Financial Aid Questions?

It’s that time of the year and we’re hearing a lot of financial aid questions.   Are you looking for answers to your financial aid questions?  We put together a short list of frequently asked questions along with their answers.  The sources of this information include financial aid webinars, contact with the Federal Student Aid office, discussions with college financial aid offices, and other resources.

There were three topics that covered many of the questions.  The topics were asset ownership issues, divorced or separated parents, and dependent versus independent students.

Here are some of the most Frequently Asked Questions (FAQ’s) from the Federal Student Aid office.

• What are the deadlines for filing the FAFSA and making corrections? June 30th/September 15th
• How should I fill out the FAFSA if I haven’t completed my tax return?  You will want to indicate that you are using estimated numbers and submit a corrected return when taxes are finalized.
• Do I have to include my parents information on the FAFSA?  Visit FAFSA website for definition of independent student.  Next Blog will include major changes to independent status.
• How do I add another school to my FAFSA?  Go online to FAFSA website and you can add or delete a school code.
• How much financial aid will I receive?  Financial aid will be summarized in an award letter towards the end of March.  Contact shool’s financial aid office for additional information

More Questions for FAFSA and CSS/Profile

Do you have to enter the fathers W2 if couple has been separated for all of 2008?
No, only the custodial parent’s income.

When a parent is in the middle of a divorce that is not finalized, how do you account for financial support that was received that is considered alimony yet? Since alimony is taxable income, it will be assessed.

As for business owners, do you have to claim a value if you own less than 50% and have fewer than 100 employees? Yes

Does amount of parent’s ability to pay on the Profile only consider liquid resources and not loans?
This would include liquid assets.

If you are a 50% owner with less than 100 employees, do you have to reveal indebtedness on the business CSS profile? Yes

If a parent has a negative AGI, is that shown on the FAFSA or do you put down 0? Put down a negative AGI

Are UGMA/UTMA accounts (non-529) counted as a student asset or parents asset?
On the FAFSA?  Student On the Profile)?  Student

How is regular social security reported – for the parent and a student under age 18?
For the FAFSA? Not reported For the Profile?   It is reported

What is a non-educational IRA (for the student)? Coverdell Education Savings Account

What do you do when parents are divorced?  Mother lives with a boyfriend, child lives with her.  As long as the child lives with the Mother, the Mother’s income and assets are reported (not the boyfriend’s)

If you contribute $4000 to an IRA and you in a 30% tax bracket, is the $1200 added back as untaxed income or the full $4000? The full $4,000

Are UTMA/UGMA accounts now a parent asset on the FAFSA? No, unless the parent is the beneficiary of the trust.

How do we address the step parent issue.  Do we include or exclude the relevant data? You must report the income and assets of the stepparent.

The next blog will have specifics on how to file for financial aid and where to go to file.

Our Top Ten Tips for a successful college selection provide a basis for a solid foundation and a great college experience.  A successful experience involves fitting the student to the college and the college to the family’s budget.

Top 10n Checklist

Here are 10 things to consider when selecting colleges:

• Friends – Don’t select a college because a boyfriend, girlfriend, or all of your friends are going there.  The college experience is not meant to be an extension of high school.
• College Visits – There is no substitute for a college visit.  When visiting a college it’s important to be well-equipped with questions to ask, departments to visit, and a detailed agenda.  Consider factors such as the size of the school, location, campus setting, and campus safety.
• Universal Approach – There are 3,000+ universities around the country.  Tackle this experience the same way you would shop for a car or TV.  Check out your options and exhaust all of your possibilities to find the right fit.
• Right Number of Colleges – We recommend applying to 6-10 colleges.  Applying to more than 10  will over complicate the process.  Applying to fewer than 6 will cut down your opportunity to create competition among the colleges.
• Familiarity – The fact that you may be familiar with the name of a college doesn’t mean it’s the right one for you.  Don’t associate name recognition with the right college fit.
• Financial Aid – Developing a good understanding of the different aid that’s available will allow you to evaluate your ability to get financial aid.  Become familiar with the FAFSA, CSS Profile, and 568 Presidents Group.
• Become an Educated Consumer – Knowledge is power and by having this knowledge you will be able to differentiate facts from opinions.  You’ll hear a lot of comments such as “good school”, “difficult to get into”, “too expensive”, “no financial aid”, or a variety of other comments.  Remember that each student is unique along with every family’s financial situation.
• Net Cost of College – Many colleges offer scholarships, grants, or other forms of financial aid that can make college affordable.  You won’t know what the net cost of college will be until the process is nearly over.
• Timeline – Set up a timeline of all of the dates you don’t want to miss.  This timeline should start early in high school and include SAT or ACT test dates, scholarship deadlines, application deadlines, and much more.
• Positioning the Student – How will the student fit in the incoming freshman class?  In what range will he fall in regards to the academic challenge-positively challenged, cakewalk, or stressed out?  It’s ideal to have a student positively challenged.  If a student is in the stressed category, she may be studying 40+ hours per week to get average grades in a class.  If the program is a cakewalk, it’s a waste of time and money!

Start a checklist now!

This is a question we hear all the time.  Let’s take a look at what a Qualified Tuition Plan (529 Plan) is and what the IRS says about the taxation of the plan.  According to the IRS, states may establish and maintain Qualified Tuition Plans, also called  529 plans, that allow parents to either prepay or contribute to an account to pay a student’s qualified education expenses at a post secondary institution.

What does the IRS say about the taxation of the plan?  According to the IRS, distributions from eligible educational institution QTPs may be tax free. You may not have to include as income a distribution from a QTP established and maintained by an eligible educational institution.  If the IRS uses the words “may be” in a sentence, it may be time to look a little deeper at this.

Let’s take a look at what may cause the 529 plan to be taxable. According to the IRS, you must compare the total of all QTP distributions for the tax year to the adjusted qualified education expenses to determine if total distributions for the year are more or less than the amount of qualified education expenses.  Adjusted qualified education expenses are the total total qualified education expenses less any tax-free educational assistance.

Tax-free educational assistance includes:

• The tax-free part of scholarships and fellowships
• Veterans’ educational assistance
• Pell grants
• Employer-provided educational assistance
• Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational   assistance

It appears that if you plan on paying the entire college bill (without financial assistance) using the 529 plan, it will likely be tax-free.  If you plan on applying for scholarships, you should ask a few questions.  If you’re seeking any financial aid or other educational assistance from the university, you’ll need to find out more.  Don’t make the mistake of assuming all of the distributions will be tax-free.

For additional details, take a look at IRS Publication 970.

Get the most out of each college dollar saved.

Squeeze the most out of every dollar

Ready to sign the paperwork for that college loan! Think twice before you do.Let’s imagine the college planning process. It has been a long, drawn-out process and the finish line is in sight – college acceptance. Parents and students are mentally exhausted. By the end of the college planning and application process there is not much patience left, and there is the feeling that it’s finally over. Everyone is ready to move on to that next stage of their lives.

In addition, just before school starts the summer season is upon us and it’s time to make those summer vacation plans. Enjoying the park, beach, mountains, or wherever becomes a priority. After all, we want to spend time with our college-bound children before they move on to the next stage in their lives and away from us. It’s ironic that most American families spend more time pondering the cost of summer vacation – travel, accommodations and sightseeing – than they do thinking about paying for college.  When you’re back from that summer fun in the sun and that first bill rolls in for the first semester of college, plus room and board, who is going to pay the bill? You could end up spending tens of thousands of dollars more than you have to.

What if you don’t have savings, cash, or other resources? There is usually a financial gap between what the college will pay you in terms of federal scholarships and work study programs and what the student has to pay. When it comes to paying for college these days the first thought is usually to get a loan, the old buy now/pay later syndrome. Have you been thinking about applying for one of those college loans you’ve seen on TV and on the internet? Ads are everywhere. Why? College lending is a lucrative business – the lender stands to make big bucks from your immediate cash emergency.

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Before you know it, the kids are going off to college, taking that first job, or moving out. Isn’t it wonderful to observe their new sense of independence? After all, that’s why you’ve spent so many diligent years teaching them a sense of responsibility.

Are you aware that teens entering college today have been labeled the Boomerang Generation? That’s right – you throw them out into the world and they come whirling back, into the comfortable arms of home. College grads defend this behavior (and so do their parents) because some contributing factors make their move into the real world less appealing. Rising home prices or apartment rent could be the culprit. So could the inability to either get a job or live on the going rate for an entry level job. Then there is the student loan that needs to be paid back within months of graduation. All these factors can be so scary that students are rushing back home in big numbers to the comfort of mom and dad and those home cooked (free) meals.

You can stop the battle of the boomerang before it begins. It’s important to teach your young adult the basics of living independently. Typically there are no high school programs about developing Life Survival Skills, so parent, it’s up to you. Get down to the basics early on.

Think back at how you have been raising your children. Do they know how to do their own laundry? Prepare a meal or a snack on their own? Resolve their own problems with friends and at school? Do they share home chores with you?

Most of all, do they save and spend their money wisely? As a person who has counseled hundreds of teens and their families about getting ready for college, I can tell you that most students who cross my path, while they may be academically successful, aren’t savvy in financial matters.

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