FAFSA – To File or Not to File?

This is the time of year when parents need to think about filing the Free Application for Federal Student Aid (FAFSA).  But how do you know if it is worth your time and energy to file?  Many people have the impression that if they make over “X” amount per year, it is a waste of time to file because their child won’t get any aid.  In some cases, this may be true, but in many cases it is not. 

Here are some reasons to consider filing the FAFSA if you were thinking it wasn’t necessary:

1. You don’t know what your Expected Family Contribution (EFC) will be.  Until you know how much most schools will expect you to pay for your kid’s college education, you have no basis for thinking that you won’t get any aid.  Every situation is different and just because you have a high income or a lot of non-retirement assets you shouldn’t assume you won’t get any aid.  If you haven’t already, go to the college websites for the schools your child is applying to and check out their Net Price Calculators to find out how much those schools will expect you to pay.
2. You may consider a federal Stafford loan for your child – you must fill out a FAFSA in order to be eligible for both subsidized and unsubsidized federal loans.  First year undergraduate students are eligible for $3,500 subsidized and an additional $2,000 in unsubsidized Stafford loans.  Stafford loans, especially subsidized, have lower interest rates than private student loans.  The current interest rate for new subsidized Stafford loans is 3.4% and the current interest rate for new unsubsidized Stafford loans is 6.8%.  Not everyone is eligible for a subsidized Stafford.  The school must determine that there is enough “financial need” as demonstrated through the FAFSA, but the requirements are pretty lenient.
3. You are considering a very expensive school for your child.  The more expensive the college, the higher the household income that will still demonstrate some “financial need”.  Plus, some of the most expensive schools, i.e. Princeton and University of Chicago, commit to meeting 100% of a student’s demonstrated need.  Let’s look at University of Chicago as an example.  I played around with their Net Price Calculator and found that institutional grants (free money that you don’t have to pay back) were part of the financial aid package when parent income was up to $200,000.  Now every situation is going to be a little different between income and assets so some under $200,000 may not get any grants and some over $200,000 still might.  The bottom line is that I would not have anticipated this being the case if I hadn’t checked it out.  For a school like University of Chicago, it would definitely be worth filling out the FAFSA unless household income was well over $200,000.
4. You have more than one dependent child in college at the same time.  In this case, your EFC will be split between both children.  This means each child will potentially be eligible for up to twice as much aid as he/she would be if you only had one child in college for the year.  If you fall into this scenario, you will need to file a separate FAFSA form for each child.

Do you have any positive or negative experience related to the FAFSA?  If so, please leave me a comment.  I would love to hear about it and others could learn from your experience.

Next time I will talk about filing the FAFSA before you file your taxes vs. waiting until your taxes are filed.