Avoiding Financial Aid and FAFSA Mistakes

As your high schooler prepares for college, navigating financial aid can feel confusing. Here’s a guide to avoid common financial aid pitfalls.

One of the biggest mistakes parents make is missing financial aid
deadlines. The Free Application for Federal Student Aid (FAFSA) opens on December 1st this year, but many families wait too long to file. To avoid this, note both federal and school-specific deadlines. Pay attention to ED, EA, and ED2 financial aid deadlines.

Another common mistake is skipping the FAFSA because parents assume they won’t qualify for aid. Even if you don’t qualify for need-based aid, submitting the FAFSA is required for federal loans and work-study programs. 

Some schools won’t consider late financial aid requests, so it’s always better to apply upfront if there’s any chance you’ll need assistance.

Errors on the FAFSA can lead to delays or reduced aid. Mistakes with income figures, confusing parent and student assets, or leaving out required fields are common issues. Double-check everything. Use the IRS Data Retrieval Tool to pull data directly from your tax returns for accuracy, and make sure your most recent tax return is ready when filling out the form.

Overestimating assets is another pitfall. FAFSA doesn’t ask for the value of retirement accounts or your primary residence, but some parents mistakenly include these, inflating their Student Aid Index (SAI). Being precise prevents accidentally reducing your child’s aid.

If your financial situation changes after submitting the FAFSA, you can appeal for more aid. Many parents mistakenly believe the initial aid package is final. However, if you experience job loss, unexpected medical bills, or other hardships, you can request that the school review your situation. Colleges often have an appeals process to adjust aid. 

529 savings plans should be reported as parent assets on the FAFSA, even though your student is the beneficiary. This works in your favor, as parent assets are counted less heavily than student assets. Be aware that student-owned assets are penalized more heavily than parent assets, so talk to a financial advisor about managing these savings to maximize aid eligibility.

Lastly, don’t shy away from federal student loans. These loans often come with low interest rates and flexible repayment options, making them safer than private loans. While borrowing should be approached with caution, federal loans can help bridge the gap between what you can afford and the total cost of college. The federal cap on how much a student can borrow over four years of college is $27,000 (with annual caps from $5,500 to $7,500 per year)

By staying organized, meeting deadlines, and avoiding these common missteps, you can help maximize the financial aid your child receives. Take time to understand the process and reach out to financial aid offices for help—they’re there to assist you!

Photo by Tima Miroshnichenko: https://www.pexels.com/photo/man-person-woman-creative-6671418/