It’s Time for FAFSA Questions

Now that we’re officially into the 2013-2014 FAFSA season, I wanted to answer some questions on my college blog that I’ve gotten about financial aid forms.

If you have your own questions, please leave them in the comment box below. Lynn O’Shaughnessy

Mom’s question:

Try as I might I still can’t get my hands around the whole financial aid picture.  We completed the FAFSA and CSS/Financial Aid Profile and were amazed to see that the FAFSA family contribution amount was way more than we could actually afford! Does this mean that this is the lowest cost possible for schools with a larger price tag, merit scholarships included?

My son did apply to 2 private schools that use the institutional methodology, which I believe if admitted would give him the best financial packages.  My husband makes a good salary, but we are not homeowners and do not have much outside of our retirement plan.  Am I right about this?  Lastly, my son did apply to 1 state school that we could afford without financial aid.  At this point, we’re waiting to hear back from all the schools.

Answer:

Lots of parents are surprised when they discover what their Expected Family Contribution is. If you don’t know what that term means, read one of my previous posts:

What Is Your Expected Family Contribution?

Experts have rightfully complained that the methodology used to generate EFC figures for millions of families is flawed. A family’s EFC isn’t always going to be fair. In fact, it’s quite likely that the EFC won’t pinpoint what a family can truly afford for college. And it’s no wonder. Congress decides what’s in the EFC’s secret sauce.

The formula does play favorites. The methodology, for instance, favors homeowners, aggressive retirement savers, small business owners, teenagers of divorce and rural Americans. (You can learn more about the methodology in my book, The College Solution.) That said, the biggest factor determining an EFC is usually the family’s income.

The FAFSA doesn’t ask if you own a home, which is great news for homeowners. Since you don’t own a home, this benefit won’t help you. The CSS/Financial Aid PROFILE does, however, ask about home equity.

Your EFC indicates what you will have to pay, at a minimum, for one year of college. Let’s say that you have an EFC of $40,000 and the school costs $40,000. That means you would not receive any need-based aid. Families with a high EFC, however, are eligible for merit scholarships from schools. For instance, the school might award a teenager a $12,000 merit scholarships, which would drop the cost from $40,000 down to $28,000. The vast majority of schools give merit scholarships to affluent students.

John’s Question

I have your book and enjoy your advice through that and other sources.  I wonder if you have any advice for someone who has very low current income but very high net worth. Our EFC is very high using the FAFSA (especially the Profile method) due to our taxable account balances and home equity.  It is close to full cost of most colleges.

Are there any schools that would not consider our assets but only income?

John

My answer:

Most schools exclusively use the FAFSA and the FAFSA does not ask about home equity of a primary home so that’s not an issue.

In addition,  if you have a lower adjusted gross income –  below $50,000 — you can qualify for something called the Simplified Needs Test, which doesn’t require that you disclose assets on the FAFSA. To be eligible for the Simplified Needs Test, you can’t file the regular federal tax return.  You must also be able to file a 1040A or 1040EZ tax form. Sometimes with high valued assets, however, capital gains could require that you file a 1040.

At some FAFSA-only colleges, however,  if you qualify for the simplified method, you will get federal aid (loans, work study and a Pell grant) for some of your award package since your EFC will be low, but for the school’s own institutional funds, (the good grant money that doesn’t have to be repaid), they look at the assets regardless of the simplified method.

While you might be able to avoid disclosing your assets on the FAFSA, you wouldn’t be able to do this on the PROFILE, which delves deeper into a family’s finances. The PROFILE is used by 249 schools that are almost all private. The five state schools that use the PROFILE for undergrads are:

  • University of Virginia
  • University of Arizona
  • University of Michigan
  • University of North Carolina
  • College of William and Mary

Barry’s Question:

How about a post on the FASFA and financial aid for returning students?

Oberlin College

There is a section of FAFSA which asks for the student’s financial information and has a couple of questions about work study and any scholarships received that “were reported to the IRS” or some such language. This worried us until we called the college fin aid department and they explained that we did not need to fill in the scholarship received from the college itself, but we did need to report our daughter’s earnings (only a bit over 1k) in the federal work/study program.

Anyway, just an idea for you to consider.

Barry

Answer:

Thanks for the idea Barry. All work-study earnings are taxable income and must be reported as such. Students are supposed to report work-study earnings in the FAFSA’s Additional Financial Information section. The good news is that work-study earnings are excluded when determining a student’s financial need.

And just as Oberlin told you, institutional scholarships from the college should not be reported on the financial aid form.

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.

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9 Responses to It’s Time for FAFSA Questions

  1. Beatriz January 9, 2013 at 7:28 pm #

    Hi Lynn,

    Thanks for your post! Right now most high schools in California are doing what is called “Cal Grant” drives in order to complete the FAFSA form before March 2, 2013 for students to qualify for State monies (thus Cal Grant).

    The mistakes that I see frequently is students and their families waiting until the last minute to complete the FAFSA because they either (1) don’t have the current year income taxes (2012) or (2) because they are waiting to know if their child got admitted or not. Families need to know that FAFSA can be completed using last year’s forms (in this case 2011) and corrections can be made later after the 2012 have been completed and know that they can apply and submit forms event before submitting an admissions application!!!

    In public schools we have students confronted with a myriad of situations whether it is that they are coming from divorced households, independent, foster care (CHAFEE GRANTS), and undocumented.The best advice is to for students to seek help with their counselor so they can be referred to the right source and reading blogs like your is helpful because they can read another perspective and see other questions/inquiries from other families…….

    Reading blogs like this is also very helpful so students and their family can get another

    • Lynn O'Shaughnessy January 10, 2013 at 12:23 am #

      Thanks for the great advice Beatriz!

      Lynn O’Shaughnessy

  2. Philip January 9, 2013 at 8:15 pm #

    Since I am sending the FAFSA to several schools in one batch, can the financial aid/admissions staff in each school see the list of schools that I am applying to?

    • Lynn O'Shaughnessy January 9, 2013 at 9:10 pm #

      Yes Philip. The schools, if they care to look, an see what schools an applicant is applying to.

      Lynn O’Shaughnessy

  3. Dan January 10, 2013 at 5:39 am #

    We purchased your “Shrinking the cost of college” last year. Our AGI is about $100K and we have about $150K in taxable investments. We also fund 2 401ks at 15%, At 51 years old I am the oldest parent. We were surprised that our FAFSA EFC came in high at $36K. It seems high compared to the examples that you give in the “Shrinking the cost of college” for our income and savings/Investments. Has the EFC for a given AGI increased over the last couple of years? The FAFSA form seemed straight forward and am pretty certain that we filled it out correctly. Does the EFC of 36K seem about right for our situation?

    • Billy January 12, 2013 at 3:18 pm #

      I agree with you Dan, it seems too high. I have number similar to you, 96K, 51 years old, one 401K at 6% and over $ 150K but in Retirement plan. My EFC was 14K.
      Maybe your investment/saving was what triggered your high EFC.

  4. Michelle January 19, 2013 at 8:16 am #

    Do I have to report non-discretionary contributions to tax-deferred pension? My government employer requires me to contribute 8% of my income to a state pension plan.

  5. Kay January 31, 2013 at 7:05 pm #

    If I claim my daughter as a dependent on 2012 tax return, can my ex-husband use his financials when she completes the FAFSA for 2013-2014 school year? She will be living with him all of 2013. If my claiming her for 2012 will then require her to use my financials for next year, I will agree to let my ex claim her for 2012. Thanks.

    • Lynn O'Shaughnessy January 31, 2013 at 10:38 pm #

      HI Kay,

      Who completes the FAFSA will depend on where the child stayed the majority of the year from the day the FAFSA is signed. If it’s submitted on Feb. 15, for instance, you’d want to have calculated Which parent took care of the student the majority of those 12 months. Who completes the FAFSA has nothing to do with who pays child support or who claims the child on the tax return. Check out this video/blog I did on this subject. http://www.thecollegesolution.com/how-does-financial-aid-work-when-youre-divorced/

      Lynn O’Shaughnessy

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