My Thoughts on the Looming FAFSA #2.
Last September, my son JumpStart Jack was a senior in high school, and I was about to file FAFSA for the first time. I was pretty clueless about the process, but I have learned a lot, and it will be a different experience this time. The FAFSA website will begin accepting applications on Oct 1 for the 2017/18 school year.
What is the FAFSA?
Free Application For Federal Student Aid. The FAFSA is filled out by the student (or by parent for the student), and requires student data as well as their parent’s data. At the end of the FAFSA, an EFC is created.
What is the point of the FAFSA?
FAFSA generates an EFC that will be sent to the college a student will attend, or colleges he might attend.
What is the EFC?
Expected Family Contribution. The amount the government estimates your family can pay this year for college. Colleges might or might not deliver a financial aid package that corresponds with this number.
Thoughts on the EFC.
- This is not the amount of aid you get.
- You want the EFC to be as low as possible, in order to get the biggest aid offer.
- Don’t whine too much if your EFC is large. A high EFC indicates high income and lots of assets. Remember your blessings.
- Your debt and expenses are not a factor. (No extra money because you have credit card debt, a big house payment, or a big car payment.)
- Our EFC last year was $22,300.
- 22 grand is a quarter of our take home pay. As teachers, Mrs. JumpStart and I earn 4 paychecks each month. According to our EFC, we can devote one entire paycheck per month toward college.
State of mind.
People seem to freak out about filing the FAFSA, but I am pretty calm. The FAFSA really isn’t a huge deal. I dread filing taxes, but I’ll do the FAFSA in less than an hour.
What is needed?
- For my second filing, I already have last year’s FAFSA IDs for my son and myself. I’m confident kind of sure I will find these written down somewhere. One parent and each student need a FAFSA ID, and it can be done ahead of time here.
- Numbers for student income from previous tax year.
- Numbers for student assets. Money in accounts in my son’s name today.
- Numbers for parent income. Importing from the
bloodsuckersIRS is pretty painless, but there was a hacking scandal last year.
- Numbers for parent assets. Value of accounts in parents name today. My son’s 529 counts because it is in my name (JumpStart Jack is the beneficiary). Official retirement accounts like pensions, 401k’s and IRA’s don’t count. Cars, boats, and material objects are not assets for FAFSA.
Strategies I’ve repeated to reduce my checking account asset.
$1000 less in my checking results in 56$ off my EFC
- As teachers, our bank accounts are smallest at the beginning of the school year. The Oct 1 application date is actually great, because our bank accounts are depleted after summer unemployment.
- All bills will be paid including mortgage, credit card, and utilities prior to the FAFSA filing so my checking account is as small as possible. I’ll tell JS Jack to do pay his bills also.
- I’ll look for expenses that I can pay now. Can I pay for car insurance, property taxes, building materials, Christmas presents, or next month’s electricity?
Strategic mistakes from last year.
The FAFSA is methodical, but not necessarily logical. Assets are treated very differently based on type, location, and whose name is on the asset. Money in my son’s name raises the EFC more than money in my name. Funds in a mutual fund raises the EFC, unless it is in an official retirement account. Money earned in a restaurant is on my son’s taxes, but cash from mowing lawns and cash gifts from relatives are not.
- My son had $9000 in an UGMA account, and it raised our EFC. Student assets are counted at 20% and the mutual funds added $1800 to our EFC.
- Mrs. JS and I contribute each month to a mutual fund account and its value was about $100k. The money is for retirement and not intended to pay tuition, but is not an official retirement account, and is not protected from FAFSA. Parent assets are counted at 5.6% and the mutual funds added $5600 to our EFC.
- Our $100k investment in mutual funds could have been put in a FAFSA exempt location like a Roth-IRA. Mrs. JS and I both have Roth-IRA’s, but haven’t been maxing out the allowed $11k annual contributions. Maxing out the annual contributions over the last decade would have hid that asset from FAFSA.
Changes from last year.
- Our son’s $9k was spent on freshman tuition.
- We moved $4500 last year and another $4500 this year from the mutual fund account to our Roth IRAs.
- Our monthly investments now go to the Roth IRAs instead of the mutual fund.
- As a result of last 2 bullets the mutual fund account decreases since last year.
- Cashing out the mutual funds, and paying off the mortgage on our house was an option, because home equity is ignored by FAFSA. After considering taxes and likelihood of getting federal grants, I decided against it.
Bottom line last year.
Last October, our EFC was sent to 5 different colleges, with 5 different costs of attendance. The 5 colleges waited until at least March to send financial aid packages. A $5500 Stafford loan is offered to all freshman (who complete the FAFSA), by the government. All 5 colleges offered us the $5500 loan with some variation, on whether the loan was subsidized or unsubsidized. Subsidized is preferable, because interest does not accumulate until after graduation. Unsubsidized loans begin growing immediately, due to interest. Both loan types are deferred, which means payments are not required until after graduation.
JS Jack’s EFC resulted in identical need based aid due to the FAFSA at all 5 schools. However the bottom lines were different after cost of attendance and merit aid were factored.
The 3 most competitive schools (Va Tech, JMU, and CNU) only offered the $5500 loan. Two less competitive schools offered merit aid.
Merit aid isn’t based on need, and did not result from the FAFSA. Merit aid is offered to students with test scores and grades that rank them high compared with other applicants to that college. The most expensive school Roanoke College offered a ton of merit aid and scholarship money ($30k), but after their $60k private school sticker price, was still the most expensive option.
The least competitive public school Radford offered merit money ($3k) and the $5500 loan. Radford’s cost of attendance started lowest and became even better after the merit money. JS Jack is enjoying his freshman year as a Highlander.
Bottom line this year.
- My son is returning to Radford next year, and I only need to enter Radford while filing the FAFSA.
- I expect a lower EFC, but still only expect Radford to offer the standard $6500 Stafford loan for sophomores .
- The offered loan might switch to subsidized, which would be an improvement.
Bottom Bottom line.
I am hoping the FAFSA produces a lower EFC causing Radford to offer a better financial aid package with money in the form of grants, not loans. However realistically, I don’t expect anything different. My plan is to save enough cash this school year, to pay for JS Jack’s school next year, and decline the Stafford loan.