By FPA Member Jeanne Gibson Sullivan, CFP®
Last Updated: January 23, 2012
For parents of college students and prospective college students (Fall of 2012), financial aid forms need to be submitted soon. Typically financial aid forms for prospective students are due in January or February, while forms for returning students are due in March or April. Be sure to check the deadlines for each school where the student is applying and/or attending. Depending on the school there may be multiple forms to fill out. The first step is to determine which forms are needed:
- Free Application for Federal Student Aid (FAFSA) Form: This is the basic form required for financial aid at all colleges including all federal student loans, such as Stafford Loans and PLUS loans. The FAFSA form asks for information such as student and parent income and assets, but does not take into consideration retirement assets or the equity in the primary residence. The FAFSA will determine the family’s “Expected Family Contribution”, which is the amount that the family is thought to be able to pay – often a higher number than the parent thinks they can afford! Information and forms can be found at www.fafsa.ed.gov.
Even if the family does not think they are eligible for need-based aid, but wants to access Stafford loans and PLUS loans, the FAFSA must be filled out. Certain merit scholarships may also require completion of the FAFSA forms.
- Stafford Loans: Most students who fill out a FAFSA form are eligible for unsubsidized Stafford loans. First year students can borrow up to $5,500. The interest rate on unsubsidized loans is currently 6.8 percent and is not based on the applicant’s credit score. Need-based subsidized Stafford loans now have an interest rate of 3.4 percent in 2011-12 and the interest does not accrue while the student is in school.
- Federal Direct PLUS Loan: Parents can also borrow through the Direct PLUS program. Parents can borrow up to the cost of attendance less any other financial aid received. The interest rate is presently 7.9 percent and is charged beginning with the disbursement of the loan. Please note that certain fees apply to these lending programs, so read the details carefully.
- CSS PROFILE Form: Some private colleges use a different methodology for calculating financial aid and require the College Board’s CSS PROFILE form. A list of schools requiring the CSS PROFILE form can be found on the College Board website. The CSS PROFILE form asks more detailed and broader financial questions than the FAFSA and takes into account other factors such as the equity in your house. Some schools may also request a copy of a tax return, so if possible, try to get your taxes done early.
- Additional Forms: Occasionally a college may require supplemental information, so be sure to check with the school.
For divorced parents and parents who never married, the rules may vary as to what is required, so check with the school as well as FAFSA and CSS Profile.
For prospective students, beginning in the Fall of 2011 all colleges are required to post a “net price calculator” on their websites that help families figure out what freshman year will cost. The calculations are designed to be an estimate; the financial aid office will have the final say on the actual financial aid award. It is based on the “Expected Family Contribution” computed based on information on the FAFSA form.
The process of financial aid should also involve investigating grant opportunities from sources other than the college. There are numerous opportunities for scholarship and grants and many have a separate application process. School guidance offices are often the best place to start the investigation.
In addition to financial aid, there are several tax advantages for the families of college students. The American Opportunity Credit replaces the Hope Credit through 2012. The American Opportunity Credit is a maximum tax credit of $2,500 and has a higher income limit qualification than other tax benefits. Read IRS Publication 970, “Tax Benefits for Education” to determine if you are eligible. Other tax benefits may be available to you depending on your circumstances.
FPA Member Jeanne Gibson Sullivan, CFP®, is a financial planner and principal of Financially in Tune in Wakefield, MA and a parent of two sons – a freshman in college and a high school junior.