What You Might Not Know About Financial Aid
The world of financial aid is complex and full of loopholes and technicalities. The basics of financial aid are easy to find and understand, but maximizing aid is another ball game. According to the College Board, 24% of families said that the cost of college was the deciding factor used when making their final college choice. Today, I would like to explain a few insider tips to save you money.
Expected Family Contribution (EFC) is the number the government and colleges expect the family to pay for their child’s education. This number comes from a calculation based on a number of factors such as income, family size, and residence. The lower the family’s EFC, the less they are expected to pay for their child’s education. Therefore, the motivation to reduce the family’s EFC is great. There are a number of ways for a family to reduce their EFC. However, few people have the expertise to know how. Working with an expert financial advisor who knows how to reduce EFC can save a lot of money and make the cost of a student’s college education more affordable. Companies like Smart Track work to reduce your EFC.
Getting the FAFSA Right
The FAFSA has to be filled out correctly in order to receive the maximum benefit, and, because most people don’t know the rules, they make mistakes. For example, to get a tax deduction on your taxes for a child or someone you are responsible for, you have to claim that person on your taxes. For the purposes of completing your FAFSA, you do not have to claim a person on your taxes to claim them on the FAFSA. Many families are financially providing for grandparents or other family members these days but do not claim those members on their taxes. Not claiming these members on the FAFSA, however, is a huge mistake that can add thousands of dollars to their child’s education costs. I just had a client last week that I noticed was missing $2,000 from his award letter. Come to find out, he didn’t check a box that he needed to check on the FAFSA so he was missing money. American Honors, a national education organization points out that it is crucial to not over-state your assets. “This is important, as you are legally allowed to exclude or omit income sources and various assets you may own. For example, you don’t need to report […] your primary residence, your car, a boat or furniture you own in your home, [or] untaxed Social Security as income.” Getting the rest of the process right, can save serious money down the road.
Most people don’t realize that you can negotiate or appeal your award offer, especially if your circumstances can’t be explained on the FAFSA. You can always negotiate your financial aid offer, but you need to appeal your award if there are extenuating circumstances in your family. For instance, if the parents are going through or recently went through a divorce, a parent lost their job, there is medical debt, or other special circumstances, an appeal is in order. I worked with a family once where the mom had battled cancer and was in remission and the family was buried in medical debt. On paper, their FAFSA showed they made a decent income as they are lower-middle class on paper, but with the medical debt, paying for college wasn’t possible based on the offer they received from the university. We appealed the family’s offer and they were able to get more grant and scholarship money to help their child go to school.
To understand financial aid offers, it is important to know the difference between federal methodology and institutional methodology. Federal methodology uses the government formula and determines EFC based on the information provided in the FAFSA. When you complete the FAFSA, you send it to the colleges you applied to and each college will decide how much money you’ll get based on their own formula, or institutional methodology. Simply put, colleges can decide who gets how much money in grants, scholarships, and loans. Therefore, every offer a student receives from each school they applied to will be different. This is why it is so important for students to be cognizant of institutional methodology and apply to a variety of schools, even if they think that school will be too expensive to attend. Many families are surprised to find out that it will be cheaper for their son/daughter to attend a great private university over a public university. Do not rule out a school that you’d like to apply to because of the cost. Wait to get your offers from the schools you applied to and then you can make an apples to apples comparison of cost. Sometimes, the institutional methodology can work in your favor.
For more information about the FAFSA or financial aid, sign up for our email list as we frequently have Financial Aid webinars that provide more information and give you the opportunity to ask questions.