It's FAFSA season. The FAFSA, or Free Application for Federal Student Aid, is the tortuous form that millions of families must complete annually to be eligible for financial aid at thousands of colleges and universities.
The latest FAFSA, which contains 136 questions, is complex — despite efforts by the federal government to simplify it — and it's incredibly easy to make errors.
Paula Bishop, a CPA in Bellevue, Wash., who has completed countless FAFSA forms for clients, tells me that she has never seen a parent fill out a FAFSA without making at least one mistake. Unfortunately, even one mistake can cost parents tens of thousands of dollars in lost aid, so getting these forms right is crucial.
If you have clients whose children are high school seniors or returning college students in the fall, it's important to understand how to master the latest FAFSA, which was released on Jan. 1. Here are 14 tips to help your clients successfully complete the FAFSA:
- Don't include retirement assets on the FAFSA.
The FAFSA formula doesn't care how much you've got stashed in your IRA, 401(k) or other qualified retirement accounts and doesn't ask. You could have millions stuffed in qualified accounts and it wouldn't hurt your chances for financial aid.
The FAFSA does ask about taxable accounts and colleges savings plans.
- Don't assume you won't qualify for aid because of your home equity.
The FAFSA doesn't inquire if you own a house, so the amount of home equity you enjoy is irrelevant. The FAFSA does ask about second homes and real estate investments.
- Be careful what assets you include in your calculations.
In addition to your home equity, don't include cars, boats, furniture or other household possessions as assets.
- Avoid procrastinating.
File the FAFSA as soon as possible. If you wait until April to file your taxes and the FAFSA, you could miss deadlines for state financial aid assistance, as well as need-based help from your child's college.
If you can't complete your income tax return promptly, fill out the FAFSA with estimated figures.
- List the most current marital status.
You need to state what your marital status is on the day that you sign the FAFSA, whether you are married, separated or divorced.
- Have the correct parent complete the FAFSA.
In cases of divorce and separation, make sure that the right parent completes the FAFSA. The custodial parent must fill out the financial aid form, but that won't always be the person who enjoys legal custody through a divorce decree.
For financial aid purposes, the parent who must complete the form will be the one who has lived with the student for the majority of the year. For example, if the child resided with the mother for 6.5 months in 2010 and the dad for 5.5 months, the mom would complete the form.
Ideally, the divorced parent completing the FAFSA will be the one with the lowest income because only his or her finances will be shared on the aid form. The FAFSA won't ask about the ex-spouse's information.
- Don't enter the wrong income tax figure.
Provide the federal income tax you paid or will pay based on your 2010 federal tax return — not the tax withholdings on you and a spouse's W-2 forms.
- Be careful about tapping retirement funds.
When you withdraw money from retirement accounts, this money will be counted as part of your adjusted gross income, which will impact your Expected Family Contribution (EFC). Your EFC is the dollar amount that a school, at a minimum, will expect you to kick in for one year of your child's college expenses.
- Avoid blank answers.
If your intended answer on the FAFSA is zero, write “0” or “not applicable.” Leaving blanks can cause miscalculations and the application could be rejected.
- Don't inflate your education.
If both parents didn't graduate from college, don't list “college” as their highest education attainment even if they did attend some college. Plenty of schools treat applicants more favorably if they are considered “first-generation” college students.
- Don't forget to list the colleges.
On the FAFSA form, you can include up to 10 colleges to which your son or daughter has applied. The federal processors will send the pertinent FAFSA information to the schools on the list.
- Double check all your figures.
That's a no-brainer, but too many people skip this step.
- Ask for help.
When filling out the FAFSA, you can obtain help through the government's toll-free number: (800) 433-3243. You can also take advantage of the government's online chat sessions by using FAFSA on the Web Customer Service Live Help on Monday through Saturday. Just Google the term.
- Correct mistakes.
After you've submitted your FAFSA, you can still correct mistakes. Return to the online form and click “Make FAFSA Corrections.” Any changes will be processed within three to five days.
Lynn O'Shaughnessy is a college consultant, author and speaker. She writes three college blogs for CBSMoneyWatch, U.S. News & World Report and TheCollegeSolutionBlog.com.