FAFSA Mistakes that Could Cost You
Happy New Year! January is one of my favorite months of the year in college admissions, because my students are done with most of their applications, and finally get to enjoy a much deserved break from essays, activity lists and standardized tests. Not the case for parents though, who are now busy filing their financial aid applications, wrestling with tax forms, bank statements and FAFSA to beat those mid-February deadlines.
On that note, I’d like to share some helpful tips for those of you completing the FAFSA. While it’s a fairly straight-forward form on the surface, there are a surprising number of mistakes that get made on the FAFSA, many of which can result in delayed financial aid, or worse, a reduction in financial aid eligibility.
Here are some of the most common FAFSA mistakes to avoid:
Not filing the FAFSA
If you don’t file a FAFSA, you are essentially telling the colleges, “It’s OK, we want to pay for these 4 years entirely on our own, and aren’t interested in any help you are willing to give us.” Seriously! Every year, I work with parents that have high income and/or significant assets who assume they won’t get any need-based aid, and are then pleasantly surprised when their EFC is actually a bit lower than the cost of attendance – thereby qualifying them for need-based aid. This is because the financial aid formulas are far more complicated than most realize, and do allow families to shelter some of their income and assets. My recommendation – never assume – get that FAFSA on file, regardless of your income or assets.
Missing the deadlines
Colleges take their financial aid deadlines seriously, and even if they let you file after the deadline, you may be ineligible or receive last priority for many forms of aid. Be careful never to miss a deadline, and if the college gives a “priority deadline,” be sure to file before then.
Using the wrong name
The federal government is very specific about names on the FAFSA. Students and parents must use the legal names from their Social Security cards. For example, don’t use Jenny on the form if the legal name is Jennifer. If the names don’t match up, the application will not be processed. In fact, one of my parents this year realized that the Social Security administration had not yet corrected a misspelling of her daughter’s name in their system (after she asked them to correct it 17 years ago!), and had to go through the correction process all over again. Had she not caught this, it would have been bad news for her financial aid – so be sure to double check that the name on your FAFSA and college applications matches the name on your social security card.
Mixing up student and parent information
On the FAFSA, the words “you” and “your” refer to the student, not the parent. This can be particularly confusing when a parent is filing the FAFSA on their child’s behalf. If you are the parent submitting the FAFSA, be careful only to report your information in the section asking for parent information. The remaining information should pertain to your child.
Listing the wrong colleges
You will be asked to indicate which colleges should receive your FAFSA information. Many colleges have very similar names (Miami University and University of Miami, for example). Be careful to include the correct ones and be sure that your student gives you the complete list of colleges to which they have applied.
Reporting financial information for the wrong parent
This is a big one that can cost you a lot! When a student’s parents are divorced, separated or never married, it’s critical to remember that the FAFSA only requires financial information for the custodial parent. For the FAFSA, the custodial parent is defined as parent with whom the student lived the most during the 12 months preceding the date the FAFSA is filed. If the student split their time equally between both parents, the custodial parent is the parent who provided the majority of the student’s financial support.
If the parent who is responsible for completing the FAFSA has remarried, the stepparent must report his or her income and assets on the FAFSA, even if they weren’t married during the previous year. Prenuptial agreements have no bearing on this requirement.
Not expressing an interest in a work-study job
A student who expresses interest in a work-study job on the FAFSA isn’t obligated to get one later, but students need to answer YES to be eligible. Work-study jobs are a great way for students to earn money while in college, so it’s a good idea to answer YES to this question.
Reporting an incorrect household size
Household size plays a significant role in financial aid eligibility, so failing to include everyone can increase your EFC by quite a bit. Simply stated, any person who receives half of his or her financial support from the parent during the financial aid award year is considered part of the household. This may include:
- The parents or parents who head the household.
- The student for whom the FAFSA is being filed.
- Relatives such as grandparents, grandchildren, aunts or uncles living in the residence.
- Older children who do not live in the residence but receive half their support from the parent. (Note that any student aid this child receives, including scholarships and loans, counts towards their support.)
- If a divorced parent has remarried, any stepchildren who they now support.
- Unborn children who will be born before the end of the award year.
Reporting the wrong assets
Be careful NOT to include any qualified retirement assets such as Individual Retirement Accounts, 401(k)’s, 403(b)’s, KEOGH, SIMPLE, pension plans and annuities.
It’s also extremely important to report 529 plan savings as a parent asset. If these are reported as the child’s assets, the financial aid formulas will assess the amount at a higher rate.
Rental properties should be counted as investments, not business assets, unless they are part of a formally recognized business. A hotel is a business, but renting out a home, timeshare or room is generally considered an investment.
Pensions, annuities and the cash value of a life insurance policy – known as a whole-life policy – are not reported as an asset on the FAFSA.
Reporting primary residence in home equity
Do not include the equity in your primary home on the FAFSA. In other words, equity in the home in which the student lives is not included. Equity in any other real estate, however, must be reported.
Interested in guidance while filing out financial aid applications? Overwhelmed while trying to make sense of the various requirements? Contact me for a free 30 minute consultation. I am available to help parents with all aspects of the financial aid applications.