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The Ticking Time Bomb

The Ticking Time Bomb

More than 17 million college students are eligible to apply for financial aid in 2013, and many of them (as well as their parents) will make mistakes completing their financial aid forms.

Families will commit the most errors when tackling the Free Application for Federal Student Aid (, simply because it is by far the most popular financial aid form. Students seeking federal financial aid at any school in the country must complete it.

A much smaller group of families will also have to fill out the CSS/Financial Aid PROFILE, an even nosier application, which roughly 20 percent of private schools require in addition to the FAFSA. You can find this financial aid application on the College Board website.

To reduce the chances of making costly mistakes, here are some tips on completing financial aid forms:

1. Don’t procrastinate.

It’s best to complete the FAFSA as soon as possible. (The application became available on Jan. 1.) Families don’t have to worry about a federal deadline for aid, but parents need to know what the aid deadlines are for the schools on their teenagers’ lists, as well as their state programs. At least seven states (Illinois, Washington, Vermont, South Carolina, Kentucky, Tennessee and North Carolina) now issue awards on a first-come, first-serve basis.

When families can’t file their taxes promptly, they should complete their financial aid applications using estimated tax information. They can plug in the actual tax figures later using the IRS data retrieval tool that they will find on the FAFSA site.

2. Don’t assume applying for aid is pointless.

The financial aid process is so byzantine that it’s difficult for parents to know with certainty whether their children will be eligible for need-based aid. As a general rule, the more expensive the institution, the more likely even an affluent student will snag a financial aid grant. 

It is true that most of the federal grant money goes to families that make $40,000 or less, but the income ceilings for state and institutional aid can be considerably higher. A family making $200,000 with a couple of children in college, for example, could receive large need-based grants from expensive private schools with generous aid policies.

Parents often assume that their assets will prevent them from receiving financial aid. What they typically don’t realize is that qualified retirement accounts are not counted in financial aid calculations. In fact, the FAFSA doesn’t even ask applicants whether they possess retirement accounts or whether a family owns a primary residence.

As for non-retirement assets, families enjoy a federal asset protection allowance that allows them to shelter some of this money from aid calculations.

Even if a family is too wealthy to qualify for need-based aid, there are legitimate reasons why they might want to apply anyway. Without filing the FAFSA, students aren’t eligible to obtain federal student loans, nor would they qualify for campus work-study programs.

3. Make sure the right parent completes the FAFSA.

Whoever is completing the FAFSA needs to include the marital status of the student and parents on the exact day that the document is signed whether they be married, separated or divorced.

In cases of divorce, the FAFSA only requires the custodial parent to file the application. The custodial parent is the one who took care of the child during the majority of days in the 12 months preceding the day the FAFSA is signed. So if the teenager lived with the dad (a teacher) for 185 days and the mother (a physician) for 180 days, the mom’s income would never be disclosed on the financial aid form. If the custodial parent has remarried, the new spouse’s income would also be shared.

The PROFILE will usually ask about the finances of both the custodial and noncustodial parent, but some PROFILE schools will only inquire about the custodial one. You can find the list of PROFILE schools, as well as whether these individual institutions use an additional noncustodial parent aid application by visiting

4. Seek help.

Even when the process seems overwhelming, parents often fail to seek help. Parents with questions can call the FAFSA hotline at (800) 433-3243, and they can obtain a federal worksheet in advance by visiting

Finally, for clients who want someone to prepare their PROFILE and/or FAFSA, I’d recommend Student Financial Aid Services (, which offers online FAFSA preparation for $79.99 and by phone for $99.99.

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