January is the month that millions of families disclose their financial data to the Department of Education through the Free Application for Federal Student Aid (FAFSA). Given that the FAFSA has been called the gateway to financial aid, and considering the ever-increasing costs of college, it is imperative to minimize mistakes in completing it. Here are five common FAFSA errors to avoid.
1. Failing to Submit Because of High Income
Many times families will not complete or submit the FAFSA, believing they make too much money to qualify. Income is only one of seven factors used to determine aid eligibility; always complete the FAFSA regardless of income.
2. Waiting Too Long to Submit
A mistake many make is to wait until they have all of their financial documents in place, and taxes done, before submitting their FAFSA. Since some money is on a first-come, first-served basis, it is imperative to submit as early in January as possible with estimates of your finances (which the Department of Education fully expects).
3. Submitting Incorrect Info for Divorced Parents
In a divorce situation, whose financial information is used? It is the income and assets of the household (including step-parent info) in which the students spends the majority of their time and receives the majority of financial support.
4. Understating Income
If you contribute to a 401(k), 403(b), or any other pre-tax retirement account, you must add back any contributions in the previous year to your income for FAFSA purposes. This in effect produces a higher FAFSA income than what might be shown on your tax return.
5. Overstating Assets
Many families mistakenly include retirement assets and home equity as part of their investments or net worth, when in fact neither should be included here.
And last but not least, please be sure to complete the correct FAFSA application. Remember to complete the FAFSA for the year your student will be in college for the upcoming fall school year, NOT the school year they are currently in. This is a huge, but common mistake. Make this one and your student will receive no aid in the following Fall. Let’s start off 2014 the right way for our local businesses!
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ABOUT LUANNE LEE
Luanne Lee is a licensed College Planning Relief® specialist with over 20 years in business and personal financial services. She is a proud mother of two young adults, two grandchildren, 3 dogs and 2 cats in the country near Loudoun.