Ten Mistakes That Could Cost You Financial Aid
The FAFSA and CSS profile are complicated financial forms but they are the ticket to receiving needed financial aid for college. Listed below are some of the common mistakes parents make which may cost them.
Failing to file the FAFSA
This is the “go to” form for most colleges and universities to determine the need for federal, state and institutional aid. Financial aid-, not merit aid- is based on the difference between the college costs and the parents’ ability to pay it. Don’t assume you are not eligible! While some may not qualify at a lower cost state institution, they may at a higher cost private college, making the private college the same or cheaper than the state one.
Waiting to file the FAFSA
It’s often “ first come, first serve” for aid and some schools have priority deadlines. File as close to October 1 as possible. Those who file in the first three months tend to receive double the grants of those who wait until the deadline.
Failing to apply for scholarships
Check the deadlines for scholarships from the college and those from organizations. Many deadlines are in the Fall. Remember every dollar in scholarships is one less you have to borrow.
Saving for college in the child’s name instead of the parents’, or in a 529 college savings plan.
Student assets reduce eligibility for need-based aid by about 20% ( CSS Profile has student assets reduce eligibility by 25%). This is in contrast to the 5.6% at most reduction with parents’ assets or parent owned 529 plan.
Saving for college in a grandparent-owned 529 plan.
Although not reported as an asset, this has a worse impact on eligibility than the student’s assets. The full amount from a 529 plan that is not reported on the FAFSA will count as untaxed income for the student. Eligibility for financial aid can be reduced by as much as 50% of the untaxed income.
Increasing income in the base year
FAFSA base income and taxes on the prior-prior year’s income tax returns. (E.g. the 2018-19 school year is based on 2016). Capital gains and retirement plan distributions that increase income in this base year will reduce eligibility.
Failing to claim education tax benefits
The American Tax Credit and Lifetime Learning Tax Credit are claimed on your federal income tax based on money spent on tuition and textbooks during the tax year. Many forget to claim then because the money was spent long before the tax return.
Failing to sign up for auto-debit on student loans
This automatically transfers monthly student loan payments from your bank account. Many lenders offer a lower interest rate for this and it avoids late fees.
Borrowing private student loans instead of federal student loans
Federal student loans are cheaper, more available and have better repayment terms.
Failing to appeal for more financial aid.
If the family has special circumstances that could not be included in the FAFSA, they should always appeal for more aid. Ask for a professional judgment review. Special circumstances could include job loss, salary reduction, unreimbursed medical costs, dependent care costs or disability costs.