“College is one of the most expensive purchases a family will make in their lifetimes” according to Jeff Levy, Certified Educational Planner with over a decade of experience as an educational consultant. Levy shares the mistakes families make that can have serious consequences for their teen’s ability to maximize merit and financial aid.
Financial Aid and FAFSA Mistakes
1. Believing advice from people who aren’t qualified to give it.
Yesterday I heard from a parent that an English teacher at his daughter’s school recommended “a little-known tip.” The teacher advised at the school’s college night that students select “not applying for financial aid” on their college application, and to wait until after they’re admitted to submit the FAFSA. This advice couldn’t be more incorrect, unethical, and potentially catastrophic to the family.
2. Deciding not to apply for financial aid because “we’ll never qualify.”
Most families have no idea whether they will qualify or not. Data consistently shows that many who are the most eligible for need-based aid never submit the FAFSA.
3. Not filing your income tax returns before applying for financial aid.
There is now ample time before the FAFSA opens to file the prior-prior year’s tax returns. For current high school seniors who will be enrolling in college in the fall of 2020, the FAFSA opens on October 1, 2019 and looks at the family’s 2018 tax returns, nearly six months after the April 15 tax filing deadline.
4. Missing the college’s institutional deadline.
If your child is applying to lots of schools with Early Decision, Early Action, and Regular Decision deadlines, keeping track of all these can be annoying. But it must be done. Going to each college’s website to gather and collate this information will take you or your child about 20 minutes.
5. Deciding not to apply for financial aid as a freshman, and planning to ask for it later.
Many schools will give a full-pay applicant an admissibility bump in exchange for the higher net revenue he or she brings to the institution. If such an applicant decides in later years to suddenly request financial aid, many schools will not consider that request, thinking that the applicant has gamed the system and wants it to advantage them both ways.
6. Not having a savings plan for college.
One of the most destructive myths about paying for college is that saving for it is a waste of time. People who advise this are either terribly ill-informed, have a hidden agenda, or both. The single best way to prepare for the cost of college is to save, and the single best way to save is to use time to your advantage. Start early, and save what you can.
7. Taking a work bonus in the FAFSA “base year.”
The single biggest factor in determining what a family is expected to pay towards college is their Adjusted Gross Income found on line 7 of Form 1040 of their federal tax returns. Any income that can be postponed from the base year (2018 for students starting college in 2020, 2019 for students starting college in 2021, etc.) to the following year will decrease the student’s EFC (Expected Family Contribution) and increase his or her eligibility for financial aid.
8. Listing the 529 savings plan as a student asset instead of a parent asset.
Even though the student is the beneficiary of the 529 savings account and the parent the custodian, the Department of Education has stipulated that these savings plans should be listed as parent assets. This is an important advantage because in the federal and institutional need methodologies parent assets are “penalized” about one-quarter as much as student assets.
9. Accumulating savings in a student-owned account.
While this can be a tax advantage, it is always a financial aid disadvantage. It is important to check with your tax advisor to see which is the best approach for you.
10. Allowing the grandparents to write the check directly to the college.
A big, big no-no. Grandparent income and assets are not included in the FAFSA or CSS Profile. If suddenly a large check appears at the college registrar’s office, funds that have not been listed in the parent or student sections of the FAFSA, the college has the right to consider this untaxed (and undeclared) student income, and it could significantly reduce the student’s eligibility for need-based aid.
11. When parents have separated or divorced, choosing to spend 50.1% of the year with the wealthier parent.
The FAFSA (unlike the CSS Profile) is only concerned with the custodial parent, the parent with whom the student spends at least half the year. The non-custodial parent is not listed on the FAFSA and their information is not reported. If there is a significant difference in income and assets between the two separated or divorced parents, the choice of custodial parent will have a significant impact on the eventual financial aid award.
12. Borrowing more than you can afford.
College is one of the most expensive purchases a family will make in their lifetimes. Borrowing part of this cost to make a college degree possible is not an unwise choice, just as borrowing part of the cost of a home can be a smart way to make home ownership possible. But borrowing too much for college can be catastrophic. Each family will need to decide for themselves how much debt is reasonable.
13. Not taking advantage of low interest federal student loans.
Federal student loans are generally packaged as part of the financial aid award. In fact, the loan portion of the financial aid award is generally the maximum amount a student can borrow annually from the federal loan program. These are low interest loans with many built-in repayment protections, usually far safer and less costly than private bank loans.
The federal cap on how much a student can borrow over four years of college is $27,000. Repayments would begin six months after graduation, and would be manageable even for a new graduate earning as little as $30,000 per year. I generally recommend taking advantage of this loan program if it helps the family meet the high cost of college.
14. “If she gets into _______ , we’ll make it work!”
This thinking usually leads parents straight into the abyss of excessive borrowing of parent loans, with higher interest rates, higher fees, and a larger principle than federal student loans. Parents must think carefully about how many actual earning years they have in front of them before going into substantial debt at an advanced age. And there are always less expensive options for college.
15. Not calling the financial aid office when you have a question.
These folks are not your enemy, and they are not the IRS. They are usually happy to answer your questions and can be an excellent resource to navigate the complexities of the financial aid system.
* Check with your tax advisor for specific questions about your family financial requirements.
Jeff Levy, CEP, is an educational consultant based in Santa Monica, California. He works with students locally, regionally, and internationally on their college search and application process, and with parents on college affordability and financial aid. He can be reached through his website here.