@sonatarhia in terms of “raising eyebrows” If it’s a school that requires the CSS Profile, and you have a significant amount of assets reported but you indicate you’re a non tax filer they may select you for “verification” if you are not randomly selected. They would then want to verify all the information you listed on the FAFSA is correct and accurate so they may dig a little deeper to see if you’re required to file taxes…and in that case if you were required to file and didn’t your child would not get awarded financial aid until you file taxes. When a family has significant asset value but is a non tax filer the likelihood of them selecting you for verification is high.
@Mwfan1921 Typically when people aren’t required to file taxes it is due to having lower income…which means the student can qualify for more financial aid. That’s why I indicated it would be helpful.
No kidding. I’m not the person with the issue.
Edited to add: do you have a business that involves you taking money from people in return for helping them complete the FAFSA?
@thumper1 Thanks for clarifying that, sorry for replying to the wrong person! @sonatarhia I 100% agree with Thumper1…you should speak to a tax expert to get that guidance first on whether or not you should file taxes because ultimately I think that is the real question here.
Sonatarhia- you don’t need to pay an expert to figure out if you need to file. You can use any of the tax software packages to run your numbers. And if your income is indeed low, and you don’t need to file, you will discover that after 20 minutes worth of inputting numbers.
But agree with everyone else- your deductions are only “valuable” when they reduce your taxable income, i.e. you need to actually file in order to take a deduction.
The best way to maximize your financial aid is to make sure all your documents are accurate. There’s no point in qualifying for a generous aid package only to have the college correct the letter if they discover your numbers were incomplete, you needed to file but didn’t, you understated your income, etc. That leaves your kid high and dry once the normal application season is over and then you guys are scrambling…
Having high assets and low stated income is often a trigger for that…
Thank you for everyone’s comments / suggestions. I will speak with a tax expert to make sure then. Better safe than sorry!
@sonatarhia or spend $50 on TurboTax and do it yourself
If your income is really that low, you might qualify to Free File your taxes…programs right on the irs website
The point a lot of us are trying to make…your income will be the same whether you file taxes or not. And your income is what will be used, not your tax filing status.
But you absolutely need to find out what you need to be doing tax wise
@thumper1 Thank you for that suggestion. The only “deduction” (perhaps I’m not using the right terminology here) is the $3000 long term capital loss that brings my income below $12K which is the cut off. That’s why I haven’t filed a few years since I don’t have to pay anything.
Again, if not filing taxes raises red flags with FAFSA and CSS, I’ll spend the $50 (need to check if I qualify to file for free - probably do) and file it this year just to remove the potential future headache (esp if I can file for free! And just give up a few hours of my life).
Thanks for all the advice!
@BelknapPoint Are you asking me that question? The FAFSA is free to complete so no I do not. I don’t provide individual consulting services, I offer programs to help families navigate the overwhelming financial aid process and ensure they are doing everything they can to maximize their aid offers.
So, this AMA is how to maximize financial aid. I’m patiently waiting for some realistic answers to this.
@thumper1 have you asked that particular question and did I miss it?
Maximizing financial aid offers- need based aid- is something that requires a really long runway (4-5 years) to do effectively. And the margin of error-- for families who need the money- is really, really narrow. Make a 20K mistake with your asset allocation-- and it will cost you a LOT more than the extra $1200 you might have gotten in financial aid.
Which is why I tell people here and in real life- do not do ANYTHING in order to increase your aid that you would not be doing anyway as part of a sound financial plan. Take spare cash and buy an annuity? Generally a terrible idea- they are front-loaded so that the only winner is the person who sold you the annuity who gets a large commission check. But YMMV and in some unusual cases (a minor who was in an accident and part of the settlement is an immediate payout? kid is sadly orphaned?) it might be the right decision. But that’s because the situation posed a problem and an annuity was the correct solution- and if there is a modest increase in need based aid as a result, that’s truly ancillary.
The more typical advice from “financial aid consultants” is either illegal (transferring assets to an aunt with a “handshake” that those assets are coming back after the FAFSA years end, some other “real but not real” asset shifting" or just plain stupid (loading up on extra and not-needed consumer products to wipe a bank balance to zero. Try selling a big screen TV for what you paid for it if you need to repair a muffler or your furnace blows out and you’ve liquidated your emergency fund in order to spend it at Best Buy).
I wish financial gurus would remind people of the basic principals of sound, long range planning. Life insurance if you have dependents. A will and a list of accounts and holdings to spare your heirs the lengthy probate period or scurrying around hunting for assets or trying to cash out a money market account to pay basic expenses when nobody has yet been named executor. Making sure that any beneficiaries listed (remember the form you filled out the first day of work-- for your company paid life insurance policy?) accurately reflect reality. You don’t want your ex-wife as your beneficiary-- guess what, change the darn form!
But as far as college FA, itself, goes, it still boils down to what a given college can afford to give and its policies re: to whom it will give. Picking the right targets matters.
Sure hope college costs aren’t being resolved via loans a family cannot afford.
@blossom one of the worst things any consultant can do is advice families to be fraudulent, I have seen it time and time again.
In terms of maximizing financial aid offers it’s ideal to plan years ahead but unfortunately many families don’t and find themselves scrambling senior year in high school trying to figure out how they are going to afford the financial aid gap.
Middle class families get hit the hardest.
And for those families who wait until senior year it’s important they know how the financial aid process works, what the gap will look like at different colleges, don’t miss important deadlines, fill out forms accurately, search and apply for outside scholarships consistently, know how to report special circumstances (that may apply) to colleges, and look into possible financial aid appeal options etc. with each college.
So maximizing financial aid for families who have a high school senior certainly looks very different than families who have a middle school student. Those families who plan early should be working closely with a financial planner (which I am not).
Just a kind reminder to remain courteous and let the host answer questions. If there are any “inaccurate” answers please flag them in a polite manner and let the host respond.
@TheFAFSAGuru, in your experience, what’s the most challenging part of the FAFSA application? What are some of the most commonly asked questions you receive?
So for a middle school parent with a long runway, what are somethings they can do now to position themselves for maximizing financial aid?
1)The most important thing to do (if you haven’t already) is to make sure you are maximizing your retirement contributions. Depending on your situation (and an hour with Google is likely all you need)-- IRA, Roth, 401K, 403B- depending on your employment situation. Max out what you and your spouse (if you have one) and your dependent children if they are old enough to have earned income are putting into a retirement account.
I know this is hard. In the years when your kids are in middle school cash is tight. I get it. But if your employer matches 100% of your contribution up to the legal limit- you are giving away free money by not maxing out. Even if you don’t have a match- in most cases, your contributions to a qualified retirement plan are treated differently than any other asset by the college financial aid formulas.
Google any article about retirement planning. The power of a dollar invested today-- especially in a tax-deferred vehicle-- compared with what you’d need to be saving in the years right before you are ready to retire-- it is mind-boggling.
So a dollar in a money market account (which is “fair game” as an asset to pay for college) vs. that same dollar in a 401K- you can’t beat it. Move your money-legally, prudently-- into tax advantaged accounts. And if it means crockpot dinners instead of takeout for a few months to free up the cash- in my experience there is no better way to accurately and legally “present” fewer assets which will also benefit YOU down the road when you retire.
- The second most important thing you can do is to know every dollar coming in and know every dollar going out. Senior year of HS is a terrible time to implement a “belt tightening” program for the family because you’ve just looked at the NPC’s for your kids favorite school and realized that even if the financial aid gods smile on you, your family cannot afford what the college formula says you can.
There is a fallacy running- which is that spending every dollar is the best way to maximize your aid. I guess that’s the “you can’t get blood from a stone” theory of financial management. But that’s not how the formulas work. They are based on earnings and assets. The fact that you belong to a tennis club which you can’t afford, or get $100 hair cuts, or bought your kid a brand new Jeep for his 16th birthday-- none of these things move the needle.
There are two handful’s of colleges which promise to meet your need (and even then, some families find it’s not enough- but these are the most generous colleges in the country). For every other financial institution- having MORE money gives your kid MORE choices.
Get a handle on your finances now- while your kid is in the 7th grade. If your family is living a life which is beyond your current resources, you’ve got time to cut back.
I’ve got more suggestions- but these will keep you busy for a while…
@CCadmin_Sorin From my experience some of the most challenging parts of the FAFSA for families include…
understanding and obtaining FSA ID’s prior to completion, both student and one parent need to create their own unique FSA ID in order to electronically sign the FAFSA. Oftentimes families misplace this and it can be a bit frustrating to reset so I recommend keeping it in a safe place as you will need it each year you apply for financial aid.
Knowing how and where to report different types of income
The electronic FAFSA is user friendly and each question has a little i button next to it that families can click on for more information about that particular question and what information they are looking for.
The data retrieval tool can also cause some frustration if it’s glitching or students/parents don’t list information exactly as it appears on their tax return.
And some of the most commonly asked questions I receive are:
How do I fill out the FAFSA if divorced or separated: In this case only one parent needs to compete the FAFSA and this would be the parent with whom the child resided with most this last year and who provides more than 50% of the child’s support.
Do I have to report my spouse’s income if it is my son/daughter’s step parent? Yes, if you are the parent completing the FAFSA for the student and remarried your spouses income and assets need to be reported also.
If I live on my own and support myself do I have to put my parent’s information on the FAFSA? IF considered dependent then the answer is yes. In some unique situations where a child is estranged from both parents financial aid administrators can request documentation and possibly perform professional judgment and can override the students dependency status. But this is rare and typically reserved for unusual circumstances.
Why is it worth filling out the FAFSA if I know I won’t qualify for financial aid? Direct student loans are considered financial aid and in order for a student to borrow them they must file a FAFSA. So even if they don’t think they will qualify for “free” aid they could at the very least get student loans.
These are just some of many common questions.
KIND NOTE: Please make sure to follow the AMA format. While we appreciate all the great answers, please let the host answer.
The conjunction “and” in bold above makes it sound like in order to be the FAFSA custodial parent, the student must have lived with that parent more than 50% of the time over the past year, and that same parent must have provided more than 50% of the student’s support.
Here are my questions: is that correct? If so, who is the FAFSA custodial parent in a divorce situation if one parent provided more than 50% of the student’s support and the student resided more than 50% of the time with the other parent?