Q&A: Financial Aid Applications

This is the time of year when people are filing for financial aid. In this post, I’m sharing a few of the questions that I’ve gotten about applying for aid.

What financial aid applications do my husband and I have to fill out if we want financial aid for our child?

All colleges require parents to file the Free Application for Federal Student Aid (FAFSA). The FAFSA determines whether students will qualify for state and federal aid and most schools also use this form to determine who will be eligible for their own in-house aid.

The first filing date for students submitting the FAFSA for the 2016-2017 school year was on Jan. 1.

There are 229 undergraduate colleges and universities, nearly all of which are private institutions, which require filing the CSS/Financial Aid PROFILE, which is a creature of the College Board. These schools use the PROFILE to determine who qualifies for their own institutional aid. These schools, however, still use the FAFSA to determine eligibility for federal and state aid. The PROFILE for the 2016-2017 school year was available beginning on Oct. 1, 2015.

Here is the link for the names of all the PROFILE schools.

Do any public universities use the PROFILE?

Yes. The names can change, but currently the PROFILE website says the following state schools use this secondary application:

  • College of William and Mary
  • Georgia Institute of Technology
  • University of Michigan (Ann Arbor)
  • University of North Carolina (Chapel Hill)
  • University of Virginia (Charlottesville)

Our daughter is a junior in high school. Can we will out the FAFSA and PROFILE now?

Your child must be a senior in high school before your can file the applications.

Are there support numbers if I need help with the PROFILE or FAFSA?

Here is the FAFSA contact link. The toll-free FAFSA hotline is 1-800-4-FED-AID (1-800-433-3243). You may also find this federal Financial Aid Tool Kit helpful.

With questions about the PROFILE, contact the College Board by calling (305) 420-3670 and via email at help@cssprofile.org.

 When filing a FAFSA with estimated numbers, what numbers need to be final and which can be changed later? Same with the CSS/PROFILE? 

Also, the College Board says to update the PROFILE directly with the colleges. Does this mean I have to contact each college with the updated numbers, or can it wait until after May 1 when I know which college my daughter is attending?

The figures that can be changed on the FASFA are the ones that can be found on your 2015 income tax return that must be used to complete the 2016-2017 FAFSA. You can’t go back and update the PROFILE once it’s submitted, but these schools routinely require that you also provide your 2015 tax return. Without this information, a school won’t be able to provide a final financial aid package.

Does the order of colleges matter on the FAFSA?

The order of the schools on the FAFSA no longer matters! The federal government, beginning this year, stopped the controversial practice of sharing the schools that a student applies to with the other institutions. Parents worried that schools were denying admission and reducing aid to students based on the order of colleges listed on the FAFSA.

The FAFSA only allows us to include 10 schools on the application, but my child is applying to 12 colleges. What should we do?

You can only include 10 colleges at one time to the FAFSA and once those are processed, you can take off two and add two more. If you update your FAFSA later, you will have to go back and add the two you deleted. Here is the link to the federal instructions.

Do investments in qualified retirement accounts like a 401(k) and IRA in the BASE year get counted for financial aid purposes?

If so, and if the family is able to contribute a substantial amount to a qualified retirement account in the year PRIOR to the base year, that would allow them to shelter more money before beginning the 4+ years of filling out financial aid forms. Correct?

Retirement assets do not get counted in the financial aid formulas, but a family’s contributions in the base year do get counted as my college fund jar!untaxed income and these contributions are added back to their adjusted gross income in the income portion of the aid formula.

Here’s an example:

Let’s say parents have $250,000 in retirements account. This money will not impact financial aid when a families applies for aid. But let’s say the parents contributed $10,000 to retirement accounts in 2015. When they apply for aid in 2016, that $10,000 in contributions will be treated as the parents income.

There is an exception to this rule. If you contribute to a Roth IRA, the contribution won’t be added back because the Roth doesn’t prevent an upfront tax brake like a 401(k) or traditional IRA does.

The best way to avoid this is to do what you are suggesting. Contribute a lot of money into a retirement account before the base year. Keep in mind, however, that the base year, which used to be the most recent full calendar year is changing. So if the child will be applying to schools for the 2016-2017 school year, 2014 would have been the year to invest heavily in a retirement account since these contributions would not show up on any financial aid forms.

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?

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 must be able to file a 1040A or 1040EZ tax form. Sometimes with high valued assets, however, capital gains could require that you file a regular 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), it might 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.

We make over $500,000 a year filing jointly, max out our 401k contributions and have seven figures in assets. Admission people say to still file a FAFSA. In some cases, schools say I must submit a FAFSA for my child to qualify for merit money. I am against filing a FAFSA for privacy reasons. What should I do?

If your child wants to attend a school where it requires filing the FAFSA to obtain a merit scholarship, you would lose out on the money if you don’t file. I don’t understand why you would want to walk away from a merit award.

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.

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

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 two 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 curled dollarshomeowners and do not have much outside of our retirement plan.  Am I right about this?  Lastly, my son did apply to one state school that we could afford without financial aid.  At this point, we’re waiting to hear back from all the schools.

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:

Your First Financial Aid Step

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. 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.

houseYour 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.

Learn More…

If you would like to discover much more about financial aid and how to find generous labschools, I’d recommend signing up for my next online course – The College Cost Lab.

If you want to be on the notification list when I release more information about the courses that starts in February, please send me an email at Lynn@TheCollegeSolution.

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