Avoid These Financial Aid Misconceptions
As the cost of college continues to rise, many students and their families turn to financial aid to pay for school. To qualify, families have to fill out the Free Application for Federal Student Aid, commonly called the FAFSA, to receive aid from the government or a college.
But many families don't fill out the form because they don't think they qualify. Here are a couple of myths debunked about applying for financial aid.
1. The FAFSA Is Only for Grant Money
The FAFSA not only determines eligibility for federal grants such as the Pell Grant for low-income students, but it's used by many schools to administer federal student loans, work-study and institutional scholarships.
"Some schools will not consider students for institutional grants unless they fill out the FAFSA," says Jeff Sibner, an independent educational consultant at College Match Guru in Philadelphia.
2. You Make Too Much Money
There isn't an income cutoff to qualify for federal financial aid, according to the Department of Education.
Not all aid is need-based aid, financial aid experts say, and many factors other than income are taken into account, such as household size or the age of a parent.
3. You Only Have to Fill Out the FAFSA Once
The FAFSA is filled out annually. To qualify for aid, a family needs to fill out the form every academic year.
College experts say the form is completed annually in case there's a surge or dip in expected family contribution, the amount of money a family is estimated to be able to put toward college each year. Many schools use this figure, commonly called EFC, in the financial aid process to determine need-based aid, and in some cases, state and institutional aid, too.
4. The FAFSA Uses Last Year's Taxes
Starting this year, the FAFSA will now use what's called the "prior prior" tax year. A family applying for the 2017-2018 academic year will use tax information from 2015 to complete the FAFSA.
Government officials say the move to use the prior prior year aims to simplify the process, eliminating the need to use income estimates; officials say it should cut down on the number of applicant verification cases. Last year, a quarter of applicants were required to provide extra documentation to receive federal student aid, according to The Institute for College Access and Success.
5. There Is No Deadline
"Schools with fixed deadline and notification dates will not penalize anyone for filing in December rather than October," says Sibner from College Match Guru.
But students and families should pay attention to school and state deadlines, experts say. While the federal deadline is June 30, state and college deadlines vary. One example is Maryland, where the deadline is March 1.
6. 529 Accounts Won't Affect Eligibility
A tax-advantaged 529 account for college savings is counted as a parental asset even if it's in the student's name. The amount saved is factored into EFC calculations, but the hit is likely to be small, experts say.
The maximum amount counted is up to 5.64 percent of the total in the account. For those with lower incomes and fewer assets, it may not be counted at all.
7. Retirement Savings Are a Factor
While the amount saved in a retirement account isn't counted as an asset, contributions are a factor in determining need-based aid.
"Contributions to your 401(k), 403(b), IRAs, SEPs that are your own contribution and show up on your tax return will be calculated as income on the federal side," says Fred Amrein, founder of Pennsylvania-based EFC Plus and author of "Financial Aid and Beyond: Secrets to College Affordability." "Your matches aren't counted."
8. The Value of Your Home Can Hurt You
While the value of a family's primary home is excluded from being counted on the FAFSA, some schools have additional financial aid forms that take home value into account. The College Board's CSS/Financial Profile collects this information -- it's a form used by almost 300 colleges.
"There are some more schools that have their own forms as well, and, in a general sense, those are the more competitive schools," says Amrein from EFC Plus.
9. Stocks and Bonds Don't Count
Financial aid experts say earnings from dividends and capital gains are always considered income and count toward a family's expected contribution. A family that wants to move assets around, experts say, needs to do that by the time the college-bound student is in 10th grade. Otherwise, these assets are counted as income and factored into the family's estimated ability to pay.
10. Don't Bother Filling Out the FAFSA
"Students that need to borrow money for college cannot even qualify for unsubsidized Stafford loans without filling out the FAFSA," says Sibner from College Match Guru. "Many private scholarship foundations require a FAFSA form to qualify."
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