ease as the ever popular Federal Tax Return. In the back of your mind there is that pessimistic voice saying you are not going to get anything and that this is a huge waste of time. You hear you will be offered loans but other than that, you will get nothing. This is what everyone says who you think might have similar assets. That however, is not necessarily the case. Just because someone who upon casual inspection seems to be in a similar situation to you didn’t get much of a financial aid award doesn’t mean you have to have share the same fate.
The first thing you should understand is how the government determines need. The formula is very complex Need = Cost of Attendance (COA) – Expected Family Contribution (EFC)
Rule Number One- Report only what you are required to as assets on the FAFSA.
Cost of Attendance is fairly straightforward, but you are probably thinking “how does the government know how much I can afford? The short answer, you tell them. They use the information you provide on the FAFSA.. They decide how much you can afford taking into account income, assets, number of children and number of children in college, to name a few. However, just like with taxes, there are certain types of assets you do not have to disclose and should not. For instance, qualified retirement plans such as 401k or IRA’s are exempt. Your primary residence and any equity that exists also need not be reported. However, all-to-often people report money they do not have to and ruin their chances at receiving aid.
Rule Number Two- Put as much of your money as possible in investments and assets that you do not have to report, or if you do at least it should be a lightly weighted asset class.
To discuss these options you should find a trusted college finance planning professional so they can let you know what the best options for your situation.
In their calculations, the Government, puts weight to different pools of money. For instance, they will weigh money in the students name very heavily. Lets say that there is $20,000 in an account set up by grandma and grandpa for Jr’s college. The government will look at that as cash on hand with no other purpose than to pay for college. Basically, they will say, “there is $5,000 per year for college and drop that right into the EFC. You are now $5,000 less in need. However with proper planning, that same $20,000 could be placed in an investment that need not be reported, but may be accessed for use during college, a few examples are Whole Life Insurance and certain Annuities.
Rule Number 3- Don’t Procrastinate
Procrastination is truly your worst enemy. There are so many deadlines and many of them are different with each college and each could cost you your award. Because there ware so I can not go over them all. But I will go over the biggest one. This one you should never miss. The first and most important one is the FAFSA priority filing date. You should never miss this. The FAFSA is your Admission Fee” into the financial aid show. If you don’t have it done when the show starts it goes on without you and you can lose out on a lot of money you would have otherwise received. A Key misconception people have and one of the most common reasons given for missing this deadline is ” I did not have my taxes done so I can’t do the FAFSA.” You don’t need to have them done. You are allowed to estimate based on the previous year. If, when you get your taxes done it is significantly different you just file an update. I always tell people to get their FAFSA done as close to, but after Jan 1, of the year you are doing to school.