For many families, achieving financial aid eligibility is a crucial part of preparing for college. While some parents may be able to save for their child’s education without any assistance, many rely on merit-based scholarships or government-funded financial aid programs. However, even if you feel that you need financial aid to pay for your child’s college, you won’t be eligible unless you meet the necessary requirements.There are 4 basic requirements to qualify for financial aid in the United States:
The applicant must be a US citizen with a Social Security Number (there are exceptions for permanent residents and certain eligible noncitizens).
The applicant must have a high school diploma or GED certificate.
The applicant must be enrolled in an eligible degree or certificate program.
The applicant must submit a FAFSA (Free Application for Federal Student Aid) and meet certain criteria to be eligible for financial aid.
In any case, there are certain ways that you can improve your chances of qualifying. More importantly, there are certain pitfalls that you should avoid if you don’t want to be disqualified. So, let’s take a look at the top 8 mistakes that affect financial aid eligibility:
Taking college visits before developing a budget
If you want to shop for a house, there is a very important step called “pre-approval”. Unfortunately with colleges, most people make the mistake of lining up college visits before ever going through that same pre-approval process. Imagine your child falling in love with a particular college or university only to find out after the application process that he or she can’t afford to attend. College admissions professionals are very good at what they do. They are sales professionals and they have a fantastic product to sell prospective high school students.
Don’t make the mistake of addressing financial concerns too late in the process.
Count resources, available cash flow, the net cost of attending schools, etc. before taking that first visit so that you are only shopping for schools within your budget. If you don’t know where to start, schedule some time with us and we can help set you off on the right path.
Getting into excessive student loan debt
Even if your child qualifies for student aid, you may need to take out loans to pay for the rest of their education. However, taking on too much debt is an easy mistake to make. Not building a budget for college can quickly become a burden on your family’s finances for years to come. Our rule of thumb is that you shouldn’t take on more student debt than the average first year salary of your anticipated profession.
So, if you do need to take out loans for tuition and other school-related expenses, make sure you don’t take on more debt than you can handle.
Not applying for merit-based aid
Not every student will qualify for merit-based aid, but it is always worth applying for. Merit-based aid requires excellent academics, but it could end up saving you thousands of dollars for tuition, books, and other expenses. Before you apply for financial aid, find a list of scholarships available at a particular college or university. Also, search out private scholarships in your area. The application process will take some effort, but could be worth tens of thousands of dollars in the long-run.
Ignoring the American Opportunity Tax Credit
The American Opportunity Tax Credit or AOTC can save you up to $2,500 per year on tuition. In order to qualify, you must have at least $4,000 worth of annual college expenses, so you will need to make sure that you qualify for each academic year. It is also important to note that your $4,000 of college expenses cannot be made from 529 plans in order to qualify, so you will need to develop a 4-year funding plan that accounts for this tax credit so that you qualify for it each and every year.
Assuming you won’t qualify for financial aid
When it comes to saving for college, you should never assume that you won’t qualify for financial aid. In fact, you should plan for the exact opposite. The total net cost of college today is very high, and the EFC formula has some very unique characteristics to it, so it is very likely that your “expected family contribution” will fall below the net cost of your desired school and aid may be available to you. Filing the FAFSA or other college aid applications does not take much time and may result in thousands of dollars towards the cost of attendance, room and board, or other expenses.
Showing increased income prior to enrollment
Your child’s eligibility for financial aid is based on the previous year’s taxable income (for both the child and parents). This is the spring of your child’s sophomore year and the fall of the child’s junior year of high school. If you temporarily increase your income through capital gains, stock sales, or some other means, you could be taking away from your financial aid. The same is true for your child. While a part-time job in their senior year of college could help pay for tuition, it could also cause them to lose out in thousands of dollars in financial aid. Be sure to do the math carefully in the year prior to your child’s enrollment.
Saving in your child’s name
Generally, assets in a child’s name are hit harder by the EFC formula than accounts managed by you (the parents). For example, most student savings will reduce the amount of financial aid by as much as 20%. Alternatively, savings accounts under a parent’s name are generally less imacted by the EFC formula. As a result, these accounts may only reduce financial aid by 5% (or less) of the total assets. It is important to build a strategy for college savings that maximizes financial aid opportunity.Missing important application deadlines
You can’t get financial aid if you don’t apply. There is a pretty large window to submit your FAFSA (18 months), but some parents still miss the deadline. Needless to say, if you miss the deadline for the year in which your child is entering college, you won’t be eligible for financial aid. This means you will have to wait until the next calendar year to apply and lose out on an entire year’s worth of financial assistance.We hope you found this guide on the top 8 mistakes that affect financial aid eligibility useful! At Afton Advisors, we understand that the college application process can be stressful, so feel free to contact us if you need help developing a comprehensive strategy to apply for and fund your child’s college experience!