Simplifying the FAFSA

The FAFSA, or Free Application for Federal Student Aid, has been known to strike fear into the hearts and minds of parents and students alike. That's why I've been learning about it, even though my oldest is only a high school freshman. My hope is that knowledge is power, as in the power to maximize our financial aid packages. Since there's so much information out there, I'll be sharing my knowledge is a simplified format that I hope will help you if you're also on this journey.



Here's what I've learned so far:

Every college requires the FAFSA before awarding need-based financial aid. There may be some exceptions, but all of the mainstream colleges require it.

Many (if not most) colleges require the FAFSA before awarding merit-based financial aid. Thus, even if you're certain you won't qualify for any need-based aid, you should file the FAFSA if you're hoping your child will receive merit-based aid.

After you complete the FAFSA, you'll receive a number known as your EFC, or Expected Family Contribution. The best explanation of EFC I've come across is that it's what your family is expected to pay from savings, current income, and loans. It's not an amount you're expected to pay out of pocket. However, even knowing that, most middle-class families seem to have breathtakingly high EFCs.

The FAFSA calculation is complicated, to say the least. There are many online EFC calculators, but supposedly, this spreadsheet is the most accurate.

Read the instructions carefully, because the FAFSA excludes certain types of income and assets. For instance, you don't need to list retirement accounts as assets.

The easiest way to complete the FAFSA is to allow the system to import your data from the IRS. However, you should avoid the import tool if you have unusual types of income on your tax return that aren't considered income for purposes of the FAFSA. (See above.)

The FAFSA is different from the CSS (College Scholarship Service) Profile, which is used by some private colleges. The CSS is much more detailed and inclusive. For example, the FAFSA doesn't ask for your home equity, but the CSS takes it into account. (However, like the FAFSA, the CSS excludes retirement accounts.)

Retirement contributions are NOT excluded. So while the thousands of dollars in your 401(k) might be untouchable for financial aid purposes, the money you contributed is not. In other words, in the coming year, you're expected to pay for college, not save for retirement.

That's it for now. What did I miss?