How to avail more need based Financial AID

 

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Check- If You Qualify for the Tests

It is important that you judge your eligibility for the Simplified Needs Test. There will be no point in repositioning the assets if you qualify for the test, because then, the total assets will be considered to be zero.

Shape Your Income

  • Suppress the Unwanted Increase in Income
  • Income plays a very crucial role in deciding one’s eligibility for the need-based financial aid. A small increase in the income may affect the asset of the family, and also lead to an increase in the EFC. Thus, one should try to avoid any artificial increase in the student’s or parent’s income during the base years.
    Let us look at certain cases, where you will have to pay more attention, in order to turn things in your favor:

    1. If you are going to receive any tax-free return from a Roth IRA, then you should avail it in a non-base year, because Roth IRA is reported as untaxed income on the FAFSA, and it has the same impact on the aid eligibility of the student as an increase in Adjusted Gross Income has
    2. Retirement Plan Distributions: It is counted as an income on the FAFSA, so you should try to avoid it during the base-year.
    3. Capital Gains: Selling the investments during the base year can prove to be negative for your aid eligibility. Any kind of capital gains is included in adjusted gross income.
    4. For people, who have converted their IRA into Roth IRA, they can request the financial aid administrator to disregard the conversion as income. The U.S. Department of Education issued guidance in Dear Colleague Letter GEN-99-10 to encourage college financial aid administrators to make such an adjustment.
    5. Gifts: Any gift received by the student has to be reported as untaxed income on the FAFSA, but the gifts received by the student’s parents are considered as assets, and not untaxed income. It will be in your favor if you can receive the gift in a non-base year or the money can be put in the 529 College Savings Plan owned by students or parents.

    Related:A step-by-step guide to successfully creating a FAFSA account.

  • Managing the Retirement Plan Loans
  • If you have secured any amount of loan for retirement plans, and have not spent it by the time you are filing the FAFSA, then you will have to report that amount as your asset on the FAFSA.
    If you have secured a loan to invest in the 401 (k) plan, and due to some reason, you have lost your job, then it is mandatory for you to repay the loan within five years. If you fail to repay the loan within the stipulated time, then the loan will be treated as a distribution on your FAFSA.

  • Distinguishing the Reportable and Non-Reportable Assets
  • One has to research thoroughly regarding the assets that are counted as reportable, and assets that are non-reportable.
    For example, any amount of money in a qualified retirement program is not counted as an asset, but the contributions made to such account and the distributions have to be reported as income on the FAFSA. It will be better on your part to make contributions to the retirement account in a non-base year, or two years prior to the year of filing the FAFSA. In this way, you can shelter a good amount of money as an asset in your retirement plan.
    If you figure out the reportable and non-reportable assets, then you can make adjustments to them to shelter them from being counted in your FAFSA

  • Simplified Versions of FAFSA
  • There are basically two income threshold, also known as the simplified versions of the FAFSA, which can help you increase your eligibility for the financial aid. If your family income is below a threshold amount, then you can adjust your income minutely to decrease your EFC.

    1. Simplified Needs Test:
    2. The eligibility criteria to qualify for the Simplified Needs test is:

      1. Dependent Student’s parent’s AGI should be less than $50,000.
      2. Parents must be eligible to file the IRS form 1040A or 1040EZ.

      If you qualify for the Simplified Needs Test, then the total assets of the family, along with the student’s income (if the student is independent) shall be disregarded.

    3. Automatic-Zero EFC:
    4. As the name suggests, qualifying for the Automatic-Zero EFC will help you reduce your EFC to zero. In order to qualify for the Automatic-Zero EFC, you will have to fulfil the following criteria:

      1. Dependent Student’s parent’s AGI should be less than $50,000.
      2. Parents must be eligible to file the IRS form 1040A or 1040EZ.

      Automatic-Zero EFC also helps the independent student’s income to be counted as zero.

  • Managing the 529 Plans
  • A grandparent owned 529 plan, which has the student as the beneficiary must be maintained with caution. Though the amount in the 529 savings plan will not be reported as an asset on the FAFSA, but any distribution from the grandparent owned 529 savings plan will be treated as untaxed income to the student on the subsequent year’s FAFSA. Thus, it is recommended that the grandparent should contribute to the parent or student owned 529 plan, instead opening a new one to his/ her name.

  • Managing the Sibling-Owned Asset
  • Registering the assets in the student’s sibling’s name can only be beneficial, if the sibling will not be enrolling into the college for next few years, or if the sibling has already passed out of the college, or if the sibling is a special-needs child. In all the other cases, transferring the asset in the sibling’s name may shelter those assets from FAFSA, but they will have to be reported on the CSS/PROFILE form.
    Note: Even if the student’s sibling is registered as the beneficiary of the parent owned 529 College Savings Plan, a Prepaid Tuition Plan or Coverdell Education Savings Account, they will still be reported as the parent’s assets on the FAFSA.

  • Avoiding the Home Equity Loans
  • The unspent amount of the loan availed against the family home has to be reported as an asset on the FAFSA. Thus, it is advisable to avoid home equity loans during the base years.

  • Clear the Debts
  • Paying down the debt, except for the ones that are secured by reportable assets, will shelter that amount of money, and will help improve the student’s eligibility for the need-based financial aid. The FAFSA considers income or assets by unsecured consumer debt, such as credit card debt, and by debt secured by a non-reportable asset, such as a mortgage on the family’s principal place of residence.

    Related:When will I receive the aid funding?

  • Managing Major Expenses
  • If you have been planning to buy a new car or a new roof or furnace, then it is better that you make these expenses before the student enrolls in the college. Personal properties like cars, furniture, clothes, etc., and home maintenance expenses do not have to be reported on the FAFSA as assets.

Adjusting Demographic Information

  • Number of Children from the Family Enrolled in College
  • The number of children enrolled in the college from the student’s family also plays an important part in deciding the EFC. For example, if twins, triplets, or other multiples study in the college at the same time, then the eligibility for the financial aid increases, as compared to the case in which the children who do not overlap each other. The parents can plan and strategize about letting a child skip a grade or take a gap year between high school and college.

  • Total Members in the Household
  • Many a times, people make mistakes while counting the members in the household. Some common errors include, failing to count the student in the household size, failing to count an unborn child in household size, failing to count an adopted child and failing to count children who don’t live in the home, but receive more than half their support from the parents. Though the household size does not affect the eligibility for the need-based financial aid to a greater extent, but reporting wrong household size may lead to problems while verification.

  • Divorce and Separation
  • In case, if the student’s parents are divorced or separated, then the custodial parent has the authority to file the FAFSA. And, if the custodial parent is the one with lesser income, then the student’s eligibility for the financial aid increases.

Miscellaneous Strategies

  • The Federal Pell Grant is received by the students for 12 semesters, and it is independent of the amount of Federal Pell Grant allotted to the student. So, if a student feels that he/she is receiving a less amount of Federal Pell Grant, and expects to find an increase in the amount in future, then he/she should forgo receiving the Federal Pell Grant now, to preserve future eligibility for grants.

  • If there are certain unusual circumstances in the family, like change in the income or net value of the asset from last year to the current year, then you can ask the college financial aid administrator to review those circumstances, and increase your need-based financial aid accordingly.

Related:Can I trust FAFSA with my tax related information?

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