October 1st marks the start date for filing the Free Application for Federal Student Aid (FAFSA) for the 2021-2022 school year. A year of uncertainty has resulted in decreased enrollment, less on-campus housing, and dramatically decreased revenue from sports programs. This has left administrations with difficult decisions to pay for their largely fixed expenses, in turn giving them ever more urgency to increase enrollment. Let’s investigate the black box that is the Financial Aid process and look at how you can get the most out it.
How do they calculate my Aid?
The FAFSA uses an Expected Family Contribution (EFC) amount that is factored by considering your families’ assets and income. They then subtract this amount from the cost of attendance (Tuition & fees, Room and Board, Books, Supplies, etc.) to generate a combined aid amount that the student is eligible to receive, not to be confused with what they will receive.
Cost of Attendance (COA) – Expected Family Contribution (EFC) = Financial Need
Which Assets Count
One of the most common mistakes is counting a primary residence or retirement plan on the application as an asset. Assets reported by parents count 5.64% (above an excludable amount), whereas assets reported to be owned by the student count 20% towards the EFC amount.
How Income Factors In
Income from parents are counted between 22%-47%, and income from the student is counted at 50% (after income protected allowances) towards the EFC amount. As of September 14th, 2015, applications have used Prior-Prior Year Income when factoring an eligible aid amount. This means if your income has changed or you otherwise were to try to manipulate your income to qualify for more aid, you would see no potential Financial Aid effects until 2 years after your tax return.
College Board’s calculator can help give you an idea of what your EFC might be. You are not alone if you find that your calculated contribution amount is higher than what you believe you can actually “afford”.
My income changed since filing my 2019 return, what can I do?
The College Scholarship Service (CSS) Profile is another form that roughly 400 institutions now use to help better gauge financial eligibility for institutional funds. There are nuances that for purposes of this article we will not explore in detail, however, unlike the FAFSA, there is a section allowing you to describe a change in financial circumstances that may better qualify you if your financial situation has changed. If your school does not use the CSS profile, you will need to explain your new situation to the Financial Aid Office with supporting documentation in order to have it re-assessed.
Maximizing Financial Aid
Here are a few actionable ways you can decrease your EFC if you believe you are on the cusp of qualifying for aid:
- Pay down debt & home loans- Personal possessions & your principal residence are non-reportable, using a reportable asset to pay down debt will decrease your EFC while also saving on interest!
- Accelerate expenses- Pushing expenses forward to be able to report lower asset amounts will directly lower your EFC.
- Choose funding sources strategically- Utilizing student’s reportable assets first can help better qualify for aid in future years. For those who have access to an Education Savings account that isn’t enough to cover all four years, and have an Adjusted Gross Income of less than $160,000 as a couple or $80,000 as a single filer, spreading out withdrawals over the four years may help ensure qualifying for tax credits like the American Opportunity Tax Credit. This credit can reduce your Federal Tax payments dollar-for-dollar by $2,500 per-student.
Some aid is handed out on a first-come, first-served basis, so those who file for Financial Aid earlier stand a better chance to receive a more generous aid package. Any Federal and State aid usually will count towards the Financial Aid package first, before the Institution steps in with any aid to help get you to the acceptance line.
Getting a Fair Shake
Understanding how you stack up financially and academically can help set expectations in the Financial Aid process, as well as give valuable insights to ensure you are getting a fair shake. Edmit allows you to create a free profile comparing how your offer relates to your peers, and offers other informative resource guides. If you find your offer to be out of line, it may make sense to do what so many have successfully done and plead your case through the appeals process.
The Financial Aid process can be a daunting black box of calculations, so it is important to get ahead of this process and even the information playing field. Contact your advisor on how to best fund this investment in your family’s future and help level the playing field.
Important disclosure information
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RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.