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The FAFSA And The One Mistake That Will Wipe Out Your Financial Aid

Category: College Money Strategy
2 comments FAFSA Mistakes

The One FAFSA Mistake That Will Wipe Out Your Financial Aid

The Free Application For Federal Student Aid or FAFSA needs to be filed if you want Federal student aid and many state and college specific scholarships require it as well. It’s not that complicated of a form. Maybe that’s because I’ve reviewed and/or filed the FAFSA for hundreds of students. One thing is certain, they have made the form much easier over the years. There are lots of resources out there that will tell you about the FAFSA and how to fill it out. Hopefully you know me by now and understand that I am all about giving you straight information that will help you find money for college and not losing easy money is just like found money.  So I want to cut through the fluff and now focus on giving you the information you need. Before I do here are the basics:

 

The FAFSA Basics

1. You file for parent and student FAFSA Pins – you use these pins to sign the FAFSA application

2. You file the FAFSA – You can’t file until after January 1st of the year you are attending college, and every year after until graduation

3. You receive a student aid report or SAR shortly after you file

4. The SAR has your expected family contribution or EFC

5. The colleges you selected on the FAFSA all receive your SAR – you can select up to 10 colleges

6. The colleges, if they accept you for admittance, will calculate your financial need by subtracting your EFC from their published cost of attendance

 

The ‘One Mistake” Case Study

This is the mistake I see over and over again. So at the very least, after reading this, you will not make this error. ….hopefully!

Let me reveal this mistake by telling you a story. I had a family come see me after they had already filed the FAFSA. The parents couldn’t understand why their EFC was so high. So I reviewed their FAFSA and right away I knew something was wrong because they had an EFC of $34,516 with an adjusted gross income of only $55,333, Red flags were flying everywhere. After a quick review I spotted the problem immediately. Overstating assets!…….. Yikes. When I corrected their FAFSA their EFC dropped to…………ready for this? $12,394, that’s a huge $22,122 mistake! That “little” mistake cost them $4300 in potential free money based on the college the student attended.  Luckily I was able to correct that mistake for the remainder of the college years.

So what do I mean by overstating assets? Here’s the catch. There are items you need to include and items you do not need to include on the FAFSA. One of those items you do not need to include is retirement assets. You do not need to list your 401k, 403b, IRA, Roth IRA, Simple IRA, SEP IRA, Pension or any other retirement plan. Many people, including the family in the example above, do just that. It’s a common mistake for two reasons. First, many think of their 401k or IRA as their primary asset. We ask attendees this question at our monthly “How To Get Money For College” Workshops in Nashville TN. What would you list as your assets on the FAFSA? The top answer we get is…..401k! Second, the FAFSA is not very clear on what assets to include. You have to pay close attention to find where the FAFSA lists these assets that need to be included when  you are filing it.

 

 DO NOT INCLUDE INCOME OR ASSETS THAT YOU ARE NOT REQUIRED TO INCLUDE!

 

How To Avoid This Mistake!

First, you need to know that the FAFSA is free to file. You can go online and start the process, there’s a link for the FAFSA pin website and the FAFSA website on my resources page. You don’t need to pay anyone to file it for you. You can fill it out and file it on your own. With that said, every year people pay me a small fee to file their FAFSA. Why do they? It’s because, as I’ve shown you above, mistakes can and will cost you financial aid. I’ve seen it over and over again. There are several areas in the “financial aid ” process you are about to begin or have already started that can boost your scholarships and grants dramatically. There are also areas where you can lose some or all of your scholarship and grant potential. This is one of those areas where losing financial aid is greatest. Here’s what I recommend you do to avoid FAFSA errors:

#1 Top Recommendation – Fill out the FAFSA yourself and have someone else review it. Do this every year.

 

#2 Recommendation – Pay some else to file the FAFSA for at least the first year . Then follow recommendation #1 for the remaining years.

Suggestions For #1 and #2

Student Financial Aid services will review your FAFSA and fill it out and file it for you for a fee. You can check them out by clicking FAFSA

 

#3 Recommendation – Find some resources that will assist you in filing the FAFSA.

An awesome resource that will help you avoid the common pitfalls of filing the FAFSA is the “Filing the FAFSA guide” by Edvisors.

 Filing the FAFSA: The Edvisors Guide to Completing the Free Application for Federal Student Aid

Feel free to contact me as well if you have any questions or need additional direction. Just make sure that “filing the FAFSA correctly” is part of your College Money Strategy™

 

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2 comments… add one
  • Clark

    Thanks for your article… Great information! I’d like to share my situation that caught me off guard with the FAFSA. I’ve used FAFSA for the 11 years I’ve been in college (4 degrees). Without much notice, I found out that I had no access to loans for my last two semesters of college. If I had known that I had a limit, I would have saved any excess funds to cover those semesters. Consequently, I had to put those semesters on a credit card. Can students know what their loan limits are, so they’re not caught in this situation?

    Reply
    • Jonathan Pagano

      Federal Loan limits is the type of information you have to dig for. It doesn’t apply to most students who complete college in 4 years but can certainly apply to those who take longer. My blog post on Federal Student Aid lists all the Federal loans and their limits.

      Reply