It’s extremely easy to make financial aid mistakes.
Paula Bishop, a CPA friend of mine in Bellevue, WA., who has filled out countless financial aid forms for clients, tells me that she’s never seen any parent complete a application without at least one mistake. Now that’s depressing and it can also be costly if you insert even one error in a financial aid form.
Since it’s financial aid season, I will be sharing some posts on this important topic this month. Today we’re going to look at some mistakes parents make involving the Free Application for Federal Student and the CSS/Financial Aid PROFILE.
Any one seeking financial aid must complete the FAFSA. About 20 percent of private colleges and universities and a handful of state flagships also require the PROFILE, which is a longer and more intrusive document.
The schools that use the PROFILE rely on it to help their institutions determine who will receive their in-house aid. These schools will turn to the FAFSA to determine whether their accepted applicants and current students qualify for state and federal financial aid.
10 Financial Aid Mistakes
1. Assuming you can’t file the FAFSA or PROFILE without a completed 2012 income tax return.
You can estimate your taxes in order to complete the FAFSA and the PROFILE. In fact, it’s better to complete these forms as soon as possible and that will often require estimating.
While the latest FAFSA is always released on Jan. 1, the PROFILE is always released months earlier in the fall. Students who file early decision or early action at schools using the PROFILE will almost certainly have to estimate tax information because the aid deadlines can be in the fall.
It’s critical to know what the deadlines are for state aid as well as institutional aid for the schools on your child’s list.
You should update the tax information on your financial aid application after your tax return is complete. The federal government has made it much easier to input these figures via something called the IRS data retrieval tool. The data retrieval tool will be available for the current admission season beginning Feb. 4. Here is a post that I wrote about the tool last year:
2. Including retirement assets on the FAFSA.
The FAFSA doesn’t care how much parents or children have got invested in Individual Retirement Accounts, 401(k) plans or other retirement plans and doesn’t ask, but that doesn’t stop parents from mistakenly including this money on their aid documents.
In reality, you could have millions stuffed into retirement accounts and it wouldn’t hurt your chances for financial aid. The FAFSA does ask about the parents’ and students’ non-retirement assets including cash, savings and checking accounts, but even this money rarely hurts aid chances. Here is a post that I wrote this fall on the subject:
The FAFSA doesn’t even ask if you own a house so the amount of home equity you have is irrelevant. The FAFSA does ask about second homes or real estate investments. The CSS/Financial Aid PROFILE will ask about your home equity, but how the schools will assess it will vary by school. Use a school’s net price calculator to discover how your home equity might impact awards.
4. Failing to understand how the FAFSA and the PROFILE treat divorce.
With either application, you need to state what your marital status is on the day you sign the FAFSA, whether you are married, separated or divorced. Here is a YouTube link to an interview I conducted with Paula Bishop at a college conference in 2011 that discusses what divorced parents need to know about how the two aid applications treat divorce:
5. Overlooking the little stuff.
If your intended answer is zero, write “0″ or not applicable. Leaving blanks can cause miscalculations and the application could be rejected. Typing in a wrong Social Security or driver’s license number is obviously bad. Double and triple check these numbers.
6. Entering the wrong income tax figure.
Provide the federal income tax you paid or will pay based on your 2012 federal tax return — not the tax withholdings on you and a spouse’s W-2 forms.
7. Forgetting to list the colleges.
On the FAFSA form, you can include up to 10 colleges that your son or daughter has applied. The federal processors will send the pertinent FAFSA information to the schools on the list. You will need each college’s Federal School Code.
8. Inflating your education.
If both parents didn’t graduate from college, don’t list “college” as their highest education attainment even if they did attend some college. Plenty of schools treat applicants more favorably if they are considered “first-generation” college students.
Lynn O’Shaughnessy is the author of the second edition of The College Solution: A Guide for Everyone Looking for the Right School at the Right Price.