07-30-2014 12:27 PM
For most students, financing an education can be one of the most stressful — and daunting — parts of the college application process. The National Survey of Student Engagement reports that a majority of students surveyed worry about paying for college, and once enrolled, as many as one-third don't buy all the materials they need because of the cost.
Before you panic, though, know that it is possible to fund a higher education. With billions of dollars in grants, scholarships and government student loans available to people of all incomes, it's important that you explore your financial-aid options. "The goal is to finish your education with as little debt as possible and to make that happen, you've got to wade into the world of student aid beyond just loans," J.J. Montanaro, CERTIFIED FINANCIAL PLANNER™ practitioner with USAA, points out.
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The first step to see if you qualify for help with college costs is to fill out the Free Application for Federal Student Aid, or FAFSA. This form, which asks about your family's finances, will be used to determine your eligibility for federal grants and student loans.
Many colleges and universities use the FAFSA as the basis for awarding state and institutional grants, and some scholarships, as well as government loans, says Nancy Coolidge, associate director of student financial support for the Office of the President at the University of California. "The FAFSA is the gateway for nearly all financial aid," she says.
Even if you don't think you'll qualify for need-based financial aid, Coolidge says it's important to fill out the application — and do it early so you know your options to help pay for college. Some federal loans for students and parents aren't based on financial need, so you still could be eligible for assistance.
Coolidge offers the following eight tips to help get you started.
1. Start early
You want to submit a completed FAFSA as soon as possible, starting Jan. 1, for each of the upcoming school years that you'll attend college. Don't wait, or you might find that funds for grants and other aid have been depleted. "Even if you don't have all your tax information done, go ahead and estimate," Coolidge says. "You can always go back and update it electronically with exact figures."
For information about other financial aid deadlines, contact the financial aid offices at the college and universities to which you're applying.
2. Get a PIN.
The first step in the FAFSA process is to go online and apply for a personal identification number. Keep this PIN on hand because you'll use it repeatedly throughout your educational career.
3. Be prepared.
Gather all the information you need before you start to fill out the form. This includes:
- Social Security numbers. You'll need your number and your parents' numbers.
- Your full name as it appears on your Social Security card. "If you've gone by 'Butch' your whole life, but your Social Security card says 'Cecil,' use 'Cecil' on your FAFSA," Coolidge says. Pay attention to middle names or initials on your Social Security Card.
- Income documents. This can include year-to-date pay stubs, the previous year's W-2 and most recent IRS 1040, 1040A or1040EZ forms.
- Any untaxed income that doesn't appear on IRS filings. Child support received, insurance settlements awarded and rent collected from roommates fall in this category. "Applicants are on the honor system and sign a statement swearing that everything on the form is truthful as of the date of submission," Coolidge says. "Information submitted on the FAFSA is subject to verification."
- Account balances. This includes current information on savings and checking accounts, as well as investments.
4. Complete the FAFSA online.
As you fill in the FAFSA, you may be wary of sharing so much personal and financial information online. However, nearly all applications are completed through the site's secure and encrypted system, Coolidge says. You can choose the virtual keyboard option for additional security.
5. Mind your assets.
Not all assets are treated equally when completing the FAFSA. Money in qualified retirement plans or IRAs is not included on the application and parents' assets have less of an impact on financial aid than assets owned by the student.
"Assets held in a child's name — such as cash, stocks, bonds and any UGMA or UTMA accounts could reduce the amount of aid that is offered. Families should consider this carefully when choosing how to save money for college," Montanaro says. In fact, parental assets are assessed at a top rate of 5.64 percent versus a student's assets at 20 percent.
Under current rules the FAFSA also excludes home equity when determining a family's expected contribution. "Remember," Montanaro points out, "private schools may use different formulas in their calculations."
6. Consider special moves for divorced families.
When the student's parents aren't married, the FAFSA asks for the earnings only of the custodial parent, or the parent the student has lived with most of the past 12 months.
When filing taxes, the parent with primary custody should take the child-related exemptions for that year, Coolidge says. Most public schools consider only information from the FAFSA when awarding aid. However, other institutions, particularly private colleges and universities, often require families to submit a supplemental form with financial information on both parents and additional details about their assets.
7. Explain unusual financial circumstances.
If your family has suffered an atypical financial circumstance — unreimbursed medical bills, disability or death in the immediate family, recent loss of income due to furlough or layoff — write a letter to the college or university's financial aid office explaining the situation and request a special circumstances review. Include documentation that supports your case. Financial aid administrators may adjust awards if income has changed by more than about $3,000, Coolidge says.
8. Complete the FAFSA every year.
Even if you didn't qualify for need-based aid one year, submit the application for every year you attend college. "You can always appeal your award at any time throughout the year if your financial situation changes," Coolidge says.
Another way to help pay for college is through private student loans, which are offered by banks and other institutions. Parents and students, however, should consider private loans only after they've filed a FAFSA and know what they can borrow from government student-loan programs, Coolidge advises. While private loans usually don't require a FAFSA application, they often can come with higher interest rates and less flexibility when it's time to repay.
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Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
The contents of this document are not intended to be, and are not, legal or tax advice. The applicable tax law is complex, the penalties for non-compliance are severe, and the applicable tax law of your state may differ from federal tax law. Therefore, you should consult your tax and legal advisers regarding your specific situation.
The preceding discussion is not tax, legal or estate planning advice. Consult with your tax, legal or estate planning professional regarding your specific situation.
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