I was talking with a friend earlier this month. We both have boys that are seniors in high school, and we have been comparing notes regarding college visits, areas of study, and finances. Most recently, we both started our FAFSA (Free Application for Federal Student Aid) filing. We thought we were ready to submit our paperwork, but we were wrong.
Four Important Steps with the FAFSA
Step #1: Complete it!
Each year, families decide not to file their FAFSA. This results in leaving money on the table. People will line up outside a Best Buy at 4 am to save $100 on a television, but they see a short application that can save thousands of dollars and disregard it.
A 2018 NerdWallet.com study found that eligible high school seniors left $2.6 billion of free money on the table – and that included 36 percent of eligible students in Indiana!
Step #2: Connect with the DRT (IRS Data Retrieval Tool).
Providing tax information can be intimidating. What income should you include? What if I miss a number from Schedule 2 that I did not know I needed. What if I include a number from Schedule 1 that I did not need to? Using the DRT eliminates these worries. Connecting to the DRT makes sure that the information you provide matches what you already provided to the IRS on your tax return, effectively eliminating human error and saving time.
Not doing this was a big mistake on my part. When my friend told me how easy it was to connect with the DRT, I realized how much time I could have saved if I had done this right away.
Step #3: Know what assets to include and exclude. This is the second most important step.
Question 89 of the FAFSA form asks for Parent’s Net Worth of Current Investments. It seems straightforward unless you dig deep and discover:
- This excludes IRAs, Roth IRAs, Pensions, annuities, 401(k)s, and Health Savings Accounts. In addition, nowhere on the form do you need to include grandparent-owned 529s as an asset. However, distributions from grandparent-owned 529s are reported as untaxed income and can impact need-based aid.
- This also excludes your primary residence. You do need to include other real estate that you own, plus cash, checking/savings accounts, all 529 accounts for the immediate family, money market funds, CDs, stock options, and brokerage accounts. So, yes, this includes your Robinhood account that holds the $250,000 of Gamestop call options.
These lists are not all-inclusive. If you have assets, be sure you find out if they are included or excluded. Don’t assume!
This was my friend’s mistake. He assumed that IRAs and other retirement plans needed to be included in this section. When he excluded these assets, the likelihood of his son qualifying for financial aid increased!
Step #4: Click Submit. Seriously! This is the most important step!
On a recent college visit, an admissions office representative emphasized the importance of submitting. Every year, students wait for word of acceptance and discover they never actually submitted their application. So fill out the FAFSA and the college applications and click submit!
The sooner, the better. Some financial aid is available on a first-come, first-served basis, and certain types of aid tend to be depleted faster than other types.
Following these four steps will take some time, but probably not as much time as you think. In addition, when you follow these steps, the likelihood of qualifying for financial aid increases incalculably. It is worth the effort. Fill out the FAFSA and click submit!
Bill Wendling is a Senior Portfolio Manager with Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.bedelfinancial.com or email Bill at email@example.com.