Planning for college is a major event in the life of your child and for you as their parent. Navigating the world of college loans and securing funding can be overwhelming the first time you are faced with funding school. In 1992 Congress created a form to standardize the process of applying for federal and state college aid. This form is called the Free Application for Student Aid, or FAFSA as most of us know it, and it is the gateway to all federal aid. Filing your FAFSA is the jumping off point for financing college. Outlined below I share important information about the FAFSA and saving for college.
File the FAFSA – as soon as you can
October 1st is the first day you can fill out the FAFSA. It is recommended to file as soon as you can for your high school graduating senior. There are deadlines for financial aid and some schools could have early acceptance deadlines. Even if you don’t expect to qualify for need-based aid, parents must complete the FAFSA if they would like to borrow through the federal student and parent loan programs.
Also note that while the FAFSA is used by most schools, there are about 200 colleges that want to ask more questions and require the CSS Profile in addition to the FAFSA.
Grab your tax returns
The FAFSA is intended to be straight forward but doesn’t always act as such. The main source of information you will need to complete the FAFSA will be found on your tax return from two years ago (referred to as prior-prior taxes) instead of your most recent. Parents, whose child will be in college in the fall of 2022, for instance, will us their 2020 tax-returns. In addition to the tax returns, have your non-retirement investment accounts and bank statements handy as well.
Do not include exempt assets
The FAFSA does not want to know about your retirement accounts. It also ignores non-qualified annuities such as life insurance value, and the home equity of your primary home. It’s important that you don’t include these.
Repeat every year
You will need to fill out the FAFSA every year your child is attending college. This is because your income can change every year. And if your financial situation today has changed for the worse compared to two years ago (queue the pandemic), it is recommended to contact the school and tell them how your financial picture has changed. The sooner the better – be proactive.
Save as much as possible
The availability of student aid should not keep parents from saving for college. I can’t emphasize enough that for most families, parents’ nonretirement asses will not hurt their chances for financial aid. And that includes 529 college savings plans. Saving for college will provide you with more college options and will make it less likely that you will have to borrow significant amounts to pay for a bachelor’s degree.
It’s a myth that people who decide not to save for college will be in a better position to win great financial aid packages.
Paying for college is expensive and is one of the biggest purchases in your life, not just in dollar terms but also emotionally. Talk to a holistic financial planner today to help guide you through this complex, but exciting process.
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Executive Wealth Management, LLC is a Registered Investment Advisor with the Securities and Exchange Commission. Reference to registration does not imply any particular level of qualification or skill. Advisory services offered by Investment Advisor representatives of Executive Wealth Management. Brokerage products and services offered by Registered Representatives of Private Client Services, LLC member FINRA/SIPC. Executive Wealth Management and Private Client Services are unaffiliated entities. Topics discussed in this article may not be appropriate for all individuals. It is important that you discuss your long-term care options with a qualified professional.
