Getting Ready to Tackle the FAFSA

FAFSA season officially starts on Jan. 1, which is when students who will be attending college in 2015-2016 can begin completing this critical financial aid form.

Families must complete the Free Application for Federal Student Aid  to qualify for need-based aid.

The FAFSA is the federal financial aid form that roughly 20 million financial aid applicants complete every year. Sadly, millions of more families, who would qualify for aid, don’t fill out the FAFSA or don’t complete it.

Here is a breakdown of who requires the FAFSA:

Federal Aid

The federal government relies on the FAFSA to determine who qualifies for federal financial aid.

The Pell Grant represents the major source of federal aid grants. It’s rare for a family with an income of $50,00 or higher to qualify for a Pell Grant.

Even if eligibility for a Pell Grant or other smaller federal programs such as the TEACH Grant or the FSEOG Grant, is out of the question, parents will want to file the FAFSA if they wish to be eligible to borrow through the federal Direct Subsidized and Unsubsidized Loans and the Parent PLUS Loan. The FAFSA is also required if a child hopes to obtain a campus work-study job.

State Aid

States also often require families to complete the FAFSA to be eligible for state financial aid grants.

Institutional Aid

The vast majority of colleges and universities also require families to file the FAFSA to be considered for their own in-house, need-based financial aid.

Many highly selective schools, however, also require families to complete an additional aid form called the  CSS/Financial Aid PROFILE. These institutions use the PROFILE to determine if applicants qualify for their own in-house aid. Here is the list of schools that require filing the PROFILE.

Parents often wonder why they have to fill out the FAFSA if they are completing the more in-depth PROFILE form. Here’s why: the PROFILE application cannot qualify students for federal and state aid — only the FAFSA does that.

FAFSA Nuts & Bolts

You will access the application at FAFSA on the Web. As you can see in the screen capture below, all you need to create an account is the student’s name, date of birth and Social Security number.

Before submitting the FAFSA, a parent and the student must each obtain a FAFSA PIN. These PIN numbers are required to electronically sign the FAFSA form online and retrieve the family’s financial aid records.

When To File the FAFSA

The federal government releases the latest FAFSA on January 1 each year. It’s best to complete the FAFSA as soon as possible because colleges have financial-aid deadlines and so do states. Some states, such as Illinois, Kentucky, North Carolina, Vermont and Washington, dispense money to eligible students on a first-come, first-serve basis until the money runs out.

You can find out what the deadlines are for many states by looking on the front page of the federal government’s FAFSA on the Web Worksheet. The worksheet contains some of the FAFSA questions so it’s smart to check it out before tackling the real application. Below you’ll find a snapshot of the 2014-2015 worksheet’s front page with state deadlines. The 2015-2016 worksheet  is not available yet.

 

The aid deadline that you don’t have to worry about missing is the federal government’s. The FAFSA filing period is always 18 months and for the coming 2015-2016 school year, it will range from Jan. 1, 2015 to June 30, 2016.

To complete the FAFSA, you will need your latest income tax return, as well as non-retirement investment accounts and bank statements. If you are up against an early aid deadline, you can file the FAFSA using estimated income tax figures. Once your taxes are completed, you will have to update the FAFSA.

If you have a lower adjusted gross income –  below $50,000 — you may qualify for something called the Simplified Needs Test, which doesn’t require that you disclose assets on the FAFSA. To be eligible for the Simplified Needs Test, you must be able to file a 1040A or 1040EZ tax form.

The ability to avoid revealing assets can be a lifesaver for a family with little income (perhaps due to unemployment), but which possesses significant wealth. It can also be helpful for a divorced parent who has assets from a divorce settlement, but who does not have a good paying job.

IRS Retrieval Tool

Families completing the FAFSA can speed up the process by using the IRS Data Retrieval Tool. When you reach questions concerning tax information, you will be asked if you have already completed your federal tax return and then you’ll be screened for your eligibility to use the tool. If eligible, you’ll be transferred to the IRS website to confirm the data transfer and then returned to the FAFSA.

You can use the tool approximately two weeks after filing your taxes electronically. The tool does not become available until early February. You can also use the tool to update a FAFSA application which you had completed with estimated taxes.

Besides speeding up the FAFSA process, any data transferred from the IRS unmodified won’t be subject to verification.

You can’t use the tool if:

• If you are married and filing separately.
• If you filed an amended return.
• If you filed a foreign tax return.
• If your home address on the FAFSA doesn’t match the tax return address.

If you are filing the FAFSA in 2015, you also should NOT use the retrieval tool if you transferred a workplace retirement account into a rollover IRA during 2014. There is a bug in the retrieval tool and it will treat that rollover as income!