Applying for financial aid packages can seem overwhelming at first glance, but understanding the system and having a plan in place can make the process much simpler. Below are some considerations prior to, and during, the application for aid:
- File early – The FAFSA can be filed beginning in October. Filing as early as possible will ensure that families have adequate time to compare different financial aid packages.
- Understand the difference between the FAFSA and CSS Profile – The Free Application for Federal Student Aid (FAFSA) is the most widely used form because it is required by any school that offers federal aid. The College Scholarship Service (CSS) Profile is used by more selective, private colleges (currently, approximately 250 colleges require the CSS to be completed in addition to the FAFSA).
- Understand how Expected Family Contribution (EFC) is calculated – Regardless of the form used, the most important determinant in whether or not a student will receive financial aid is the EFC calculation. This is the minimum dollar amount that the calculations have deemed that the student and his or her family will be able to contribute toward their education.
- Attach a letter – Use a personalized letter to detail any extenuating circumstances that may affect a student’s financial situation/eligibility (in the case of the CSS Profile, there are sections already included in the application that allow families to outline these issues).
- Understand the weighting of different assets – In determining eligibility for financial aid, the FAFSA takes into account income and non-retirement accounts, with students being expected to utilize 20 percent of their assets versus 5.64 percent for parents (student-owned 529 plans are treated as being owned by the parent). In addition, distributions from grandparent-owned 529 plans will be considered income to the student in the following year.
- Use those earmarked assets – Utilize previously earmarked monies for their intended purpose; for example, if you were looking to make home renovations, do it prior to submitting FAFSA applications in order to reduce assets.
- Compare financial aid packages – Just because a student is eligible for a given amount of aid, it does not mean the school will cover the entire shortfall. This is what is known as “percentage of need met” which most colleges and universities publish annually. Essentially, it tells families what portion of aid was met for previous freshmen students, using federal and state aid, grants, merit awards, scholarships, etc.
- If eligible, claim the American Opportunity Tax Credit – Taxpayers may receive a $2,500 credit per year for up to four years of postsecondary education, subject to phaseouts based on Modified Adjusted Gross Income (MAGI).
- File whether or not you think you will get aid – Since there is no cost associated with filing, there is no downside to at least applying – you might be surprised by the results!
There are many other issues and opportunities to consider, in addition to those listed above. We recommend that you speak with a Hefren-Tillotson financial advisor to ensure you are making the most informed decisions possible for the student(s) in your life.