College Funding (1)

The FAFSA: Commonly Asked Questions

Ohhhh the FAFSA. This seems to be a tricky document to figure out even for the most educated of families. Many people know the importance of the FAFSA- mainly because it is directly attached to how much you are going to have to pay for college. So why does it have to be so complicated and how can you learn more about it before you even attempt to fill one out? Hopefully, this article will address some of your biggest questions and leave you with a better understanding of filling one out.

What is the FAFSA and do I need to file one?

First off, let’s start by discussing what the FAFSA is. The FAFSA is a form that is used by the federal government to determine your eligibility for various types of grants and financial aid. It is also a necessary document if you want to utilize student loans as well. FAFSA stands for “Free Application For Federal Student Aid” meaning it’s free to file which is different than a college application.

Now, to address the second part of this question, some people might be wondering if they need to file the FAFSA if their income is too high. The answer is yes and no. Let me explain why my answer was not definitive. Even if your family’s income exceeds $200k per year you still qualify for tuition assistance – it just will come in the form of student loans. If your intention is to not pay cash for college and your income threshold is on the higher side, you will need to fill out the FAFSA to figure out which federal loans you can qualify for. If you intend on writing a check to the college every year and paying cash, you do not need to file the FAFSA.

What determines need on the FAFSA?

Your eligibility depends on your Expected Family Contribution, your year in school, your enrollment status, and the cost of attendance at the school you will be attending. The financial aid office at your college or career school will determine how much financial aid you are eligible to receive.

What is reportable and non reportable on the FAFSA?

In terms of the FAFSFA, there are some pros and cons to this federal form. On the plus side, there are some non-reportable assets that help you in terms of savings but on the other side, there are a lot more reportable assets that will work against your savings. Let’s start with the reportable assets:

  • Cash/Savings account
  • Brokerage accounts
  • Certificates of deposit
  • Money market accounts
  • Mutual funds
  • Stocks
  • Stock options
  • Bonds
  • Exchange traded fund
  • Hedge funds
  • Real Estate Investment Trusts
  • Investment real estate properties
  • Precious metals
  • Restricted stock units
  • Commodities
  • Trust funds
  • 529 plans
  • Prepaid tuition plans
  • Coverdell education savings accounts
  • UTMA and UGMA accounts

Although this is a long list, it still gives us some wiggle room of large assets that are protected. Reportable assets are based on the net worth, after subtracting any debts that are secured by the asset.

Let’s go over some non reportable assets:

  • 401k
  • 403b
  • IRAs
  • Roth IRAs
  • Pensions
  • SEPs
  • SIMPLE
  • Annuities
  • Family home equity
  • Small businesses
  • Personal possessions- cars, boats, clothing, furniture, etc
  • Whole life insurance policy
  • Cash value life insurance policy
  • Bequests from a will that is unsettled

Can I switch my reportable assets to non reportable assets to lower my out of pocket cost for college?

The answer to this question is yes BUT we recommend you speak with a professional financial planner before you do so. Timing is a critical issue along with financial burdens such as capital gains and possible tax issues that can result in sheltering these assets. Our organization strictly works on the educational side of college admissions and funding but we do work with some very seasoned financial planners in extreme cases. Our recommendation would be to find someone who has expertise in this area. This is a company we work with and know our clients get wonderful results from.

What is the income threshold for the FAFSA?

No, there is no income threshold to file the FAFSA. This form takes into account many variables- family size, years of attendance, COA, and your EFC. Please visit the financial aid website directly and you will find out more information on how aid is obtained.

What if I miss the deadline to submit the FAFSA?

Deadlines are so important when dealing with anything government related. If you miss the FAFSA deadline, then it will depend on what type of financial aid package your college offers. If they do not offer any alternative way to apply for FAFSA with a late fee then you will be out of luck from that school and have to wait until October 15th (the next available FAFSA date) or pay privately for school. Deadlines are critcial in securring funding so make sure you are starting the process early and making sure you get your information to them immediately.

Do I make too much money to qualify for financial aid?

The answer to this might surprise many people but the answer is no. Aid is available to all Americans. It might not be offered in the way you want it to be though. Grants, which is money that does not have to be paid back, are based on need. Financial aid can come in the form of subsidized and unsubsidized government loans. If you are a high income family, chances are the federal funding you will qualify would be in the form of loans.

However, the FAFSA is based on income so if 1 or both parents are retired, you might be in a unique position to qualify for grants even if your asset portfolio is high. Again, something to seek professional assistance with in the form of a financial planner. IF you are seeking financial planning help, please read this blog before doing so.

Conclusion:

We unpacked some of our most frequently asked questions and hopefully they were of some benefit for you. If you have any other questions, please contact us or comment below and one of our team members will answer your questions. We love to hear from you!

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