Why You Shouldn’t Wait Too Long to Complete the FAFSA
If your child is a senior in high school, or already a college student, this is an important time of year. Financial aid for next year’s tuition costs might seem like a distant concern, but now is the time to apply. While there are many forms of financial aid available through the federal government, private organizations, individual states and directly from colleges, some sources are limited and awarded on a first-come, first-served basis. The first step toward accessing any of these funds is to complete the FAFSA (Free Application for Federal Student Aid) as soon as possible.
The COVID-19 pandemic has placed many households under financial strain, and it’s likely that it will be more competitive to acquire need-based aid such as grants and scholarships, which do not have to be repaid. Referencing a recent poll of parents, Manny Chagas, vice president of Discover Student Loans said, “Our survey found that 48% of parents lost income as a result of the pandemic, and 44% said they can’t afford to pay for as much of their child’s education as they had originally planned.”
The FAFSA must be completed to be considered for financial aid. The online application opens on October 1st of the year prior to entering college. It’s not necessary for high school seniors to have selected the colleges to which they will apply in order to complete the FAFSA. At the time of application, you must list at least one college you’d like to receive information regarding your financial needs, and more colleges can be added at a later date as you narrow down your choices. If your child is already a college student, the FAFSA must still be completed each year as federal student aid does not carry over. However, the FAFSA renewal process should be quicker and easier as some information will be pre-filled from the previous year’s application.
- When: The FAFSA online application opens on October 1, 2020 for the 2021-2022 school year. Several states determine aid on a first-come, first-served basis, so parents should put a note on their calendars for early October to tackle this task. The FAFSA closes on June 30, 2022, but it is strongly suggested to complete the application as soon as possible. Also, deadlines vary by school, with some grant applications due in January, and those dates should be carefully monitored to ensure important deadlines aren’t missed.
- How Long to Complete: The application is about 100 questions and should take about 30-45 minutes if you have all your information pre-gathered and at your fingertips. You will need a copy of the prior year’s tax return, current investment and bank statements and 529 statements. Your tax return data can either be linked with the IRS and the FAFSA application or you can re-enter certain data. FAFSA renewals will pre-fill some information from the previous year’s application.
- Which Data is Reported: The 2021-2022 FAFSA Application opens on October 1, 2020 and will be used for those planning to attend college from July 1, 2021 – June 30, 2022. The tax information is the 2019 income tax return. Investment and bank balances are the current balances when you file the FAFSA form.
- Frequency: The FAFSA is completed every year before the student attends college (and potentially graduate school); it is not just completed once by high school seniors.
- Not Just for Need-Based Aid: The FAFSA is used to calculate a student’s need for financial aid and is also used by many schools to determine eligibility for certain scholarships. Additionally, the FAFSA is used to determine eligibility for the federal Pell Grant and Stafford Loan programs.
- FAFSA Factors: The FAFSA calculation takes into consideration the age of the parents, the number of dependents in the family, earnings of both the parents and the student, non-retirement savings of both the parents and the student and the student’s 529 College Savings Plan balance among other factors.
- EFC (Expected Family Contribution): Approximately 3 weeks after submitting the FAFSA, you will receive a Student Aid Report (SAR). This report provides information about the student’s eligibility for federal aid and the Expected Family Contribution (EFC). The EFC is the amount that the family is expected to pay, per year, for college.
- Student’s Full Demonstrated Financial Need: Many colleges and universities try to meet their student’s full demonstrated financial need. They do this through grants, work-study, scholarships and in some cases, federal student loans. Even with this financial support, the student and family may be expected to pay the EFC (Expected Family Contribution). To pay this cost, students and families may still find the need to finance some or all of their reduced cost to attend school.
- CSS Profile: Many private schools also require the CSS Profile for financial aid. The CSS Profile asks additional questions and includes the value of retirement plans and homes when determining eligibility for aid, while the FAFSA does not include those assets in their calculation.
- Financial Aid Decisions Can Be Appealed: If there are extenuating circumstances, a family can contact the college and explain why numbers alone don’t tell the story. For example, a job loss or unexpected medical expenses could be mitigating circumstances that adjust a family’s EFC. Especially this year, the financial impact of the COVID-19 pandemic will not be reflected on your 2019 tax returns and one’s 2020 and 2021 income may be materially different, much lower, than it was previously. I expect there will be many more appeals.
- Many Don’t File: Historically, as many as 2 million students annually who may be eligible for aid don’t file the FAFSA form. Please note that the FAFSA is a prerequisite for the unsubsidized federal Direct Stafford and federal PLUS loans. This year may be different as many families have been negatively financially impacted by the effects of COVID-19 and decide to file their FAFSA form. Early filing is now more important than ever.
While 2020 has many of us facing challenges we have never experienced before, it’s important to continue to take steps to ensure a healthy financial future. If we may be of assistance in guiding you toward a college specialist who can help you through this process, please contact us.