Personal Finance | September 21, 2021

College-Bound Student? It’s Time to Fill out the FAFSA®!

Dear Carrie,

My daughter is a junior in high school. When my eldest daughter applied to college a few years a years ago, she didn’t qualify for any financial aid. Is it worth applying again? It seems like such a hassle.

—A Reader

Dear Reader,

My quick answer to your question, even without knowing the particulars of your situation, is a resounding ‘yes!’ Every year, thousands of eligible families don't apply for financial aid for a variety of reasons: they think they won’t qualify, they believe the process is too time-consuming or difficult, or they simply aren’t aware of the possibilities.

The unfortunate result is that by failing to apply, they could leave thousands of dollars on the table—not only in the form of scholarships and grants, but also in federally subsidized loans, work-study programs, and state- or school-specific packages. The Free Application for Federal Student Aid (FAFSA®) is the gateway to all of these opportunities, so I definitely encourage you to file promptly.

It’s probably easier than you think

The first thing to recognize is that completing the FAFSA has gotten a lot easier in the last few years—much easier than doing your taxes. According to the IRS, filing taxes takes the average taxpayer around eight hours, but it takes most people less than an hour to complete the FAFSA, start to finish.

You can reduce potential errors and speed processing time by using the new IRS Data Retrieval Tool to import IRS Form 1040 federal tax return information when you complete the FAFSA online rather than mailing your application. FAFSA considers income from "prior-prior" or last year’s tax return filing (for example, if your daughter is going to school in the Fall of 2024, it will be based on your 2022 tax return). Or if you prefer a mobile app, the FAFSA form is also available on the myStudentAid app, available on the App Store (iOS) or on Google Play (Android).

Don’t assume you won’t qualify

While it’s true that financial aid is geared to help students most in need, many upper middle class and affluent families may still qualify. Not all financial aid is need-based, and different programs will have different asset and income criteria.

It’s also true that you may now qualify if there have been changes to your financial circumstances. For example, if you now have more than one child in college, this can make a big difference in your eligibility for aid. Other significant changes might include divorce, loss of a job, or financial issues as a result of COVID-19. Therefore, don’t assume you’re not eligible—it’s better to apply and see. After all, your chances of receiving aid if you don’t apply are zero! You can also use FAFSA4caster to estimate eligibility for federal aid.

It helps to be organized

Your first step is to apply for a FAFSA ID, which can take one-three days. You’ll use this username and password to start the FAFSA and to act as your signature.

Then, to make things easier as you fill out the form, gather necessary information. Along with your Social Security number (or Alien Registration Number) you’ll need financial information including bank and investment statements and income documentation for your salary, child support, alimony, interest and dividends, or VA benefits. Some of this income may be untaxable, but will still need to be included.

Next come your assets. IRAs, 401(k)s, qualified pensions and annuities aren’t considered available or “reportable” assets. Your primary residence, family farm, certain small businesses, life insurance and personal possessions like cars also are not considered. 529 College Savings Plans and Coverdell Education Savings Accounts are only partially considered, which is one of the reasons they’re a great way to save for college.

Last, you’ll want a list of schools you’re interested in. Include all that you’re considering (you can list up to ten at one time), even if you haven’t applied or think you might change your mind. You can find out about colleges: their programs, costs, admissions, results, and more at College Scorecard. You’ll hear directly from the schools in a few weeks. 

Aid comes in lots of flavors

The FAFSA is the main gateway to much more than need-based grants or scholarships. In fact, the FAFSA also opens the door to work-study opportunities and federally subsidized loans. In addition, many schools use the FAFSA for their own non-federal aid programs, as do many private and state organizations.

Every family looks different

The FAFSA is designed to accommodate every type of family. If parents are divorced or if there is a step-parent, you can use this guide to see which parent’s information you should include.

Older students who no longer live with their parents can file on their own (without parental information) if they can answer ‘yes’ to any one of these questions. Otherwise, they’re still considered a dependent for purposes of federal student aid even if they don’t live with their parents, aren’t claimed by their parents on their tax forms, or are paying their own bills and educational expenses.

Be an early bird

My final piece of advice is to apply as soon as the FAFSA becomes available on October 1. Even though the federal cutoff is June 30, your state or schools may have different deadlines. Because some forms of aid are limited and made available on a first come, first served basis, it’s best to be at the front of the line.

Looking to the future, you'll need to file an updated FAFSA every year your student is in school. Fortunately, some of your information will automatically carry over; it will be up to you to supply personal and financial updates that may impact your award, whether that’s positive or negative.

A college education can be a life-changing opportunity. In fact, studies have shown that a college degree can translate into greater career opportunities, increased lifetime earnings, and enhanced life satisfaction. Fortunately, many different forms of aid can help offset the financial burden for millions of students who come from strikingly different backgrounds. It behooves students and families to take maximum advantage of this aid by filing the FAFSA with care and on time.

Have a personal finance question? Email us at Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

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