Whether you're a seasoned veteran or a brand new filer, the Free Application for Federal Student Aid (FAFSA) offers many opportunities to unknowingly decrease your eligibility for need-based financial aid and increase the cost of your student's college education. While you can't change the information that comes from your tax return, there are some opportunities to optimize your financial condition right before you file.. Below are some tips and tricks that could save you thousands of dollars over four years:
File at a low point in your cash flow cycle. The FAFSA is a point in time assessment. Pick a filing date where your assets are typically lower during the month. For example, if you put all the monthly expenses on a credit card, and then pay it off each month, file right after you pay it off. This saves you from reporting "excess" cash assets. A few thousand bucks at 5.64% doesn't seem like much, but over four years, it could increase your eligibility for financial aid by several hundred dollars.
Shift student assets to parent assets (or a Roth IRA). Student assets are assessed at 20% for the EFC calculation. With students now making $15/hour at fast food joints, many have accumulated healthy bank account balances. By shifting the student's account to an account owned by their parent you can drop the rate to 5.64%, which can decrease your Expected Family Contribution by hundreds (or even thousands) of dollars and increase your eligibility for need-based financial aid. Moving the money from a savings account to a Roth IRA removes the asset from the calculation altogether, and there's no tax penalty for using the Roth IRA for college tuition (just make sure you don't take a withdrawal before the 2nd semester of your sophomore year to avoid it counting as income).
File the FAFSA even if you don't think you're eligible for need-based aid. The FAFSA is required to be eligible for federal student loans. The unsubsidized direct loans are not need-based and have terms that would be difficult to beat in the private marketplace. Also, some schools require the filing to be eligible for merit-based aid, like scholarships, that the school offers.
File the form early. Applicants that file in the first three months receive three times as much aid as those filing later. There's only so many dollars to go around and when it's gone, it's gone. The sooner you file, the better.
There are many more ways to make college less of a financial burden. If you're interested in learning more, contact us.
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