It is no secret that college costs money – lots of it. However, many students are able to go because they receive financial aid from both the federal and state government. The starting point for all these sources of aid is a form called FAFSA, Free Application for Federal Student Aid. Bear in mind that many yeshivas and seminaries are legal colleges, so their students qualify.
Some parents think the FAFSA does not apply to them, because they believe their income is too high. This is a mistake, because, even if you do not qualify for government aid, you might be eligible for aid from the college itself, and they use the FAFSA when granting it. Furthermore, according to a recent article by Wall Street Journal, even wealthy students should file the FAFSA. They offered several reasons. First, you might sometimes get aid even if you think you earn too much. Second, by filing the form and getting turned down, the college realizes that you can afford full tuition. Since they need some students who can pay, that might give you an edge on admission!
I get many questions from parents intimidated by this lengthy form. Hopefully, this guide will help.
Before You Start
The FAFSA asks questions about your family demographics and finances – income as well as assets – so gather your financial information. Income is what you earned in 2015. Assets are what you own on the day you file. You do not have to be finished with this year’s taxes. You can estimate every answer, and when you eventually file your taxes, you can come back to the FAFSA website and correct it.
My most important piece of advice is to file the FAFSA without delay. For State of Maryland aid, you need to file by March 1 of the year before entering college, or you get nothing for that year. Although there is no deadline for federal aid, many assume that at least some aid is given on a first-come basis. You can submit a paper form, but it is easier and quicker to file online.
The Form: Step by Step
1) You need a Federal Student Aid ID to file the FAFSA. Go to www.fafsa.ed.gov, making sure that you are at the correct website. Follow the link on the top of the page, called FSA ID, to get this ID and password. The parent will need a FSA ID as well. (Make sure you keep a notebook or spreadsheet, so you don’t forget this ID and password and others!)
2) Log in by entering the student’s ID. Click on “Start a new FAFSA.” You will see two tabs on top: “16-17” and “15-16.” This refers to your school year. Most likely, you are applying for next September, so click on 16-17. I have seen situations, however, where you would click on 15-16. For example, a boy returns from Israel and attends BMG, the Lakewood yeshiva (a legal college), starting in May 2016. This boy would choose the 15-16 school year.
If you filed a FAFSA last year for the 15-16 school year, you can do a FAFSA renewal, which will automatically fill in some lines for you with last year’s information.
Note: The funds awarded for the 16-17 school year is based on your 2015 taxes. That is called the “look-back year.” (The current school year of 15-16 looked at 2014.)
3) As you go through the process, keep an eye on the left side of each page to see if the questions apply to “Student” or “Parent,” as they ask questions about both.
4) Create a “save key.” This is a second password, which allows you to save your application and continue it at another time.
5) Student Demographics page: Enter your name, address, date of birth, email address, etc.
6) Student Eligibility: Here you are asked questions about citizenship, high school, and college goals. Under “school selection,” search for your college by name and location and click “add.” In the “school selection summary,” enter whether you live with your parents, or in on- or off-campus housing.
7) Student Dependency Determination: This one is important. Your answers will determine whether your financial aid will be based on your parents’ finances or your own. Most undergraduates have to answer no to all these questions. But if you can answer yes to any of them, your parents’ income and assets will not be considered. Rather, your aid will be based on your own (probably much lower) income. To be untethered from your parents, you have to be married, a parent, a veteran, or 24 (in 2016) or older.
8) Dependency Status Results: As expected, you have to answer questions regarding parents. Click “I will answer questions re parents.” You will now see “Parent” on the left side of the screen. It asks for the parents’ names SS numbers, dates of birth, etc.
9) Parent Tax Information: To the question, “Have you completed your income taxes?” I answer “I will file.” That means I have not filed yet.
10) Parent Financial Information: This asks about total income from father and mother as well as additional tax questions. Your tax preparer will have this information. There is also a question about your total assets (minus what is owed on those assets). Obviously, the less assets the better!
12) Student Financial Information: Answer the question, “Have you filed income taxes?” If you did not earn enough to be obligated to file a tax return, you can answer “Not going to file.” You still need list your 2015 wages, though. There are also questions regarding money in bank, etc.
13) The Signing Page: Mazal tov! You can sign electronically with the parents’ FSA number and submit the form. It gives you the option to print out a summary of your answers.
Plan Ahead
Many parents fear the FAFSA form, but it should take less than an hour to complete. If I have all the documents in front of me, I can do it in under 30 minutes. I offer this article for those of you who are up to the task, but I recommend that you do not try it yourself. You will spend way too much time, and there are benefits of having experience filling them out. Indeed, the tricky part is not so much the form but arranging your income and assets in a way that maximizes your chances of getting aid.
An important book, called Paying for College without Going Broke, the bible for financial aid, has a lot of information on filing the FAFSA. The upshot of their advice is to use every possible way to keep your assets and income low. For example, assets in the student’s name – like gift money or earnings from summer jobs – are counted against you. So, you might want to refrain from putting parents’ money in the student’s name.
The book provides many ideas on how to keep your income and assets low. For example, assets in retirement accounts, your house, and your cars do not count. However, what about a scenario like this? The parents own a home free and clear. This does not count as an asset since it is a residence. They then borrow money against their home to buy a vacation house. For purposes of the FAFSA, they need to list the vacation house as an asset, but they may reduce its value by the amount of the debt owed on it. The question is, does the debt reduce the value of the vacation home, which would greatly benefit the student? Or does it reduce the value of the primary residence, which would not benefit the student at all? As you see it can get tricky.
To sum up, I have no doubt that many students are losing out on aid for a variety of reasons. Start getting your information together, so you can file this form as soon as possible and, hopefully, be on the way for some assistance. (By the way, if you have children of college age, be sure to read my upcoming article about the American Opportunity Tax Credit. Do not file your 2015 tax return until you do!)
Eli Pollock CPA can be reached at elipollock2@yahoo.com.
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IMPORTANT
Many of you are receiving assessment notices regarding your house. If you feel you are being assessed too much, you need to fight it. You can request a hearing, but you must return the form by the deadline. For guidance, call me at 410-358-4922.
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