Free application for Federal Student Aid (FAFSA) — emphasis on the free
The Free Application for Federal Student Aid, commonly referred to as the FAFSA, should always be a part of the college preparation process. It is never too early to start thinking about it. The FAFSA application is the official form by the government to determine eligibility for federal student aid: grants, loans and work-study.
The application process opens on October 1 each year.
Why should I file the FAFSA?
You should apply because you never know what you might be eligible for. Unfortunately, it’s very common for families to assume they will not be eligible for anything, and they don’t complete an application.
Completing an application is also a beneficial step for your college preparations because:
- Applying is free. The application is used to determine financial aid at the federal level, but it is also frequently used to determine state and institutional aid eligibility, which have different parameters for determining aid eligibility. Check with your schools’ financial aid office to ensure you’re applying for all types of financial aid available.
- Not all assets are required to report. You may be missing out on aid opportunities if you’re including values that are not required to report. Do not report the value of your primary residence or retirement accounts. (More information on what is and isn’t required to report below.)
- Every applicant with a valid and complete FAFSA application is eligible for a William D. Ford Federal Direct loan up to $5,500 (first year loan limit). No credit or credit check required. There is no obligation to borrow this loan, and students may have up until the end of the academic year to borrow. The loan has an interest rate annually set by the government that typically is significantly lower than private financing.
- Paying the bill doesn’t have to come from the same source. There is not a one-size-fits-all approach to covering the cost for college. That’s why it is best to always file the FAFSA application to keep all options open and make sure you’re not leaving any free aid on the table.
Impactful tips for completing the application
- Use the data retrieval tool. This is a secure way to directly transfer in your tax return information that is required by the FAFSA application. Transferring your data is considered verified information to financial aid offices reviewing the application. This may save you additional steps or paperwork in the application review process.
- Don’t leave data fields blank. $0 or N/A is a valid answer if a question is not applicable to you.
- Reference the question mark bubbles alongside the questions or the notes pages if you have the PDF or paper version. It will explain in greater detail what is required to report and where to find the information.
- Only report what is required. The investment and asset portion of the application can be especially confusing.
- Do not report any value of life insurance or retirement accounts, such as 401(k) plans, pension funds, annuities, noneducation IRAs, Keogh plans, etc.
- Do not report the value of your primary residence that you live in.
- Do not report ABLE accounts.
- Investments you do need to report include: Real estate that is not the home in which you live; rental property; trust funds; money market funds; mutual funds; certificates of deposit; stocks; stock options; bonds; other securities; installment and land sale contracts (including mortgages held); commodities; etc.
- Know the benefits about reporting 529 Education Savings
- 529 account balances that are owned by student’s custodial parent/guardian are considered parental assets, not student. Reporting the 529 balance as a parental asset compared to student assets are assessed at a lower percentage for calculating aid eligibly. However, parents do need to include all 529 accounts they own, not just for the applicant.
- If you have a 529 account that is owned by someone other than the custodial parent/guardian on the FAFSA application, the value does not have to be reported as student or parent asset.
- However, distributions from that account for the student’s education costs will need to be reported in the following year’s FAFSA application as untaxed income. The Department of Education will announce when this ruling will no longer apply due to the FAFSA Simplification Act.
- Overall, 529 accounts owned by persons other than the custodial parent/guardian is better for minimizing assets reported on the FAFSA application. While the distributions for the educational expenses still need to be reported as untaxed income, that amount would be smaller than the entire account balance.
- Consider moving UGMA/UTMA account balances to a 529 education savings account. UTMA/UGMA accounts are considered the asset of the student, not the owner/custodian like 529 education savings accounts.
There are different benefits available to you for the way you save for college. Families that want to plan ahead should consider early different rules and requirements about the FAFSA application and annually review as the Department of Education implements new regulations.
It is important to remember that financial aid is an annual process and grant aid may fluctuate year to year based on FAFSA information. Wipfli Financial Advisors can help you maximize your savings, minimize the impact on your FAFSA application, and get you familiar with the financial aid process ahead of time.