If your high school senior is complaining of being bored this lazy week between semesters, you have the perfect answer: Get ready to file the FAFSA form -- the Free Application for Federal Student Aid. You can file starting Jan. 1, and the early bird gets the aid!
The earlier you file, the better chance of getting financial aid. All college seniors, who want to get financial aid for school in fall 2008 need to file the FAFSA form, as well as current students who want to renew or increase their aid packages.
Nearly eight out of 10 full-time undergraduates receive some form of financial aid, according to Sallie Mae. Almost all aid -- whether government loans, needs or non-needs based grants or scholarships, or work-study awards -- require the student and family to file this "universal" application form.
While it can take less than an hour to file the application
online, it can take far longer than that to gather the required information.
That's because FAFSA requires that you submit information about the student's and parents' income
assets. Today is the last day to "rearrange" those assets to qualify for the most aid.
For example, assets held in the student's name weigh many times more heavily against you in the financial aid formula. So before 2007 ends, you might want to use the money in your student's savings account to purchase a computer or car, which are not counted as "financial assets" in the formula.
And since parental income is a big determinant, you can reduce 2007 income by making a large year-end contribution to a retirement account, or prepay a mortgage balance, since retirement accounts and home equity are not counted in the asset formula.
Here's the information you'll need, for both parents and student, to make the process go smoothly:
- Identity information, including a Social Security number, driver's license and alien registration card.
- Latest federal tax return. You'll need to make an accurate estimate of your 2007 adjusted gross income, as if you had prepared the tax return that will be filed next April. You can amend this later, if needed.
- Bank statements and investment information from year-end. (Go online to retrieve balances in bank and investment accounts before starting the filing.)
Several weeks after filing a FAFSA form, student applicants will receive a Student Air Report, or SAR. That letter explains the Expected Family Contribution, or EFC, which is also sent to the colleges you list on the FAFSA form to help them determine the aid they will offer if they decide to admit the student. Students may qualify for need-based aid from colleges, in addition to federally subsidized student loans.
That EFC may be -- and usually is -- far more than the family can provide out of its own savings. That means students or parents may have to take out private loans to fill any gaps. That's why it's particularly important for you to fill out the FAFSA forms correctly and arrange the family finances to qualify for the most aid possible.
College Cost Reduction Act, which was signed into law earlier this year, makes more financial aid available to the poorest students and lowers interest rates on federally guaranteed loans for some new borrowers. But it only begins to address the issue of affordability.
Now you get down to the tough part -- and that may not happen until the student receives acceptance letters and the financial aid package. When you see the cost of a college compared with the aid it offers, you'll need to act quickly and be flexible. There are basically two things you can do when the aid offer arrives next spring.
Ask for more aid
. This isn't a futile task, but it must be approached with delicacy. There's no rule that says you can't call the financial aid office of a school and explain that your student really wants to go there but simply can't bridge the gap. Maybe the school will offer more, maybe not.
Pick another school
. Be flexible about picking the school that offers a greater amount of scholarship aid, requiring less in the way of parental borrowing. In fact, the more expensive schools may offer a more complete aid package, as a way of getting a diversified student body.
Parents, Speak Up!
This is where parents must speak up and guide their students. I've made this point in previous columns. Here's what we know as parents with the benefit of hindsight: College is college. The lower tuition at your state school may be a far better investment than the debt required to attend that prestige private college.
I personally believe it's insane for college students to graduate with more student loan debt than their parents took on with their first mortgage. That's like carrying a heavy weight on your back as you strive to climb the ladder of success. But someone has to tell a 17-year-old this fact of life; we can't expect them to have the proper perspective.
And until 17-year-olds (and their parents) start telling colleges they "can't afford" to attend, colleges won't have an incentive to keep tuition increases in line with inflation.
It all starts with each student, each family facing up to reality. File the FAFSA, get the most aid possible, evaluate the costs and consequences realistically, and then make the intelligent choice about where to attend. That's the one smart decision that doesn't require a college degree. And that's The Savage Truth!
Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book,
The Savage Number: How Much Money Do You Need?
in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald's and Pennzoil.