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Cracking Financial Aid Forms

Cracking Financial Aid Forms

Advisors who are well-versed in commonly used financial aid forms can help their clients save thousands of dollars. 

Every year, roughly 20 million families fill out the Free Application for Federal Student Aid, which is the federal aid application for financial aid. A much smaller number also complete the CSS/Financial Aid PROFILE that roughly 260 schools, which are nearly all private, require.

How your clients fill out these applications could mean the difference between thousands of dollars in financial aid and zilch. But advisors who study up on these complicated forms can guide their clients with college-bound kids on filling them out properly.

Here are the most common questions I’ve received from parents and advisors about the forms and how best to address them:

Should my clients report their retirement assets on the FAFSA and PROFILE?

Parents should not include qualified retirement assets, including Individual Retirement Accounts, 401(k)s and 403(b)s, when completing the FAFSA. Parents also should not disclose assets in qualified and nonqualified annuities when completing the FAFSA, but the PROFILE wants to know about non-qualified annuities. The PROFILE will ask about qualified retirement accounts, but schools rarely reduce aid because of these assets.

Do financial aid formulas consider the cash value of life insurance?

The FAFSA doesn’t ask about the cash value of life insurance, but some PROFILE schools do and will assess the value as a parent asset.

How are assets assessed in determining financial aid eligibility?

Parents often assume that assets will play a bigger part in aid eligibility than it does. The FAFSA assesses parent assets (retirement accounts are exempt) at a maximum of 5.64 percent and the PROFILE assesses these same assets at a maximum of 5 percent. Both formulas, however, allow parents to automatically shelter some of these assets. Usually, parent income plays a much larger role in aid eligibility than assets. 

If I pull money out of my accounts and hide it, do I have to declare this cash?

I’ve actually had parents ask me this question. It doesn’t matter if nonretirement money is in a bank, an investment account, a safe deposit box, a mattress or buried in the backyard, it must be reported on financial aid applications.

Now or Later?

My clients have a son, who is a junior in high school. Can they complete the FAFSA and PROFILE now or do they have to wait until he’s a senior?

While it could be tempting to get this task done sooner rather than later, your clients can’t tackle the FAFSA or the PROFILE until their child is a high school senior. Parents whose children are currently high school juniors won’t have to wait long though. They can submit both the FAFSA and the PROFILE starting on Oct. 1, 2016 for the 2017-2018 school year.

For the next three years we will have two children in college at the same time. Can we fill out one FAFSA that will cover both of them?

The FAFSA, as well as the PROFILE, must be submitted for each child.

My clients are divorced, so who files the FAFSA and the PROFILE?

The rules for the FAFSA and PROFILE are different for divorced and separated parents.

The parent who has housed the child for the majority of a 12-month period ending on the day the FAFSA is filed is the custodial parent. This will be the custodial designation even if this parent did not pay child support or did not claim the student on his/her taxes. Where the child lives is what matters. 

Schools using the PROFILE will vary in how they handle divorced and separated parents. Some schools will want the noncustodial parent to share his or her financial information. You can find the list of PROFILE schools at

If my client doesn’t qualify for financial aid should they file financial aid applications?

Families that do not file the FAFSA will not qualify for federal student and parent loans. While this is not common, some colleges require filing the FAFSA to qualify for institutional merit awards that aren’t linked to need. Families should check with schools to see if a FAFSA is necessary to qualify for a merit scholarship. 

My client wants his 19-year-old son to be declared independent so he will qualify for more financial aid. Is this possible?

The requirements to become an independent student are quite difficult to meet. Most students won’t be considered independent until they reach the age of 24. A student can also become independent by getting married, being in the military or attending graduate school. A student, however, won’t qualify as being independent by living on his own and paying his expenses.

What could happen if parents knowingly fail to include income or assets on the FAFSA?

Lying on the FAFSA is a crime. Parents can face fines of up to $20,000 and a maximum of five years in prison. In addition, the family might be liable for repayment of all the ill-gotten financial aid. The federal government picks about a third of FAFSA applications for verification and some colleges review many more. 

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