“College is one of the most expensive purchases a family will make in their lifetimes” according to Jeff Levy, Certified Educational Planner with 14 years of experience as an educational consultant. Levy shares the mistakes families make that can have serious consequences for their teen’s ability to maximize merit and financial aid.
Financial Aid and FAFSA Mistakes
1. Believing advice from people who aren’t qualified to give it.
I heard from a parent that an English teacher at his daughter’s school recommended “a little-known tip.” At their College Night, the teacher recommended that students select “not applying for financial aid” on their college application, and wait until after they’re admitted to submit the FAFSA.
This advice couldn’t be more incorrect, unethical, and potentially catastrophic to the family. If you expect to apply for financial aid, check “yes” on the college application and be sure to submit your forms well before the college deadlines.
2. Deciding not to apply for financial aid because “we’ll never qualify.”
Most families have no idea whether they will qualify or not. Data consistently shows that many who are the most eligible for need-based aid never submit the FAFSA.
3. Not filing your income tax returns before applying for financial aid.
For current high school seniors who will be enrolling in college in the fall of 2022, the FAFSA opens on October 1, 2021 and looks at the family’s 2020 tax returns for all parent and student income information.
Jeff Levy answers parents’ questions about paying for college on Grown and Flown.
4. Missing the college’s institutional deadline.
If your teen is applying to lots of schools with Early Decision, Early Action, and Regular Decision deadlines, keeping track of all these can be annoying. But it must be done. Going to each college’s website to gather and collate this information will take you or your child about 20 minutes.
5. Deciding not to apply for financial aid as a freshman, and planning to ask for it later.
Many schools will give a full-pay applicant a bump in the admission process in exchange for the higher net revenue he or she brings to the institution. If such an applicant decides in later years to suddenly request financial aid, some schools will not consider that request for institutional aid and others might delay it by a full academic year, thinking that the applicant has gamed the system and wants it to advantage them both ways.
6. Not having a savings plan for college.
One of the most destructive myths about paying for college is that your savings will be wiped out by the financial aid formulas. People who advise this are either terribly ill-informed or have a hidden agenda. In the needs calculation, the penalty for savings is five cents on the dollar! The single best way to prepare for the cost of college is to save, and the single best way to save is to use time to your advantage. Start early, and save what you can.
7. Taking a work bonus in the FAFSA “base year.”
The biggest factor in determining what a family is expected to pay towards college is their Adjusted Gross Income found on line 11 of Form 1040 of their federal tax returns.
Any income that can be postponed from the base year (2020 for students starting college in 2022, 2021 for students starting college in 2023, etc.) to the following year will decrease the student’s EFC (Expected Family Contribution) and increase his or her eligibility for financial aid.
8. Listing the 529 savings plan as a student asset instead of a parent asset.
Even though the student is the beneficiary of the 529 savings account and the parent the custodian, the Department of Education has stipulated that these savings plans should be listed as parent assets. This is an important advantage because in the federal and institutional need methodologies parent assets are “penalized” about one-quarter as much as student assets.
9. Accumulating savings in a student-owned account.
While this can be a tax advantage, it is always a financial aid disadvantage. It is important to check with your tax advisor to see which is the best approach for you.
10. Allowing the grandparents to write the check directly to the college.
A big, big no-no. Grandparent income and assets are not included in the FAFSA or CSS Profile. If suddenly a large check appears at the college registrar’s office, funds that have not been listed in the parent or student sections of the FAFSA, this is considered untaxed student income on the FAFSA, and it could significantly reduce the student’s eligibility for need-based aid.
11. When parents have separated or divorced, choosing to spend 50.1% of the year with the wealthier parent.
The FAFSA (unlike the CSS Profile) is only concerned with the custodial parent, the parent with whom the student spent more time during the year. The non-custodial parent is not listed on the FAFSA and their information is not reported. If there is a significant difference in income and assets between the two separated or divorced parents, the choice of custodial parent will have a significant impact on the eventual financial aid award.
12. Borrowing more than you can afford.
College is one of the most expensive purchases a family will make in their lifetimes. Borrowing part of this cost to make a college degree possible is not an unwise choice, just as borrowing part of the cost of a home can be a smart way to make homeownership possible. But borrowing too much for college can be catastrophic. Each family will need to decide for themselves how much debt is reasonable. A good rule of thumb is to keep total undergraduate loan debt below what the student expects to earn during their first year out of college. In other words, if a student borrows the maximum lifetime limit of $31,000 in undergraduate federal student loans, they will be able to successfully manage monthly repayments if their first job after college pays at least that amount before taxes.
13. Not taking advantage of low-interest federal student loans.
Federal student loans are generally packaged as part of the financial aid award. These are low-interest loans with many built-in repayment protections, usually far safer and less costly than private bank loans.
The federal cap on how much a student can borrow over four years of college is $27,000, and the lifetime limit is $31,000. Repayments begin six months after graduation. I generally recommend taking advantage of this loan program if it helps the family meet the high cost of college.
14. “If she gets into _______ , we’ll make it work!”
This thinking usually leads parents straight into the abyss of excessive borrowing, and parent loans (federal and private) have higher interest rates, higher fees, and tougher repayment terms than federal student loans. Parents must think carefully about how many actual earning years they have in front of them before going into substantial debt at an advanced age. And there are always less expensive options for college.
15. Not calling the financial aid office when you have a question.
These folks are not the IRS, and they are certainly not your enemy. They are usually happy to answer your questions and can be an excellent resource to help you navigate the complexities of the financial aid system.
Financial and Merit Aid Resources for Students and Parents
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Time for the Dreaded Family Conversation about College Cost Jeff Levy leads us through the important discussion families need to have about affording college. THIS is the place to begin if you have not already started that conversation.