If you’re a parent who expects that your kids may go to college at some point, you’re probably well aware of the doom and gloom that surrounds the topic of college tuition, student loans and financial aid. Not only are tuition costs rising, student loan debt is a big reason millenials put off a whole host of other major life events–from moving out of your basement to buying a home, to getting married, to having kids.
But the price tag to attend college is only half the problem. The other? Serious misunderstanding about student loan options, and the costs they’ll ultimately present by the time the degree is in hand–and the student loan repayments begin. Somewhat ironically, the rules about fafsa ( Free Application for Federal Student Aid), a program designed to provide cost affordable option to make college with financial reach is one of the most misunderstood student loan options out there.
Here are six things many parents things don’t know about fafsa–but definitely should. What you learn may change your entire college savings strategy.
Your paycheck matters. It helps to have a big paycheck when you apply for a mortgage, and really, any other kind of loan–but not if you’re hoping to get money from fafsa. That said, don’t assume that you’re “too rich” to qualify. Though your paycheck is a primary driver behind the fafsa loan decision, not all savings accounts, home equity, or even 529 savings accounts are factored equally into the fafsa “need” equation. In fact, your retirement assets aren’t considered in it at all.
Being an older parent is an advantage. An older couple that applies for fafsa on behalf of their child could receive a higher “asset protection allowance” than parents in their 40’s. The assumption apparently being that when you’re younger, you have more time to work and pay for your child’s college tuition.
Bigger families could get more financial aid. You dished out plenty of money on diapers and child care when you chose to have two or more kids who were close in age, but but you could actually score more fafsa dollars for your hard work once they hit college. Families with two or more children who attend college at the same time are considered in greater need by fafsa than families with high incomes and only one student enrolled in college.
You can reasonably predict your fafsa eligibility. You can narrow down which colleges your child (or rather, you) can afford to attend without having to complete the entire fafsa dog and pony show. That’s because fafsa uses a monetary figure called the EFC (Expected Family Contribution) to arrive at how much they think you need to borrow to maintain your “financial strength” while footing the bill for college. It’s based on your allowable assets, income, age, benefits and other factors. While not the end all be all, it’s a ballpark estimate to help you see what–if any amount– you’re likely to be approved to borrow. (The lower it is, the more likely you’ll get fafsa).
You can’t phone it in at school and keep financial aid. Different forms of aid have different criteria in terms of what’s required to maintain financial aid eligibility. For example, Federal Pell Grant recipients must be enrolled in at least 12 credit hours to receive their maximum financial aid amount. If a student fails a course of doesn’t cancel enrollment based on the university’s procedure, those funds may still be due for the course. In some cases, the student cannot secure more financial aid until it’s paid back.
Fafsa may not take you all the way to graduation. Fafsa requires that you apply every year you’re in school if you want to continue receiving financial aid. But colleges have a say in how and to whom funds are distributed; they can change strategy when they want. If you couldn’t already tell by the price tag, colleges are a business. They’re going to make more money by acquiring new customers than maintaining those who only have a few quarters to go. If they must choose funds accordingly, they will. Research the historical financial aid patterns of the colleges you’re considering before you choose a school to see the percentage of students who have their financial aid needs met, and how those numbers change over the years of enrollment.