It’s time for me to review financial aid files in preparation for filing our FAFSA next month. If you’re in the same position — or if you’ve never done this before — here are three quick tips to getting started with college financial aid.
1. Be Strategic.
From the Wall Street Journal’s, How to Not Blow it with Financial Aid, understand the cost of assets being held in the wrong accounts. Money in the student’s account is allocated toward what your family can pay at a much higher rate than money in the parent’s account. This is logical, sure, as the parents have many more demands on their income and assets than the student. To follow on that logic, make strategic choices about where assets are held. The WSJ article quotes Mark Kantrowitz from finaid.org, an excellent resource.
For one thing, a child’s income and assets count heavily against their potential aid. Every dollar a child has in assets—that includes bank accounts or trust funds—cuts their possible award by 20 cents. Every dollar a child makes in income above $6,130 (the limit for 2013-14 aid) cuts their possible award by 50 cents.
Before the base income year starts, parents should transfer the child’s assets—that includes any money in checking and savings accounts—into a 529 plan, a tax-advantaged savings account for college, says Mr. Kantrowitz.
2. Be Honest.
Any information families provide as part of their FAFSA will be verified by tax filings with the IRS. This can be done via the FAFSA/IRS direct interface or it will be done by the college requesting copies of past and current tax forms.
Take a look at this recent case, Attorney Disbarred for Submitting Falsified Tax Returns for Financial Aid, shared by Kelly Phillips Erb who blogs about tax at Forbes. The lawyer filed false financial aid forms, then submitted falsified tax returns to the private secondary school in support of the forms. Note: he did not file the false returns with the IRS, he altered existing returns and give them to the school to back up the financial aid forms. No matter, “He sacrificed his career and his reputation for between $6,000 and $8,000 per year.” This from an attorney who had been a partner in a firm that shared $1.5 million in profits per partner last year.
As the cost of education skyrockets, parents feel trapped to pay for school – and some of them consider lying in order to get financial aid. And yes, financial aid forms require that you submit supporting documentation, usually pay stubs or federal income tax returns. Here’s where folks get into trouble: they lie on their tax returns in order to skew the numbers for financial aid. Sometimes it’s overstating deductions (bad) or omitting income (really bad). Other times, it’s lying about dependents, exemptions and in some instances, marital status (really, really bad). In almost every instance, one lie leads to another because it’s hard to keep up. Just like with Golden.
3. Be Careful.
This quick read, Ten Common FAFSA Errors Parents Make, can help all of us avoid simple mistakes that might cause disastrous consequences. [Hat tip to Susie Watts for the link.] See the article for a brief paragraph on each mistake, but here’s the list:
- Failing to Submit Because of Income (High or Low)
- Waiting Too Long to Submit
- Submitting Incorrect Info for Divorced Parents
- Understating Income
- Overstating Assets
- Misquoting Real Estate Assets
- Misplacing Information
- Choosing to File Paper Vs. Electronic
- Failing to Consider Each Question Carefully
- Forgetting to Save as You Go
Good luck to families working on their taxes and financial aid forms. Good luck to all the high school seniors still working on completing college applications. I can only wish this time next year you are as happy at your selected college as Mod Squad Pete has been at his.
Next up: 2013 brings Mod Squad Julie to the year of SATs, more college visits, and — finally — college applications. Happy New Year!
- Is Financial Aid Worth the Hassle? (DrStrangeCollege)
- Who Should Complete the FAFSA? What About Parents of Newborns? (DrStrangeCollege)
- FAFSA Tips and Tricks for First Generation Students (nerdwallet.com)