Hello from your Healthy Wealthy Families Team!
This is us last weekend at the UC Santa Cruz campus where we attended a financial planning industry Mastermind event. From left to right, Alyssa Hause (we’re a true family business—Hilary’s sister, Alyssa [Martin] Hause has joined the team as a Paraplanner and is studying for the CFP® exam!), Craig Martin, Hilary Martin and Peggy Martin!
From our family to yours, we wish you abundance in health and wealth.
This week’s blog post was co-written by Alyssa (Martin) Hause and Hilary Martin, MBA, CFP®
Top Financial Mistakes Families Make When Applying for Financial Aid
Filing the Free Application for Federal Student Aid (FAFSA) is your family’s only ticket to federal, state and institutional aid, student loans and also merit-based and athletic scholarships, yet many make the mistake of not applying for financial aid correctly or not filing correctly.
In this article, we’re going to help you avoid some of the most common financially disastrous mistakes families make when applying for financial aid. This is in no way a complete review of the topic of strategically planning for college funding, however, so you’ll need to do your research. Also, if you’d like a referral to a college funding expert who can add customized expert advice through the application process, please shoot us an email and we’ll be happy to make an introduction.
The gist of the FAFSA college cost calculation is this:
Cost of Attendance (COA) – Expected Family Contribution (EFC) = Need
*Need is the number schools pay attention to, and will attempt to fund either with loans, grants or scholarships). So you can see that it behooves you to minimize your EFC strategically, if you can.
Top Mistakes Families Make on the FAFSA:
- Aggregating savings in the parents’ names
Grandparents and other family members who want to contribute to a child’s 529 account can be a blessing to their family; however, when a 529 account is in the parent’s name, its balance is added to the EFC calculation. 529 plans owned by other family members, with the student as beneficiary, will not be included in the financial aid process and will not reduce the amount of financial aid available. Also, UGMA and UTMA accounts in the child’s name will be added to the EFC. Add to this the fact that in the vast majority of cases it’s very inappropriate to save large amounts of money in a minor’s name, and you probably shouldn’t be leaning on the UGMA or UTMA account for savings very heavily at all.
- Providing too much information
When information is not asked for, don’t offer it up! For example, the FAFSA form does not ask for retirement account balances, so don’t include them in your assets. Small mistakes can mean big dollars.
- Missing a deadline
In California, the priority deadline is March 2, but aid awards begin January. Fill out and return the forms as close to the beginning of January as possible. You can estimate prior year income and tax information, and then file an amended application when you file your tax returns.
- Providing the wrong parents’ financials
For divorced or separated families, the FAFSA form only requires income and asset information for the parent who the student has lived with most of the year. Don’t make the mistake of including the other parent’s income or assets as this will change the expected family contribution.
- Not filing the FAFSA form
Many families assume that they won’t get financial aid because they have income and assets, but your student will not be eligible for merit or academic scholarships without filing the FAFSA. Every family needs to complete the FAFSA.
- Assuming private schools are more expensive than state colleges
Sure, the posted tuition may be higher at private schools, but your key consideration should be how the school helps families with unfunded need. The vast majority of state schools will require families to take out private loans or just leave the need unfunded. Well-endowed private schools will often fund need with grants, vastly decreasing the total cost of attendance to your family.In many cases, the cost of attending a private school is actually lower than the cost of attending a state school. Do the research on colleges, understand how much of their financial aid is met with scholarships, grants and work study. A great site for researching colleges and financial aid is http://www.collegeboard.org/.