The following is a guest post from Manuel Fabriquer at College Planning ABC.
It's time to fill out federal financial aid forms, preferably online. Families often think they will not qualify for financial aid and filling out the Free Application for Federal Student Aid (FAFSA) is too much of a hassle. Do it anyway.
In addition to qualifying students for scholarships and work-study awards, this form is required for any student who wants to get a federal student loan, which is a relatively cheap and flexible way to finance college and to allow your child to build a credit rating while still in school. Besides, you may be surprised at what aid you can get. As a general rule a decrease in the Expected Family Contribution (EFC) will yield an increase in eligibility for student loans and work-study, often grants. But, just because you demonstrate financial need doesn't mean that the school and government will throw grants and scholarships your way. Always check with the college financial aid office for more information and see if they also require the CSS Profile form for additional money that is available at the private colleges.
If you are doing your financial aid forms, there is only one goal --reducing "included" assets. There are two types of assets, those that are included in the need analysis formulas and those that aren't. Converting included assets into non-included assets will increase eligibility by sheltering them from the need analysis process. Legally and ethically show less income and assets as possible. There is some income and asset planning parents should consider at least one year prior to entering college.
The 10 biggest mistakes smart people make when doing their financial aid forms:
1. They enter the wrong Legal Name. When registering for their pin code, the Name does not match social security information. Two first names such as Mary Ann or two last names or hyphenated last name. The FAFSA verifies this information with the social security administration and if the names do not match this will cause a delay in processing. This can be the difference of getting your form in on time and receiving the full amount of financial aid that you deserve.
2. They wait too long and think that they have to have their taxes done before they file their forms. There is an option on the form that allows you to choose "Will File" and estimate your income from your last paystub for the previous year. Do your forms earlier than later, Do not wait until the last few days to file your forms. You may experience some technical difficulties due to the high volume of people filing at the same time.
3. They enter the wrong amount in the Adjusted Gross Income question. This is your last number on the first page on your tax return line 37. Some families forget to add or deduct the losses or gains from interest, dividends, and/ or business. Talk to your CPA or tax advisor to see if there is any way you can still add to your 401K , IRA, SEP IRA's to lower your income. The more you can lower your income the better for financial aid.
4. If the student is a male and is 18 yrs old. They must register for selective service or they will not qualify for financial aid even if they are eligible for federal money.
5. Parents include their home equity in their current net worth of investments. The equity in their primary home is not included in the FAFSA form, but is included in the CSS Profile form. You will need to include the value of land or equity in the rental properties. However, this may be a little tricky at this time because of the drop in the real estate market. Take the average of the home values based on the recent sales, foreclosures, and short-sales. This may not be pretty right now, but we want to legally show fewer assets as possible.
6. Parents should write out their bills for the month and then fill out their FAFSA. The question asks “enter the amount of Parents Total Cash, Savings, and Checking Accounts?” It makes sense that if you just got paid on the 15th or 30th of the month not to state what your balance is with your income deposits. Write out your bills for the month, balance your checkbook and then enter the amount that is in your account that day after all the bills are paid.
7. Business Assets are not included if you have less than 100 employees. If you are self-employed and have less than 100 employees the correct answer is "0". Many small contractors, doctors, dentists, shop owners, etc. make this mistake. They add their inventory and equipment, computers in this and this is not included.
8. Divorced Family - If you are divorced or separated, you only need to input the financial information for the parent that the student lives with the most during the year. The mistake is that parents add income and assets of the ex-spouse not living in the household.
9. Parents do not need to include any retirement accounts such as IRA's, 401k. 403B, etc in their net worth of assets.
10. Don't have your kids fill out the FAFSA or financial aid forms. Why? Your kids have no clue about your income, taxes, and about your assets. They do not understand what an asset is and what is considered a non-included asset. What does a 17 -18 year old kid know about finances when they can barely balance their ATM account?