College hat, diploma and money

An important reminder for advisors whose clients have kids in college or plan to enroll them for next year: The Department of Education today began accepting the Free Application for Federal Student Aid (FAFSA) for the 2019-2020 academic year.

Students must file the FAFSA, whose name is somewhat misleading, to qualify not only for federal student aid (in loans or grants) but also for state aid and school scholarships and grants. The FAFSA is required for subsidized and unsubsidized student loans as well as for Parent PLUS loans.

It should be filed as soon as possible because in many cases, loans and grants are awarded on a rolling basis and schools and states set different deadlines to qualify for financial aid and scholarships.

Despite the importance of the FAFSA, roughly 30% of undergraduate students, or close to 5.8 million, failed to file the form in 2016, according to the latest available data from a National Postsecondary Student Aid Study cited by a Savingforcollege.com report.

About half of those who didn’t file said they didn’t think they would qualify for aid, but that is not necessarily the case. Even if a student doesn’t qualify for need-based aid, they could qualify unsubsidized federal loans or merit-based aid from a college or state, and their parents may qualify for Parent PLUS loans — all requiring that a FAFSA be filed.

Starting this year, the FAFSA can be filed with a cellphone using anapp called myStudentAid, but the app will not let applicants use the IRS Data Retrieval Tool (IRS DRT) to automatically input tax data.

For the new FAFSA, information from a family’s 2016 federal income tax filing is required, if the student is a dependent. (If the student is independent, then the student’s income information is required.) This is the second consecutive year that the FAFSA looks back two years for tax information rather than one, allowing for filing months before the previous tax returns are filed.

As always, students can file the FAFSA without knowing which college they will be attending or even applying to. All they need to include is the name of at least one school (although they can include more) in order for the form to be processed.

Mark Kantrowitz, publisher and vice president of research of Savingforcollege.com, suggests that students list an in-state public college first because that is often required to be considered for state grants.

Here are some other recommendations from Kantrowitz for families preparing to file the FAFSA:

  • Determine the student’s dependency status because that will affect whether parent information is required or not.
  • If the student is a dependent, provide information from one or both parents as follows: from both parents if the parents are married and/or living together; from one parent if the parents are divorced and the parent with whom the student has lived most of the year when the FAFSA is filed hasn’t remarried. If that parent has remarried, the income of the new spouse must be included.
  • If the student is independent, the parents’ income does not need to be included on the FAFSA.
  • Create a Federal Student Aid (FSA) ID — one for the student and another for the parent — at fsaid.ed.gov. The ID is necessary for filing the FAFSA. Each should keep a record of the username, password, email address and answer to the challenge question in a safe place for future retrieval, which can also be made easier by including a cell number when registering.
  • Gather the necessary information before filling out the FAFSA. These include income and tax information from two calendar years ago — use the IRS Retrieval Tool if you can, untaxed income and child support payments made and received, recent statements for bank and brokerage accounts, Social Security numbers and driver’s license numbers.

Kantrowitz suggests reducing reportable assets by using assets to pay down debt and by shifting child assets into parent assets including a custodial 529 plan. (Children’s assets carry a much heavier weight than parent assets in calculating the expected family contribution to college costs, which is the ultimate finding of the FAFSA.)

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