The first and biggest step in applying for college financial aid is the Free Application for Federal Student Aid (FAFSA). The form must be completed every year for the student to be eligible for federal and state aid. Most of the colleges also use the information from this form to determine their financial aid awards.

Information: Student section

  • Adjusted gross income, income tax, and number of exemptions from the student’s completed federal tax return.
  • Earnings from wages.
  • Total balance of cash, savings, and checking accounts.
  • Net worth of the student’s investments, including real estate.
    • Don’t include the home the student lives in.
    • Don’t include retirement assets such as 401(k)s , pension plans, IRAs.
    • Don’t include the cash value of life insurance policies.
    • Don’t include household possessions.
  • Net worth of current businesses owned by the student.
    • Do not include a family farm.
    • Do not include a small business with 100 or fewer employees.
  • Information on prior financial aid and tax credits received.
  • Untaxed income.
    • Contributions to tax-deferred retirement plans.
    • Child support received for the student’s children.
    • Tax exempt interest income.
    • Housing, food, and other living allowances received.
    • Veterans non-education benefits.
    • Other untaxed income such as workmen’s compensation.
    • Money received or paid on the student’s behalf such as distributions from 529 college savings plans owned by the student’s grandparents.

Information: Parent section

  • Number of people in the household.
  • Number of people in the household who will be in the college.
  • Federal benefits received by the household.
    • Medical or Supplemental Security Income.
    • Supplemental Nutrition Assistance Program.
    • Free or Reduced Price School Lunch.
    • Temporary Assistance for Needy Families.
    • Special Supplemental Nutrition Program for Women, Infants, and Children.
  • Adjusted gross income, income tax, and number of exemptions from the parents’ completed federal tax return.
  • Earnings from wages.
  • Parents’ total balance of cash, savings, and checking accounts.
  • Net worth of parents’ investments, including real estate.
    • Do not include the home the parents live in.
    • Do not include retirement assets such as 401(k)s, IRAs, or pension plans.
    • Do not include the cash value of life insurance policies.
    • Do not include household possessions.
    • Do include the value of college savings plans owned by the parents.
  • Net worth of businesses owned by the parents
    • Do not include a family farm.
    • Do not include a small business with 100 or fewer employees.
  • Untaxed income
    • Contributions to tax-deferred retirement plans.
    • Child support received for the parents’ children.
    • Tax-exempt interest income.
    • Untaxed distributions from retirement plans.
    • Housing, food, and other living allowances received.
    • Veterans non-education benefits.
    • Other untaxed income such as workmen’s compensation.

How do the investments impact the student’s financial aid package? Assets owned by the parents are assessed at up to 5.64%. So, if the parents own a college savings plan with $10,000 in it, financial aid for the student will be reduced by a maximum of $564.

On the other hand, assets owned by the students are assessed at up to 20%. Thus, that same $10,000 owned by the student will reduce the financial aid by up to $2,000.

For more information, go to https://fafsa.ed.gov/.

Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.

Powered by Pixel Fire Marketing Pixel Fire Marketing