What You Need to Know to File FAFSA

people-2562626_1920

Frequently Asked FAFSA Finance Questions

By Michael Robinson

 

The time has come to start filling out the Free Application for Federal Student Aid (FAFSA) for the 2020-2021 school year. Students who will be attending college from July 1, 2020, to June 30, 2021, can file the 2020 – 2021 FAFSA between October 1, 2019, and June 30, 2021, using their 2018 tax information.

 

Do you need to file FAFSA every year?    

Yes.  A new FAFSA form must be filed every year the student is enrolled in school. The amount of money you can hope to receive in both federal and state aid is much greater depending on how early you file, so it’s best to start early!

 

Filing FAFSA: Online or paper? 

If you’re wondering how you should file the FAFSA form, the online method is recommended.  The online application can be found here.  With the implementation of the IRS Data Retrieval Tool (IRS DRT), entering your financial information is much easier, and the online form allows you to list up to 10 schools that you want to receive your information.

 

Classifying Your Assets

It’s important to have a good understanding of which assets may be considered in the calculation of Expected Family Contribution (EFC) because the IRS DRT does not populate some of these fields on the application. EFC is a calculation used to measure a family’s financial strength. A higher EFC means less financial aid!

 

Only up to 12 percent of a parent’s unprotected assets are considered available funds to pay for college, compared to 20 percent of a student’s assets, so it is important to make sure that all assets are classified correctly.

 

Frequently Asked FAFSA Finance Questions:

 

Q1: What is the net worth of your investments?

Investments include:

    • real estate (but not home in which you live),
    • rental property (includes a unit within a family home that has its own entrance, kitchen, and bath rented to someone other than a family member),
    • trust funds,
    • Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts,
    • money market funds,
    • mutual funds,
    • certificates of deposit,
    • stocks, stock options, bonds, other securities,
    • installment and land sale contracts (including mortgages held),
    • commodities, etc.
  • UGMA and UTMA accounts are considered assets of the student for FAFSA purposes.
  • Investments also include qualified educational benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans.
  • Coverdell savings accounts and 529 College Savings plans are considered assets of the parents for FAFSA purposes.
  • Investments do not include the value of life insurance and retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.).
Q2: What is the net worth of your current businesses and investment farms?

The value of your family business is not counted on the FAFSA when:

  • More than 50 percent of your business is owned and controlled by your family, AND
  • There are less than 100 full-time employees.

 

Q3: What other money has been paid on your behalf?

Distributions from a 529 plan held by anyone other than the dependent’s parents are considered in this calculation.

 

Should you file FAFSA if you don’t expect to qualify? 

Many people think that they shouldn’t fill out the FAFSA form because they don’t expect to receive any financial aid, but not all financial aid is need-based. Many states and colleges will use the information from the FAFSA to offer grants and federal work-study opportunities. The FAFSA is required to be filed by most post-secondary institutions to be considered for scholarships as well.

 

If you have further questions about the classification of certain assets, please contact your ABBB advisor. We’re here to help make this process easier for you!

 

Additional Resources: