No financial (aid) regrets

Much of the anxiety infused into college admissions stems from the fear of making that one mistake that makes all the difference. Families worry that missing one detail, instruction, or advantage will erase all those years of hard work. Good college counselors spend much of their time talking families down from these fears.

But one college preparation version of a catastrophe is failing to file your financial aid forms on time. And this year, that means doing so as soon as possible after October 1, 2016—a full three months earlier than it used to be.

The worst regret I’ve ever heard a family express about submitting the FAFSA is that they spent time filing the form and ultimately got no aid. I understand that’s frustrating.

But I’ve also heard from families who deeply regretted not taking that step, who didn’t get the aid they needed for college, who weren’t eligible for merit scholarships because their chosen colleges required a FAFSA for consideration, or who saw their financial situation change after the filing period and had no recourse to be considered for aid.

You can avoid these, and so many other financial regrets, by simply filing the FAFSA. The form won’t be live until October 1, but you can set up your Federal Student Aid ID account now at www.fafsa.gov.

There are also about 400 colleges who require the CSS Profile form to be eligible for aid, and that form also goes live on October 1. But the Profile is submitted in addition to—not in replacement of—the FAFSA. Visit the financial aid websites of the colleges your student is applying to for the full list of requirements. But the FAFSA is the starting point for all student aid.

I write here often about focusing on the elements of this process that you can control.  You can’t control whether or not you get the financial aid you want. But you can absolutely control whether you file the necessary forms to access it. You can’t insulate yourself from financial aid disappointment. But you can take steps to eliminate financial aid regret.

The big FAFSA changes this year

Families who’ve been through the admissions and financial aid application processes with older kids probably remember the order of operations. No matter which colleges you applied to or when you submitted your applications, the earliest you could submit your FAFSA (the starting point to apply for all need-based aid for college) was January 1 of the student’s senior year. But that meant many students were submitting college applications the prior October-December with no sense of whether or not they were eligible for financial aid. The FAFSA also required that you use tax data from the current year. So unless you really had your tax act together enough to get them done months ahead of time, your FAFSA almost certainly wouldn’t be completed in January. And given that much of need-based financial aid is available on a first come, first served basis, the January 1 filing date created a lot of stress and just wasn’t very efficient.

This year, the FAFSA folks have made two significant changes.

1. The FAFSA can now be submitted as early as October 1, rather than the following January. So if you’re applying to college this fall, you may submit your FAFSA as early as Oct. 1, 2016.

2. For the 2017-18 academic year, families may use information from the 2015 tax year to complete the FAFSA. So instead of frantically completing your taxes next year and hoping to transfer that information to your FAFSA in time, you can now not only use last year’s tax returns, but you’ll also be able to use the IRS’s data retrieval tool, which allows you to transfer the necessary information into your FAFSA.

Those are mostly good changes. Now here’s what won’t change.

While virtually every college requires the FAFSA from applicants seeking aid, each individual school decides when that FAFSA is due (October 1, 2016 isn’t a deadline, it’s just the earliest that a FAFSA can be submitted), and schools may require other paperwork in addition to the FAFSA. The only way to make sure you’re submitting the right forms at the right times is to check the financial aid sections of each of your chosen colleges’ websites.

Counselors may be aware that there are several unanswered questions about these changes, like how they will affect Pell grants, what will happen with the Profile form, how this will affect counselors’ advising cycles now that you have to cover financial aid much earlier, etc. But for the purposes of this post, I want to focus on what families need to know rather than raise questions they aren’t empowered to influence.

So, college applicants (and their parents), visit the websites of the colleges that interest you. Check all the requirements and deadlines for both a complete application for admission and for financial aid. Decide who will be responsible for what (kids should fill out their own applications, but it’s common and accepted that parents often handle the financial aid paperwork).  That way, you won’t be missing anything, and you’ll give yourself a good start towards getting the aid you need to help pay for college.

The expertise you’re looking for

If your family is in the fortunate position of using a professional to do your taxes, plan your retirement, or generally manage your money, you’re likely making smart financial decisions. But while some accountants and financial planners are also experts in college financial aid, not all of them are. And a smart strategy for saving or taxes might actually be a very bad one if you hope to qualify for financial aid.

For example, your advisor might recommend saving money in your child’s name as a smart financial planning strategy. But if you’ll later need financial aid to pay for college, that money will be assessed 20% as opposed to the 5.65% if you’d kept the money in a parent’s name. You’ll end up paying much more than you needed to.

I’m not talking about hiding your money to look less affluent or doing anything to avoid paying your fair share of college. Colleges are wise to all the ways families can try to get around the rules.

But if you found out that your mortgage bill would have been substantially lower if you had saved the down payment in a different account, wouldn’t you wish you’d done it? That’s what it feels like for some parents who put money in their child’s name, often with the intent of using that money to pay for college, who later apply for financial aid and find out the money they saved isn’t going to stretch nearly as far as they’d planned.

Retirement, investing, saving for college—it’s all part of your financial planning. And plenty of professionals can do it all. But don’t assume that yours can. Have a conversation with your accountant or advisor and find out if college financial aid is part of her expertise. A willingness to help fill out the forms does not make someone an expert. A deep knowledge of college savings vehicles like 529 plans, the FAFSA methodology to assess income and assets, the differences between various college loans, and the many terms that are unique to college financial aid—that’s the expertise you’re looking for.

Every little piece helps

Outside scholarships—the kind that come from companies, foundations, and numerous sources other than the federal government, states, or colleges themselves—actually only account for about 5% of the available aid. That’s why the first step to getting the aid you need is to file the FAFSA, and any other financial paperwork that your individual colleges request.

But outside scholarships are still free money for college that you don’t have to pay back. And families who are concerned about college finances shouldn’t write off their chance to access their share of it.

Start by visiting a free service like Fastweb (any service that charges you to look up scholarships is probably a scam). Fill out a profile—do so completely because it makes a difference—and begin searching for scholarships that fit.

If you’re applying to college this fall, the time to do this research is now. If you wait until your admissions decisions arrive, you’ll find that many–if not all–of the deadlines to file these applications for scholarships have passed.

It’s not the largest piece of the financial aid pie. But every little piece helps.

Financial aid roadblocks

There are two potential roadblocks to helping families get the financial assistance they need for college—terminology and priorities.

Here are four terms to familiarize yourself with, and below them, your three priorities when applying for financial aid.

1. Grants/Scholarships
Grants and scholarships mean the same thing—free money that does not have to be paid back. The bigger this number, the bigger your resulting celebration. These can come from the government, the state, or from the colleges themselves. “Outside scholarships” come from sources outside of schools, like companies, foundations, churches, etc. They usually require separate applications.

2. Loans
These loans are usually taken out by the student rather than the parents, and are often subsidized and guaranteed by the government. In most cases, no interest is charged while the student is in school, and the repayment does not begin on Perkins or Stafford loans until the student graduates.

3. Work study
Work study is a job the student is given, usually on campus, for which the earnings may then be used to pay for college expenses.

4. Financial aid
Financial aid is a blanket term for financial assistance to pay for college, and it can include any combination of the three types described above. So, getting $15,000 in financial aid doesn’t necessarily mean you just got a $15,000 discount on the college’s sticker price. It could be a combination of free money, loans, and/or work study.

Thankfully, you don’t necessarily need a master’s degree in accounting to avail yourself of this aid. In fact, just plan on doing these three things and you’ll have your priorities straight.

1. Apply to a balanced college list that includes schools where you have a very strong chance of admission. Schools have the power to give more aid to the desirable students, so applying to those colleges that may pay is a good strategy.

2. Submit the FAFSA (Free Application for Federal Student Aid) according to your colleges’ deadlines. If you’ve been through this before, your deadlines will be earlier this year, and the FAFSA may now be submitted before January 1.

3. File any additional paperwork, such as the CSS Profile, that any of your colleges require.

Yes, there are things you can do to increase your eligibility. You can also apply for outside scholarships in the hopes of getting more money. And if you have younger students, you should make saving for college a top financial priority. But for students in the class of 2017 who will be applying to college this fall, make the above three steps your college financial priorities. They are the most crucial—and most effective—ways to get the financial aid you need.

Saving regrets

Like many things in life, saving for college is one of those things we all know we’re supposed to do, yet even the most responsible of us regularly come up short. The difference in this case is the added layer of frequent bad information that can discourage parents from making reasonable efforts, all of which leads to statements and questions like:

I heard that there’s lots of financial aid and scholarships available.
If I save money, won’t I get less financial aid?
But my student might get an athletic scholarship.
I heard that you can get in-state college tuition rates once you live in that state for a few years.
What if my student declares independence? Won’t she get more financial aid?

I could dig into answers/rebuttals to those and other questions, but the reality is that they all lead to the same conclusion: Saving is the very best college financing strategy (followed closely by applying to the right colleges).

The more you manage to set aside to pay for college, the more control you’ll have over your financial destiny, and the less you’ll need to rely on financial aid to make up the difference. Financial aid officers are also more likely to look favorably on a family who’s made a reasonable effort to save for their kids’ education than they are on those who have lived beyond their means and are now expecting colleges to make up the difference. And given that not all financial aid is free money—much of it can be loans that need to be paid back with interest—it’s cheaper to save than it is to borrow. Like flossing your teeth, exercising, and eating right, we can look for evidence that it’s not as important as we’ve heard, but the facts always tell us differently.

Consider opening a 529 savings plan and having regular amounts automatically deducted from your paycheck. Look for ways to cut your expenses and redirect that money to your college savings. Save what you can, starting as early as you can, but don’t get discouraged if you’re late to the saving party. You won’t be alone, and every little bit will help.

Even if you later regret not saving more, you won’t regret the effort to save what you did manage to set aside.

For senior families: advice on the financial front

College decisions are arriving for seniors. And as families discuss where their students will be spending the next four years, here are three past posts with some advice about the financial factors in making your final college choice.

Here’s a reminder that affordability is part of fit.

Some advice on interpreting financial aid award letters.

And here’s a 2015 Washington Post article, How to Negotiate a Better Financial Aid Package. But while the advice is sound, please don’t let the title mislead you. You’re not buying a car, and treating this like a negotiation, especially one full of bluster or hostility, will backfire. Be polite and remember that while financial aid offices can and sometimes do adjust aid packages, they’re still holding all the financial cards.

Got financial aid? How to compare your awards

As college decisions begin to arrive for the class of 2016, those who receive financial aid will also get their “award letter.” Colleges know not to bury the lead, so you’ll often see a bold line of text summarizing the total award package. Some colleges do a much better job of explaining this than others do, but that number doesn’t necessarily mean you can just subtract it from the sticker price of the college.

There are three types of financial aid, and they are not created equal—(1) grants and scholarships (which are free money that doesn’t have to be paid back), (2) loans, and (3) work-study program. That’s why the awards are typically called “packages.” The rest of the letter should explain the breakdown for the recipient.

If you’d like some help deciphering your award package so you can accurately compare it to what are hopefully offers from the many other colleges that have accepted you, Mark Kantrowitz, as usual, comes through with all the necessary information and advice here.

Should parents or kids pay for college?

I’ve seen a few stories in the press debating whether parents should pay for their kids’ college educations, or whether the time has come to shift that responsibility to the student.  But whenever possible, I recommend that students and parents pay for college together as a partnership. The student will be successful during and after college, the parents will remain financially secure without sacrificing their retirement, and both parties can emerge from this process with a minimum of debt. Here’s why:

1. Colleges expect both parents and students to contribute.
College financial aid officers expect both the student and the parent to contribute to college costs to the maximum extent they are able; their formulas measure each party’s ability—not their willingness—to pay. When a parent or student refuses to contribute, the paying party has to bear the other’s share of the cost. Financial aid will not make up the difference.

2. Part-time jobs are good for college students.
Studies show that students who work up to 12 hours a week do just as well or even better academically than those who don’t. And in today’s economy, whether a student studies business or botany, they’ll need to have a resume that shows real experience if they want to get a job after graduation. In fact, a poll of 2010 graduates showed that 29% of them regretted not having done more internships or worked part-time in college.

3. Parents need to protect their own financial wellbeing.
Parents shouldn’t invest so heavily in their kids’ education that they put their own future at risk. A parent who sacrifices security or retirement to pay for their kids’ college is taking a big risk (and making it more likely that their kids will need to support them one day).

The best partnership approach begins long before the student actually starts college. We recommend that our Collegewise families have honest, open conversations about college costs when they begin the college search. Then we help them find and apply to schools where the student has a good chance of acceptance, as that can lead to merit-based scholarships. And every family of a college-bound student should apply for need-based financial-aid, beginning with the FAFSA (Free Application for Federal Student Aid). There are billions of dollars in aid available and the worst college financing mistake a family can make is to assume that they won’t qualify.