Maximize Your Financial Aid

(The data for the Simplified Needs Test has been updated for the 2009-2010 Award Year. This data and the importance of the Simplified Needs Test are explained below in the section labeled:
“How to Get Special Treatment.” )

Increase your chances for grants, student loans, parent loans, and college work-study jobs before you fill out the Free Application for Federal Student Aid, FAFSA. Here are several procedures that may increase the size of your award. Even if you already filed for financial aid, you may be able to make corrections that will help you compete for one of the new grant programs.

These are procedures I used when applying for financial aid for my children. I believe they helped speed up the process and increased the award they received. Many of them are very general and helpful to most applicants. Some depend on unique circumstances. If you don't know if something you see here, fits your situation, get advice from the guidance counselor at your child's high school or the financial aid office of the college where your child is applying.

Federally funded financial aid is distributed either as grants, loans or jobs. Grants are the most highly sought after form of aid. This is because they usually do not have to be paid back. The grants offered by the federal government include the Pell Grant, Federal Supplemental Educational Opportunity Grants (FSEOG), Academic Competitiveness Grant, and the National Science and Mathematics Access to Retain Talent Grant (National Smart Grant).

Some Lenders Offer Discounts on Loans
NOTE: The information given below is based upon my experience with my children in the past. Unfortunately the current loan crisis in the banking industry has caused a tightening in the student loan market. You should check with a college financial aid officer regarding loan availability.

Loans are the next most popular type of aid and include both student loans and parent loans. Full-time and half-time students usually do not have to begin paying on their loans until after they graduate. Parents, who take federal PLUS loans for their dependant students, must begin making payments while the student is still in college. Most lending institutions offer loans at rates set by the federal government. However, if you shop around you may find discounts that can save you a considerable amount of money over the life of the loan. You can start by calling the department of higher education for the state in which you reside and also the state in which your child will attend college. You can find a list of these agencies by clicking here. Then click on the name of your state and then look in the list for a higher education agency or some simillar name. When you call your agencies, ask if they offer any low cost educational loan programs. For instance, in Pennsylvania, both residents attending any U.S. Department of Education approved college and out-of-state students attending any approved Pennsylvania college, may participate in the Keystone loan program at significant savings over the life of the loan.

The third type of aid is the federal work-study job. The job is usually part-time and the pay must be at least the federal minimum wage. How much your earnings may total will be set by the amount of the award. The work is usually on campus, but may be off campus depending upon what the college has arranged for in its work-study program.

Apply Early to Avoid Shortages
Some of the aid is administered by the federal government and goes to every eligible student. Other programs, the FSEOG, Federal Perkins Loans, and Federal Work-Study are administered by the individual colleges. The college will consider your need, but will weigh it against how much other aid you are receiving. Since each school has a limited amount to disperse each year, it is possible for a school to run out, so it is best to apply as early as possible.

In order to be eligible for financial aid you must fill out the Free Application for Federal Student Aid (FAFSA). You can fill out this form, or just find out more information about it, by clicking here.

For new applications, you should start getting ready to fill out the FASA as early as you can. The application deadlines are given on the web site. If you start early, you can apply for a PIN number. This will save you a little time and make it more convenient to sign the FAFSA. Your unique PIN number will serve as your signature and your paperwork will not be held up while you mail in a signature form. If the student is a dependant child, then both the parent and student must sign the form, so it helps if both have PINs. You can apply for the PINs on the web site. You should also download a sample FASA form called, “The FAFSA on the Web Worksheet” and look it over to see what information you will need to supply. Fill out the worksheet so that you will have the information available when you fill out the official form online. Better still, you may also obtain a complete paper FAFSA application from a library, high school, or college and fill out the entire form. I don’t recommend mailing it in because it takes more time to process then when you fill out the form online, but do what you are most comfortable with.

I always made sure that I had filed my federal income tax return before I began filling out the FASA. That way when I got to the question about when I would file, I could say my taxes were completed. I feel it is wise to have everything done so that your paperwork is not held up for any reason. The information you give on the FAFSA will be considered more reliable if you obtained the data from the income tax forms you already submitted. While my children were eligible for financial aid, I always submitted my federal tax return as early a possible and filled out the FAFSA, usually the next day.

The amount of income shown by the parents and student will help determine how much financial aid your child is eligible to receive and how much the federal government believes you should contribute to your child’s education. This is called your estimated family contribution or EFC. The college you apply to will have established a cost of attendance (COA). The COA is usually published in a college booklet or on their web site. It includes tuition and fees; room and board, books, supplies, transportation, and loan fees. Other expenses such as dependant care will be included when applicable. The college will take the cost of attendance and subtract your EFC to obtain the amount of your financial need.

How to Get Special Treatment
The level of EFC you are assigned, is a major factor in deciding how much federal aid you are eligible to receive. What most people don’t realize is that the government’s computers do not apply the same EFC formula to each FAFSA. If you meet several special requirements your FAFSA will be processed by a special formula that may lead to a lower EFC. For applicants who meet a simplified needs test (SNT), there is a shorter formula. Usually this means that the family’s assets are not part of the formula. If the parent’s income is low enough, the family automatically receives an EFC of zero.

The amount you report to the IRS for your adjusted gross income is one of the requirements that determines which formula applies to you. The following is for the 2009-2010 award year and lists 2008 income amounts. For the Simplified Needs Test the parent’s adjusted gross in 2008 must be less than $49,999. For the Automatic Zero EFC the parent’s adjusted gross for 2008 must be less than $30,000. If you meet the requirement during the 2009-2010 award year this does not mean you will continue to get special treatment next year. You must fill out the FAFSA again and your income must continue to meet whatever the requrements are for the award year you are applying for.

It has always been my belief that if you meet all of the other requirements and your income is just above one of the cutoff points for these levels in a particular award year, you should reduce your adjusted gross by increasing your contributions to a traditional IRA. Depending upon your circumstances, you may be able to do your taxes in January or February on a 1040A form (see below), find out you need to reduce your adjusted gross, enter the traditional IRA deduction you need, and have until April 15 (or whatever the tax filing deadline is) to place the money in the traditional IRA fund for the appropriate tax year. While this worked for my family, your circumstances may differ and you should examine the current regulations carefully and obtain expert advice. You cannot deduct contributions to a Roth IRA.

There are more regulations which will determine your eligibility to qualify for either the simplified needs test or the automatic zero EFC. In addition the parent must be eligible to file a file a 1040A or 1040EZ, or not be required to file any income tax at all. For the 2008 tax year, you are eligible to file a 1040A if you made less than $100,000, and meet other requirement regarding the source of your income, and the types of adjustments and tax credits your claim.

A New Requirement
As an alternative to the tax form filing requirement, the new law adds another way to qualify for either the simplified needs test or the automatic zero EFC, the student’s parents must still be under either the $20,000 or $50,000 income limits given above and have received benefits under a means-tested federal benefit program during the previous 12-month period. This is usually the tax year just prior to the award year. Taxes paid at the end of 2006 establish the base year for awards given during the September 2007 to June 2008 college year. As of the signing of the new law, the five programs identified as meeting the definition are:

• The supplemental security income program under title XVI of the Social Security Act
• The food stamp program under the Food Stamp Act of 1977
• The free and reduced price school lunch program established under the Richard B. Russell National School Lunch Act
• The program of block grants for States for temporary assistance for needy families (TANF) established under Part A of title IV of the Social Security Act
• The special supplemental nutrition program for women, infants, and children established by section 17 of the Child Nutrition Act of 1966
  

When you fill out the FAFSA, you should fill in the names and numbers for the colleges you are applying to. You can locate or verify these numbers by clicking here. Read all information from the colleges carefully to see what steps you are required to take, but generally after applying to the colleges and after the colleges receive the FAFSA report, and after being accepted for admission, you should receive an offer of financial aid. This may or may not be the best offer the college is willing to make. If you have time left in the decision process, you can write a letter to the college asking for more aid. You should have some valid reason for making the request such as a family hardship or simply that the offer does not cover your financial need. Remember, your financial need is determined by taking the cost of attendance (COA) at the college and subtracting your estimated family contribution EFC. Many award offers do not cover all of the financial need and you may have to ask the school’s financial aid office about additional loans or take other actions such as seeking help from family members, plan to work while going to college, or find a college where the costs to you are lower.