Five FAFSA Tips To Help You Avoid College Loans

FROM FORBES.COM

Last time this year, I was filing the FAFSA, which is the key to college financial aid. While I’d rather have a dental filling, there are some key steps that will help you get through it and avoid loans.

I’m going to square with you. The government doesn’t make it easy for you to complete the FAFSA. But in most cases, it’s the only way colleges will consider you for financial aid, so walk through it step by step.

It’s funny, but the Department of Education, which administers the FAFSA, doesn’t make any direct decisions about financial aid. Colleges do. Yet it provides a thumbnail for how much your family will be expected to contribute to college costs, which it calls the “expected family contribution (EFC).”

There’ nothing precise about the FAFSA. It doesn’t determine aid amounts, nor does it give you any money directly. It won’t even tell you exactly how much aid a college will give you. Financial aid awards are still a real black box. You’ll still have to work with a college to try and get the best deal. Here are five essential points:

 * Every detail matters on the FAFSA, so be accurate and complete.

Details like dependent and parental status are huge on the FAFSA. If a student comes from a single-parent household, for example, the chances of getting aid are much greater. Who has the child as a dependent on tax forms? Dependent and independent status are also important.

* Provide all relevant financial information.

Although you can download your tax returns, make sure the FAFSA has information from all income sources. Ultimately, the FAFSA will tell colleges how much money is available for college expenses. No college expects you to tap into retirement savings or sell your home. While you have to report that information, it’s not part of the formula.

* Asset location is important.

As I mentioned earlier, colleges will want to know about your savings, but it’s important where that money is held. If you have a stock portfolio that’s outside of a retirement account, that will count as funds that could be tapped for college.

Assets in 401(k)s, defined pensions and life insurance policies aren’t seen as “liquid” for the purposes of college financing. Colleges will downgrade your aid package if there’s a substantial amount of money in a child’s name, such as in an UGMA trust. That’s why 529 savings plan, owned by parents for the benefit of children, are better vehicles for aid qualification.

* Respect the FAFSA “window,” so file early.

Many forms of aid, such as state scholarships, are first come, first served, so file as early as you can before February 1. Next year, those deadlines will change, but for now, the early bird gets the worm. The student is the person filling out the form, so make sure he/she has their “FSA ID” so they can file a secure FAFSA.

* The FAFSA is not an aid offer.

Keep in mind that the EFC — what you’re expected to contribute to pay for college — is not written in stone. Every college may have resources they can bring to the table. You can certainly press them on tuition discounts, grants, work-study and scholarships. Also apply for outside scholarships. Many elite and private colleges have special scholarships that they can tap that they don’t advertise.

The key to understanding the FAFSA process is that it only opens the door to an aid discussion. Your main objective is to acquire as much non-loan aid as possible. And the first financial aid package a college offers needn’t be their last. You can request a “professional review” from the college’s aid office, which is an appeal for more money.

For more help on financial aid, you can start here. I also recommend “Filing the FAFSA,” which is available here.

Do you think the FAFSA will be a waste of time because your family makes too much money? Fill it out, anyway. There’s no hard-and-fast formula for aid these days. And your student may still qualify for merit aid, which is not based on financial need. Ask for any kind of grants, scholarships or tuition discount available. You won’t know about these opportunities unless you work with a college directly.

The best thing about the FAFSA expedition is that not only can you save thousands on college costs, everything you need to know in the way of advice is free. All you have to do is spend the time and work through the forms.