FAFSA-3 BIG Mistakes that Cost You Money & Why Everyone Needs to File

TRANSCRIPT:

The FAFSA-3 Big mistakes that cost you money! & YES! You need to file

Hi, I’m Denise Thomas.

Today is October 1st, it’s FAFSA day!

This is the day the Free Application for Federal Student Aid opens for high school seniors.

First, Don’t panic! You do NOT have to submit the application today! This is just the date that it opens. But I do suggest that you file it sometime this month because the money is given out on a first-come-first-served basis.

Now, most parents are under the mistaken belief that it’s not worth filing the FAFSA because they make too much money to ‘get anything’. Just last week a parent asked in confidence, “My husband makes 200,000 dollars a year, should we bother with the FAFSA?

The short answer is YES. Everyone needs to file the FAFSA.

The application is not only for federal grant eligibility for low-income families. Without filing the FAFSA your teen won’t be offered a work-study job on campus or low-interest student loans, and You won't be offered low-interest parent loans at schools that accept federal dollars. And although I’m personally opposed to student loans, I also know crud happens sometimes. If you file the FAFSA, and suddenly your teen loses their merit scholarships, or you had college savings for part of the cost but had to use it for a family medical emergency, at least you have the option to fall back on.

BUT that’s not the only reason to file the FAFSA.

When you submit the form, the calculation spits out a 6 digit number. That number is called, the EFC, Expected Family Contribution. But don’t freak out when you see it. No one really expects you to pay that much each year for college. If that were the case, most families would have to sell their house and live in a cardboard box. No. I wish they would change the name because believe me, you WILL bust out laughing when you see it.

The EFC is a number used by colleges and universities in their own calculations to determine need-based aid or discounts, and sometimes it’s used in combination with GPA and test scores to determine merit-based scholarships. However, if you don’t file the FAFSA, or if a school your teen is applying to isn’t listed to receive it, the school is not going to call you to say, hey we’d like to offer your kid this free money but you need to send us the FAFSA. Nope. You’re just out of luck.

Everyone, regardless of income, should file the FAFSA. It’s not like the federal government doesn’t already know how much you make.

I mentioned need-based aid. Need has a very different definition from you and one school to the next... For example, Harvard gives no merit-based scholarships since the vast majority of applicants have high GPA’s and test scores there’s no reason to dangle the merit scholarship carrot to get those teens to apply. Using the Net Price Calculator for Harvard,  a parent w a $150k income can qualify for enough ‘need’ discounts to only pay 20k/year (and that includes tuition fees room board, and books.)

All is not as it seems.

Always file the FAFSA. And you’ll have to do it every year.

So HOW do you get started?

The very first step is applying for your FSA ID and this step comes days or weeks before you and your teen sit down to fill in the information. The FSA-ID is your digital signature and both a parent and teen need to apply for individual FSA ID’s online before you being working on the FAFSA. One parent and the teen each need their own FSA ID’s. You’ll receive confirmation a few days up to two weeks later. When you receive it, Keep it safe because you’ll need it to file the FAFSA every year that your teen is in school.

To get your FSA ID go to the website: fsaid.ed.gov and follow the instructions. Links are in the notes.

Once you have that, now you can get started filing the FAFSA:

So, What information WILL you need to file the FAFSA form, and how long does it take?

Because you’ll be reading the instructions the first time It could take 1 to 2 hours to complete But after that, probably 45 minutes or so.

You’ll need the taxes that both you and your teen filed for the previous year. So if your high school senior will be a college freshman in the Fall of 2021, You will file the FAFSA in the fall of 2020, using your taxes from the year 2019. Confusing? yes.

When you go to the site there is an area that gives a list of the additional information you’ll need to gather together.

Basically, You’ll also need bank Acct information (amount of cash and investments) AS OF THE DATE you file the FAFSA.

So if you plan to -buy a pricey laptop for your kid, pay for an add-on to your house, buy a car w cash, do it b4 hand.

The parent’s assets are credited as just over 5% in the calculation of your EFC; your kid's assets are credited at 20%. So for example, if your kid has 30k in the bank, 6k will count toward the expected family contribution.

If YOU have 30k in the bank, then only 1500 will be part of the EFC.

Remember this is just a number that schools will use in their calculations. And every school is different.

So what are some of the biggest mistakes families make when filing the FAFSA?

When filling out the form, read the instructions for each line carefully.

The first common mistake is not Putting your kid in the chair in front of the computer to fill it out, with the parent looking over the shoulder to ensure the correct info is entered. Parents who are in the chair often misinterpret who’s information they are asking for. Every question is from your teen’s perspective.

That mistake often cost thousands of dollars.

Another mistake often made is including your primary home in the assets. Do not include your primary home value. Only list real estate holdings that are not your primary home.

The 3rd big mistake is the line for investments.

Investments do not include regular 401k’s and Roth IRA’s- these are traditional retirement accounts. But they DO include all others- if for example you’ve maxed out your 401k and Roth IRA, and have additional stock investments, even if YOU are designating them for retirement, those need to be listed. Same for other real estate or land owned that you are holding as a retirement investment.

If you are self-employed it gets a little sticky so I won’t cover that here.

Your income counts for the majority of the EFC calculation so don’t get overzealous in trying to hide money. There can be dyer legal and financial consequences for some of the shenanigans parents have tried to pull off. For example, some have moved large cash amounts from their teen’s account to a grandparent's account. But there are gift taxes to be paid on gifts over a certain value.

So remember, Get your FSA ID, and file the FAFSA every year. Even if your teen has their 4 years paid for in scholarships, having options, should something go wrong, will be a relief.

So what ARE the 3 biggest mistakes that can cost you money when filing the FAFSA

1—not filing the FAFSA at all!

2—the wrong person sitting in the chair filing out the form

3—fill in the form using the wrong assets

If you don’t have a mentor to walk you through the high school to college process, let’s chat. 

I’m Denise Thomas,
Your Debt-Free College Coach.