January 23, 2021
Frequent reminders of essential information are necessary and important. That is brought to my attention when, in conversation with a parent, the mystery and misunderstanding of FAFSA come to the front. This blog is not exhaustive in its treatment of FAFSA. I have written other blogs on the topic, including 8 common mistakes to avoid when completing FAFSA. You can read that post by clicking here. This article is the reminder you want of the basics about FAFSA.
- FAFSA Free Application for Federal Student Aid. The application is free, not necessarily will the financial aid be free. Reputable counselors (like your author) do not charge a fee to help families complete FAFSA. Other consulting services do come with a fee.
- It's a data collection tool. FAFSA does not award any financial aid. There is a Student Aid Report (SAR)generated as FAFSA is completed and submitted. However, even those amounts are not set in stone. The data you provide is sent to any college you list within the FAFSA form. Those college financial aid offices make the actual awards decisions.
- A loan is a loan. Every FAFSA SAR I have seen includes student loans. As with any other loan, there is paperwork to be completed, by the student, within a deadline. The requirements include signing off on a financial education module, signing a Note of Indebtedness, and signing a consent to assign the loan dollars to the college of your choice. Those dollars will be deposited in your student account, and the college will deduct appropriate charges. The balance (if any) is yours to do with as you please. There are origination charges (temporarily waived for COVID-19 relief), and interest charges that may be subsidized (i.e. paid for) by the U.S. Treasury Department. Most loans, however, are unsubsidized. That means the student owes the interest as well as the principal sum.
- Annual renewal is required. You complete a FAFSA every year for which you seek financial aid for college. You create an account, including a username and password; challenge questions; a Save Code; and double authentication (email and cellphone). Because of those features, subsequent applications are pre-populated. Often, the only change required is to update the family's financials.
- There is a limit. Undergraduate students may borrow, on their own signatures, up to $27,000; with an extra $4,500 in special circumstances, or $31,500 maximum. Eligibility and disbursement are $5,500 for year one; $6,500, year two; $7,500 year three; and $7,500 year four. The additional $4,500 is not guaranteed, and can be requested at the end of year four. Horror stories you read about unimaginable student debt are because of private loans, which in most cases, require a co-signor.
- Interest rates are attractive. Direct Student Loans interest rates are low, and change every year, effective July 1. The interest charged is linked to the Ten-Year Treasury Note interest rate. Each annual loan, therefore, has its own interest rate. Each annual loan is a separate contract. For a student graduating in four years, and taking advantage of student loans, he or she will have four different loans, each with its own interest rate. Those four may be consolidated at a yet new interest rate (one that is typically favorable).
Takeaways are: FAFSA gives no money, the colleges do. FAFSA aggregates data and sends it where you say. FAFSA is an annual application. On their own signatures, undergraduates can borrow a maximum of $27,000 (and with approval, $31,500). Interest rates favor using the loans. Remember, you finance every purchase you make: either borrow and pay interest, or pay cash and lose interest.
December 21, 2020
The Free Application for Federal Student Aid FAFSA is the primary portal by which nearly every
family must enter. Notice the words, because in the title is the first, and most common mistake
. It is a free application
, it is not an application for free financial aid
In fact, the most common form of financial aid offered through FAFSA is a loan. The U.S. Department of Education reports $1.5 trillion (put 11 zeroes after that 5) in outstanding education loans. Below are examples of other, commonly made errors in completing the form.
Why does all of this matter?
- We already covered the first mistake above. It is a free application, it is not an application for free financial aid.
- Year Applied for: if you go to the FAFSA website now, and begin as a new applicant, it will ask for which year you are applying: 2020-2021, or 2021-2022. Current high school seniors are applying for 2021-2022.
- Social Security Number: don't guess! Know for sure, and double check you entered each one correctly; student SS#, and parent(s). Why the parenthesis? See subsequent bullet points below. FAFSA automatically sends the social security information to Social Security Administration to verify that there is such a number, and that the number is attached to the name submitted. There is an opportunity to correct an error, but it takes time.
- Student or Parent: The person creating the new application is asked to identify as the student or a parent. It does not matter which, but remember whose information you are providing. Both the student and the parent(s) are asked identical, personal questions. For example, "Are you married? Are you a military veteran?", etc. A common mistake is for the student to assume the question asks about his/her parent(s). Check the section of the application. You will see a tab labeled STUDENT, or a tab labeled PARENT. Remember which section you are completing. Also, since the U.S. Supreme Court' ruling on same-sex marriage, the FAFSA form changed from "Father, Mother" to "Parent 1, Parent 2." Keep track of which you list as #1, and #2. It will matter later.
- Divorced or a Widow/Widower: Are you divorced from your child's other parent? Are you legally separated? Did your spouse pass away? If you have not remarried, there is only one (1) parent as far as FAFSA is concerned. The point of confusion, with so many divorces in the USA, is a student living with her mom (for example) will list mom as Parent 1, and then the divorced father as Parent 2. Don't! Not for FAFSA. Have you remarried? Keep reading.
- Remarriage: when you remarried your new husband, or new wife just signed on to help pay for the college education of all the children from your first marriage. That spouse should be listed as Parent 2. Sorry, but that's the way the rules are written.
- Tax Returns: Prior-Prior-Year was inaugurated during the Presidency of Barack Obama. That is when the first filing date was moved up from January 1 to the previous October 1. The easiest way to remember is this: You are completing FAFSA in the Fall of the Year. Which is the most recent tax return you were supposed to have filed earlier that year, by April 15? For example, you are completing FAFSA in December, 2020. Your student plans to enter college Fall Semester, 2021. The tax return FAFSA wants is 2019. (Start college 2021; tax return from prior-prior year is 2019.) FAFSA uses the Data Retrieval Tool to make it simple. Click to allow the DRT. There will be double verification requested. The appropriate tax return is uploaded, and you are returned to FAFSA.
- Login and Save Code: write down (somewhere you can find it easily) the usernames and passwords you create; and the save code, too. You will need them repeatedly, now and in future years.
One reason students don't receive all the financial aid they could is due to mistakes on their FAFSA. FAFSA with errors are returned for correction. Meanwhile, financial aid is being handed out, first-come, first-served.