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
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.