Let’s cut to the chase by answering the five financial aid questions I am most frequently asked.
What is the FAFSA anyway?
FAFSA is short for Free Application For Federal Student Aid. This is the form every student must complete if they wish to be considered for financial aid from the government as well as most colleges and universities.
The information provided on the FAFSA is used to determine how much money your family is expected to contribute towards your student’s college expenses. Your Expected Family Contribution or EFC is subtracted from your favorite school’s Total Cost of Attendance to determine your student’s financial need. It helps define how much need-based aid you are eligible to receive.
For example, if your FAFSA shows an EFC of $10,000, but the Total Cost of Attendance at your local university is $24,000, then you are said to have “financial need” of $14,000. Of course, that doesn’t mean you will receive that amount of money in financial aid. It’s just the number that any need-based financial award you receive will be based on.
If I don’t expect any financial aid, why do I need to fill out the FAFSA?
Over $150 billion of financial aid was provided to students in the past school year. Completing the FAFSA is necessary if you hope to qualify for just about any type of financial aid including the Pell grant, state government aid, student loans and even merit-based financial aid.
Financial aid is often based on need. Your financial need is the difference between your EFC and the Total Cost of Attendance at the schools you list on the FAFSA. Considering that some schools have a Total Cost of Attendance that exceeds $60,000, you may have some financial need even if your income and assets are relatively high.
While you may not qualify for government-sponsored, need-based grants like the Pell Grant, you could be eligible to receive subsidized student loans, work-study and other types of scholarships. The only way to know is to complete the FAFSA.
I heard that money in my kids name will reduce my financial aid. Is that true?
Maybe. If your income and assets are relatively low, and you are a good candidate to receive need-based financial aid any money in your student’s name would raise your EFC and potentially reduce her eligibility to receive need-based financial aid.
On the other hand, your income alone could be high enough that you may not have any financial need as determined by the FAFSA form. In this case, how much money is in your student’s name is irrelevant because your income and/or assets are too high to qualify you for need-based financial aid.
How will my assets affect financial aid?
Each school can look at your financial information differently, but nearly all schools start by looking at your Expected Family Contribution or EFC which is a number that the FAFSA calculates.
Parents are allowed to have a certain amount of assets that have no impact on financial aid, also known as an Asset Protection Allowance or APA. The APA has been shrinking dramatically over the past few years. For a link to an article by Forbes columnist Troy Onik that describes it in detail click here.
Eligible assets above the APA that are owned by parents are assessed at a rate of 5.6%. If your kids own assets in their name, they are assessed at a rate of 20%. There is no Asset Protection Allowance for students.
Certain assets such as your home and retirement accounts are exempt on the FAFSA calculation. But any balances in savings, checking, your brokerage or mutual fund account, investment or vacation property, college savings accounts, etc. would ALL count towards your EFC at a rate of 5.6% if they are owned by you, and 20% if owned by the student.
Keep in mind, the above information applies to the FAFSA form. Some schools, especially private colleges and universities, may have their own financial aid forms called the CSS Profile form. On the CSS Profile form, and at some private schools, your assets could be viewed differently than they would be on the FAFSA.
For example, on the FAFSA equity in your primary residence is an exempt asset. Some private schools, however, may consider your home equity to be fair game when it comes to paying for college.
I make too much money. What are my chances of getting financial aid?
According to The College Board approximately two-thirds of full-time college students pay for school helped in part by grants and scholarships.
In the 2015-2016 school year, the average Pell grant was $5,775. However, there are other types of financial aid as well.
The Stafford Loan is a Federal government student loan program. Your chances of qualifying for this type of student aid are excellent (practically guaranteed, in fact) as long as you submit the FAFSA. If you have financial need – if your Total Cost of Attendance exceeds your EFC – you may qualify for a subsidized student loan. In this case the government pays the interest on the loan while the student is in school and meets some basic qualifications.
Other types of financial aid may be merit-based. If your student meets certain requirements such as a high GPA and high ACT scores, their chances of qualifying for them are excellent. In fact, nearly 100 schools claim to give scholarships to 100% of their students. You can get a list by clicking here.
These are the questions I get asked most often. You likely have others as well. For the month of February I will focus 100% of this month’s blog content on financial aid and helping you pay less for your kids college education.
Coming up in the days ahead I will post additional content about the #1 financial aid mistake parents make, the one thing that matters most when trying to pay less for college, and a special guest post by my friend and college planning expert Jeannie Burlowski.
In the meantime, download My Favorite College Planning Tools and Resources. You will find it in the upper right hand corner of this website. There you will learn some of the tools and resources I use every day to answer parents’ most pressing question of all “How am I going to pay for my kids’ college education?”
But you will have to act fast because when this Fun and Fab Financial Aid February event ends, my compliance approval for this document will expire and this free download will be removed.