FAFSA Form & Financial Aid Form Blog

Source: FAFSA blog

As we approach the end of calendar year 2007, it’s a good idea to turn our eyes to the future and start thinking about our 2008 financial aid efforts. Here are 5 strategies to help you make the most of the waning days of 2007 with payoffs in the year to come.

1. See an expert. Most community banks and credit unions offer access to a certified financial planner for little or no charge, making them a great, hidden resource for figuring out your finances. Take the opportunity and an hour or two on a weeknight or weekend to see one and review your personal finances. Get a sense for where you are and how your finances are currently set up.

2. Start writing scholarship essays. Scholarship season really starts in earnest in January of each year, and the sooner you can get your applications in to a scholarship foundation, the sooner you can move onto the next application. Do your research for which scholarships would be appropriate to apply to, and download their applications. The most time consuming part of the scholarship search is the essay, so start writing now!

3. Do your budget. January is often thought of as the time to embark on resolutions, but now is the time to plan for those resolutions so you can hit the ground running after the champagne’s gone.

4. Set goals. Set measurable, achievable goals for yourself in 2008, like a scholarship application a weekend. Be sure to have a calendar set up so you don’t miss any deadlines.

5. Get ready to file your FAFSA. The FAFSA process kicks off on January 1, but having your IRS 1040 mostly done will speed up the process, as will doing the FAFSA worksheets. Run through our FAFSA tutorials here on FAFSAonline.com and make notes of where you have questions - then contact your financial aid officer or attend a College Goal Sunday event to get those questions answered!

If there’s one number that drives more financial aid information, it’s the adjusted gross income on your IRS 1040 form. This number is the effective income you make per year, and since the FAFSA is the government’s way of determining financial need, your adjusted gross income greatly affects how much financial aid you are eligible for.

What are the components of adjusted gross income? AGI is computed by adding your total income to offsets.

Wages, salaries, tips, etc.
Interest and dividends earned on investments.
Taxable refunds, credits, or offsets of state and local income taxes
Alimony received
Business income or (loss)
IRA distributions
Pensions and annuities
Rental real estate, royalties, partnerships, S corporations, trusts, etc.
Unemployment compensation
Social security benefits

That’s your total income. Here’s a list of the offsets:

Retirement plans and savings
One-half of self-employment tax
Self-employed health insurance deduction
Penalty on early withdrawal of savings
Alimony paid
Moving expenses
Student loan interest deduction
Tuition and fees deduction
Educator expenses
Certain business expenses of reservists, performing artists, and fee-basis government officials
Health savings account deduction
Domestic production activities deduction

Offsets are where you can reduce your adjusted gross income the most, and therefore impact your financial aid eligibility. Right off the bat, if you can max out your contributions to eligible retirement plans like 401ks, IRAs, and other retirement vehicles, you’ll lower your AGI and improve your eligibility for aid - not to mention help save for the future.

We’ll add more tips for reducing your AGI in future blog posts, but start by saving for retirement!

Small businesses that are majority owned and controlled by the family no longer have to be reported as an asset. The business must have fewer than 100 employees and the household members who are included on the application must own and control more than half of the business.

Assets held in the name of a dependent student or an independent student without dependents will be assessed at a maximum rate of 20 percent, down from 35 percent in years past.

The maximum assessment rate for independent students with dependents effectively drops to 3.29 percent from 5.64 percent.

Assets held in the parent’s name will continue to be assessed at a maximum rate of 5.6 percent.

Assets held in a dependent student’s name in a qualified account do not have to be reported on the 2007-08 FAFSA — at all.

Qualified accounts include Coverdell Education Savings Accounts, Section 529 prepaid tuition plans and Section 529 college savings plans.

This change was probably the result of a legislative drafting error, says Mark Kantrowitz, a financial aid expert. Congress wrote a law saying that qualified accounts in the name of a dependent student will no longer be considered student assets. But it never said they would be treated as parent assets instead.

Parents who think their dependent children might be eligible for financial aid can take advantage of this loophole by moving money from an UGMA/UTMA account into a 529 college savings plan in the student’s name before filling out the federal application. Then they won’t have to list the account on the 2007-08 application.

If Congress changes the law, families will still benefit from this switch because the account will be likely counted as parent assets and assessed at the parent rate (maximum 5.64 percent) instead of the student rate (maximum 20 percent).

In the past, prepaid tuition plans were not reported as an asset on the federal aid application. Instead, they were treated as a “resource,” which was even worse because they offset financial aid dollar for dollar, Kantrowitz says.

The new form asks if the student has been convicted of a drug offense while receiving federal student aid, a change from previous forms which asked in general. A yes answer can still result in no financial aid.

Higher income-protection allowances for students go up slightly this year — to $3,000 from $2,200 for dependent students. For independent students, the allowances go up by $1,050 or $1,700 depending on their marital status and whether they have children. This gives you the flexibility to earn more with summer jobs.

This weekend, April 15. Remember, envelopes must be postmarked by then. You could e-file, though. That would be a timesaver.