The Free Application for Federal Student Aid (FAFSA) is a form provided by the US Department of Education that college students fill out annually to identify their eligibility for scholarships, grants, and federally backed loans. The FAFSA form is so associated with going to college that many high schools now include teaching students how to fill out the lengthy online form as part of their college preparatory program. Every student gets told to fill out the FSFSA every year to see how much money they are eligible for. But are there are indeed several instances when a student does not need to. Read on to find out who should not fill out the FAFSA,
When You Don’t Qualify For Need-Based Scholarships
Most of the scholarships that the FAFSA is used for are need-based scholarships, not merit-based, as the FAFSA includes all the financial information for the student and their parents which calculates the student’s expected family contribution (EFC). Most schools’ student aid programs don’t have an explicit EFC cut off but weigh the cost of attendance (COA) against the student’s EFC. A student attending a very expensive private university that costs upwards of $50,000 a year might find that they are eligible for need-based scholarships even with a healthy EFC. But for students attending a public university that is more reasonably priced and whose EFC exceeds the cost of tuition, they likely do not qualify for a need-based scholarship. Keep in mind that a family’s EFC may change if they add additional children in college at the same time.
When You Don’t Qualify for Grants
If a student’s family’s income is over $50,000 annually, it is unlikely they will be eligible for a Pell grant. Sure, a family’s EFC could diminish due to other costs, such as having multiple children in college simultaneously, but Pell Grants are often awarded to students who demonstrate the most financial need and the majority have a family income closer to $20,000 annually. In addition to Pell Grants, there are several other government grants that a student may be eligible for depending on their field of study, military service, and income. The FAFSA does not record a student’s academic history so most merit-based grants are available through a separate application process. Most grants do not need to be repaid, unless the student does not fulfill the terms of the grant, such as receiving a grant for future teachers and then not teaching after graduation.
When You Don’t Need Student Loans
The best time to do college planning is long before you even get to filing the FASFA, and that’s with proper saving. For most families, 529 college savings plans are the investment vehicle of choice. In a 529 plan, contributions grow tax-free and in some states your contributions are tax-deductible too. Though the contributions can be only used for college, most plans have a broad definition of college and include other educational pursuits like trade schools, as well as other non-tuition college expenses. If the 529 plan beneficiary receives scholarships, you can withdraw that scholarship amount without penalty. Plans can have their beneficiaries changed once a year so the money can be passed onto siblings or even grandchildren since there is no expiration date to use the funds.
If your long-term college savings plan allowed you to have enough money socked away, you will find yourself not needing to take out student loans on behalf of your child. After all, it is a much smarter move to sock away the money in advance and allow it to grow in the market rather than pay interest on student loans, even if they are subsidized by the federal government. If your family is in this enviable position and sitting on enough cash and investments to pay for college, you do not need to fill out the FAFSA form.
Other Considerations for the FAFSA
Financial advisors often say that it cannot hurt for a student to fill out the FAFSA but it could harm them and leave money on the table if they could have been eligible for grants or scholarships. Others argue that sending the FAFSA to colleges a student has applied to makes them appear to be a more serious applicant and could increase their chances of acceptance. The form is fairly painless, once you have all the income and assets information for both parents, but if gathering that information proves to be a bear, coordinating between the parents is difficult, or some other obstacle stands in the way plus you know the student is still unlikely to be eligible for student aid benefits, go on and skip it. No sense in drumming up drama just to be rejected for scholarships and grants.
Final Thoughts
If a family makes $350,000 a year and has over $1 million in reportable assets, and has only one child in a public university the family may not need to fill out the FAFSA. No sense in spending the time and effort filing the paperwork just to find you are ineligible. Below that threshold and especially if the student is attending a high-cost school or the family has multiple children in college at once, it could not hurt to fill out the FAFSA and see what the student might still be eligible for, you know, just in case, and as long as it is not too difficult to gather the information.
The best bet overall is to plan out your college savings plan with your financial advisor as far in advance as you can. The longer time you have to let compound interest work in your favor, the better. If you are not sure if you would be eligible for financial aid and unsure about the FAFSA, reach out to your financial advisor to discuss your unique situation. Personal finance is just that, personal. Let us advise you for the right choice for you and your family given your unique income, investments, and college choices
