I wish that I could reassure you that completing the FAFSA is easy, but it won’t be for many parents. Even more disconcerting is that parents make mistakes all the time and don’t even realize it.
Some of the mistakes in this lesson may seem obvious, but others will probably surprise you. Here are common FAFSA mistakes to avoid:
1. Reporting an incorrect household size.
This one might seem puzzling. After all, parents should know who lives under their roof, but it’s not that easy. Here are some reasons why:
If a stepparent has children from a previous marriage those children could potentially be included in the household size even if they don’t live in the residence. They would qualify as household members if the parent provides more than half of his or her support and will continue to do so during the financial aid award year.
A parent should also include an unborn child on the FAFSA, if the baby would be born before the end of the award year and will receive more than half of the support from the student or parent. There must be medical documentation of a current pregnancy.
Parents can also include other relatives, such as grandparents, grandchildren or aunts or uncles, if they currently live in the home and will be doing so between July 1, 2018 and June 30, 2019. These dates correspond with the federal financial aid season for the 2018-2019 school year.
Parents also wonder if they can include older children who are now in graduate school when reporting household size. You can include these grown children in the household size if you are providing more than half of their support. Keep in mind that student aid, including scholarships and loans, will count as student support so this is a higher hurdle than you might assume.
2. Not filing the FAFSA.
Many parents assume that they won’t qualify for need-based aid so they don’t even bother tackling the form. This is a huge mistake because families often have no idea whether they will qualify for financial assistance.
Parents will sometimes wonder if they should not seek financial aid for their child’s freshman year but make the request before the child’s sophomore year. The thinking is this might help them get into the school and then seek aid once the child has a year under his/her belt. I once had a parent, who had saved $70,000 for a private college education, ask me about that approach.
I told him that delaying the request for aid until the second year would be a poor idea. What if the child received a mediocre package that was simply stuffed with loans for her second year of college. Can you imagine parents having to tell a child that he/she will have to leave for a cheaper school because they can’t afford it?
A friend of mine provided this example of a school playing hardball with a family when an aid deadline is overlooked:
I met with a family today whose son was accepted to NYU early decision, but his financial aid application was late. I really don’t think the family noticed it was due, they weren’t trying to play the game ‘get in and then ask for money’. NYU said tough luck, you missed the deadline. He asked to be put in the regular admissions group, and they said he still would not be eligible for aid this year. The family is not sending him to NYU, as money is an issue for the family.
When parents need financial aid, they should apply for aid up front.
3. Sharing the wrong marital status.
It’s easy to make this mistake if a parent’s marital status has changed. The FAFSA requires that parents note what their marital status is as of the day the FAFSA is filed. So if the parents were married for 20 years, but they separated shortly before the FAFSA was filed, the FAFSA should state the parents are separated.
Also, if a parent has died during the base year, only the income and assets of the surviving parent should be reported. The deceased parent’s income, including Social Security income, is not included.
4. Filing the wrong FAFSA.
It’s easy to make this mistake because for much of the year, two different FAFSA forms are available online. Parents who are submitting the FAFSA for the school year that starts in the fall of 2018 should submit the 2018-2019 FAFSA. The 2017-2018 FAFSA, however, will still be available on the federal website through June 30, 2018.
5. Reporting the wrong assets.
The FAFSA asks about the student and parents’ investments, but you should not include any qualified retirement assets such as Individual Retirement Accounts, 401(k)’s, 403(b)’s, KEOGH, SIMPLE, pension plans and annuities.
It’s also critically important to report 529 plan savings as a parent asset. If you report this money as the child’s assets, the financial aid formulas will treat this money more harshly.
6. Reporting home equity.
Parents should also not include equity in their primary home on the FAFSA. Families, however, must report the equity of other real estate.
Rental property is usually considered an investment and not a business. It’s an important distinction since the aid formula treats business assets less harshly. To be considered a business, the real estate must be part of a formally recognized business. A hotel is a business while renting out a home, timeshare or room is generally considered an investment.
7. Sharing the wrong name.
The federal government is very picky about the names that filers share on the FAFSA. Students and parents must provide the legal names that are on their Social Security cards.
A filer, for instance, shouldn’t use Jim on the form if his legal name is James. If the Social Security Administration has a woman’s maiden name on file, she must use that name until she’s updated the Social Security Administration with her married name. If the names don’t match up, the government won’t process the application.
8. Not expressing an interest in a work-study job.
A student who says he is interested in a work-study job on the FAFSA isn’t obligated to obtain one later, but students need to answer in the affirmative to be eligible. At some schools, most or all of the campus jobs are reserved for students eligible for work-study.
9. Lying on the FAFSA.
For parents who are considering lying on the FAFSA in hopes of getting financial aid, it’s not only a bad idea, it’s a crime. The federal government selects one-third of FAFSA filings for verification each year and colleges may select additional aid applications for review. In fact, some colleges verify 100% of their applications. Lying on the FAFSA can generate fines of up to $20,000 and up to five years in prison. Also the family could face repaying all their financial aid.
10. Failing to list all colleges on the FAFSA.
Families are permitted to list up to 10 schools on the FAFSA. If a parent or child fails to include any schools, these institutions will not receive the financial information that the FAFSA generates. And that means the student wouldn’t be eligible for need-based aid from an overlooked school.
If you are applying to more than 10 schools, the parents can add additional names after they have received their electronic Student Aid Report (SAR) from the federal government.
11. Not knowing who should file the FAFSA
Who should file the FAFSA may seem like it should be straightforward, but it often won’t be. Here is the breakdown of the rules about who should file:
Traditional Married Couples
If you are part of a traditional family — married husband, wife and kids – it’s easy to answer who completes the financial aid forms. Both parents will share their financial information on the FAFSA.
Unmarried Parents Living Together
Unmarried parents, who live together, are required to complete the financial aid application jointly.
A Parent Has Died
If a parent dies during the year, do not include his or her financial information on the FAFSA. If the parent has died after filing the FAFSA, contact the school immediately with this information.
Divorced and Separated Parents
In cases of divorce and separation, the parent with whom the child has physically lived the majority of the 12-month period ending on the day the FAFSA was filed would submit the form. In making the custodial determination, it makes no difference which parent claims the child on tax returns or pays child support.
Separated parents don’t have to be legally separated to be treated the same as divorced couples, but they can’t be living in the same residence.
The federal government requires that married, same-sex partners must both include their financial information on the FAFSA. To reflect this change, the FAFSA asks for information for “Parent 1” and “Parent 2.” In the past, only the biological parent had to share his or her assets and income.
What if the single-sex couple is not married? Both partners will have to submit financial data if one of them has adopted the other partner’s child. If a partner has not adopted the child, only the biological parent will complete the FAFSA.
If the student is living with a legal guardian, such as a grandparent or an older sibling, the student can be considered an independent student. The legal guardianship, however, must have been court-ordered. A guardianship established by an attorney is not sufficient.
The federal government does not consider a guardian (or foster parent) a parent. As such, the student will only include his or her information on the FAFSA. However, if grandparents or foster parents adopted the child, they are considered the parents and the student will be considered a dependent when filing the FAFSA.
Keep in mind that support that the guardian gave the child during the base year is supposed to be reported as the child’s untaxed income.
In filling out the FAFSA & CSS Profile, I’m confused about reporting untaxed income.
Do I need to addback amounts for before-tax deductions?
The following are deducted from my paycheck on a before-tax basis, but I don’t see them explicitly listed as items that I need to addback:
Medical insurance premiums
Vision insurance premiums
Accidental death & dismemberment insurance premiums
Flexible Spending Account contributions (I think this is explicitly listed on the CSS profile only)
I don’t think I need to addback my 401a pension contributions because I work for the State of Texas and these deductions are not discretionary.
Thanks for any guidance you can provide.
I obtained my EFC from the College Board website as you recommended. It was $63,590 for the Federal Methodology, and $77,528 for the Institutional Methodology. Should I even bother with the FAFSA, given these results?
With that high of a EFC, I would suggest that it would be futile to file. You should file the FAFSA, however, if you or your child intends to borrow federal college loans.
I am a step-mom married to Dad, the custodial parent. Dad divorced Mom about 12 years ago & we were married 10 years ago & have had full custody for years. Mom is recently deceased (2017). How do we answer the FAFSA regarding parent info? Divorced for Dad and Deceased for Mom?
You would need to include the assets and income of both you and your husband on the FAFSA. The custodial parent must file the FAFSA and if the custodial parent is married that spouse must include his/her info. You can learn more about this issue in the lesson entitled, Divorce/Separation in the module entitled, A Closer Look at Financial Aid Formulas.
Hi Lynn –
I have 2 questions about untaxed income on the FAFSA:
(1) If you contributed to a SIMPLE IRA, do you report the deferral amount that comes out of your W2 or do you also add the 3% employer contribution?
(2) If you have a federal HSA and a state HSA, do you add both?
I have one question about assets: (1) Is an inherited untouched Roth IRA considered an asset?
The amount you contribute to a SIMPLE would be considered untaxed income which you would declare on the FAFSA. You would not add the employer contribution.
The money you put into Health Savings Accounts must also be shared as untaxed income on the FAFSA.
I would not include the Roth IRA as an asset.
Hi Lynn, Two questions:
1. I am confused by #6 here – not reporting home equity on the FAFSA. How can we not report Home Equity? Doesn’t the FAFSA ask for about mortgage information – how much we owe?
2. Re: Reporting Home Value – what number do we use – assessed value, market value, amount we could reasonably expect for a quick sale, etc??
You do not report home equity on the FAFSA. The FAFSA doesn’t even ask about a person’s primary home.
The schools that are interested in your home equity are the schools that use the CSS/Financial Aid PROFILE. Here is the link to these schools:
There is no one accepted way to assess the value of a house. You could use an online site like Zillow or RedFin or recent sales in the neighborhood. Property tax assessment could also work in some places. And there’s something called the federal Housie Price Index calculator. Here is that link: http://www.fhfa.gov/DataTools/Tools/pages/hpi-calculator.aspx
You’ll find more on home equity issues in the lessons entitled, Home Equity and Financial Aid.
When you say “Both parents, who live together, are now required to complete the financial aid application jointly,” does that only apply to two biological or adoptive parents? I have a student who lives with his biological mother and her long-time boyfriend; the boyfriend’s financial information would not be reported on the FAFSA, right?
In the past, two biological parents who lived together but were not married had an incentive not to get married until after their children finished college, but it sounds like it’s no longer a financial aid advantage to avoid marriage.
Unless the boyfriend is also the parent of the child, his information would not be included on the FAFSA.
Sorry about my question earlier – did not read far enough. You have already answered it.
How is the number in household work when the two parents were never married, do not now live together, the child going to college lives with her mother who earns zero income (on welfare) and the father pays child support?
The FAFSA will not be concerned with the father if the child lives with the mother. If the mother and child are the only ones living together, the household size would be two. If it’s a PROFILE school, the institution may require the father to file a noncustodial PROFILE.
I hope that answers your question!
Hi Lynn. I’m going to repost this question. I originally asked it in response to your answer to Josephine Rizzolo, but I don’t think you saw it.
Lynn, this answer got me thinking. My daughter started receiving social security the year before last. Her dad is 68 and still working so his SS is still taxable. I assumed hers was, too. Apparently not since she doesn’t have any other income and doesn’t file her own tax return…? In looking over our tax return from last year, I don’t think I even see her SS listed. So do I list her SS payments as non-taxable income for her or for us? (So confusing.)
This is money that she will stop receiving when she graduates high-school. So do I need to make sure the financial aid offices know that, or are you saying that they’ll just figure it out.
Thanks again, Lisa
You would not include her Social Security payments on the FAFSA.
Just wanted to clarify:
If my daughter has some stock that was put in a custodial account under my name, I have to list it as her asset, not mine — right?
Sorry Lisa! For some reason, I didn’t get notified when you asked this question!
Yes, any custodial money must be reported as a child’s asset.
I have been told me some friends with very high EFC’s that they chose not to file the FAFSA or Profile because it could only hurt their admission chances if the school thought they were asking for financial aid and may only enroll their child if they received some. Is that accurate reasoning? It seems that if a family had a high EFC and still submitted the FAFSA or Profile the schools would make note of that high number and not assume they would base their college choice on whether or not they received aid. Hopefully my question is clear.
Lynn, thanks so much for confirming my understanding. I was concerned it would throw off my daughter’s income for the first year, but you’ve answered my question, they’re smart enough to figure it out, as it ends at 18. Thanks for the tip, when the time comes, I will probably follow up directly with them.
Lynn, I didn’t see any discussion regarding disability income. In completing the FAFSA, income is taken directly off the federal income tax return, adjusted gross income amount. Is there anywhere to adjust for disability income received? Currently I am receiving both SSDI (partially includible in AGI) and private disability income (fully includible in AGI). I am assuming, if there is no line item for adjustment, it is includible with the AGI reported amount. Also, should we be aware of any special programs out there that may take into consideration the disability income and not fully include the income in calculating EFC? My daughter will be receiving a SSDI dependent benefit up to her 18th birthday, which is right before she enters college, will this significantly effect her financial aid award? Unfortunately, this amount is includible in her AGI on her income tax return, but it will skew her future income in college. The benefit literally ends the June before she enters college, therefore, is there an addendum or attachment to the FAFSA to explain this at all?
I am not familiar with how disability income is treated so I asked my friend Paula Bishop, a CPA in Bellevue, WA, who is an expert on financial aid. Here is her response:
Regarding your SSDI question; I assume a parent is disabled, and if they are getting disability benefits, then the children are eligible until age 18, which she as noted. Her Private Insurance payments are taxable (or should be added back if they are not taxable, and included in the “Untaxed Income” section, question 94i.)
I’m not 100% sure on this without spending time, but if it’s similar to Soc Security, a certain portion MAY be taxable on the parent’s return, based on their other income. As she noted, her private insurance is taxable. For the FAFSA form, the ‘untaxed portion’ of SSDI is not added back as an adjustment. This is noted in question 94i on the FAFSA, in untaxed income section: Do not include the untaxed social security benefits for the parents. This statement is in the parents as well as the student’s sections.
For the student, even if she files a return with her SSDI, then it’s usually not taxable, as her other income is too low to make the SSDI taxable. The FAFSA exempts SSDI and Soc Security for a student as income in the financial aid formula. The schools know that this income ends at 18 as well, just like child support in most cases.
Josephine — If you have any other questions about this, I’d call the FAFSA hotline. Here is the contact link: https://studentaid.ed.gov/contact#call
Lynn, this answer got me thinking. My daughter started receiving social security the year before last. Her dad is 68 and still working so his SS is still taxable. I assumed hers was, too. Apparently not since she doesn’t have any other income and doesn’t file her own tax return…? In looking over our tax return from last year, I don’t think I even see her SS listed. So do I list her SS payments as non-taxable income for her–or for us? (So confusing.)
I’m curious about whether my status is going to cause difficulty in filling out forms. I was married but then divorced. Later, I adopted two children as a single parent. They do not
have fathers, and there are no fathers listed on their birth certificates. I am not in any kind of relationship – opposite sex or same sex, and I am listed as Head of Household on my tax returns.
I do not know of any financial aid issues regarding filing as a head of household, which can be a beneficial way for single parents to file their taxes. You could call the FAFSA hotline to make 100% sure. Here is the contact link: https://studentaid.ed.gov/contact#email