The FAFSA is a quintessential government form, meaning it isn't always as easy to understand as it should be. And with over 100 questions to navigate, far too many families make mistakes that are unnecessarily costing them money.
Money Magazine compiled the following tips on how to tackle the 6 trickiest questions:
Questions 24 and 25: Schooling of parents.
The answer should be the last level of school the parent completed. If either parent attended but did not graduate from college, then choose "high school." There are some extra scholarship programs for people whose parents never finished college.
Question 31: Work study.
Answer "yes" even if you think you don’t want to work while at school. Answering yes doesn’t obligate you to take a work-study job, but it keeps you in the running.
In general, work-study jobs are the best way to raise extra money while at college. Unlike off-campus jobs, work-study earnings won’t affect your aid eligibility in future years.
Questions 41 and 42: Student's savings and investments.
Assets in the student's name are assessed at a rate of 20 percent in the FAFSA formula, while parental assets are assessed at 5.64 percent, a whopping 3.5 times less. This means you can significantly increase your eligibility for need-based aid by moving assets out of the child's name, and into the parents' name.
Even though the student is the beneficiary, 529 plans are treated as a parental asset. However UGMA or UTMA accounts are treated as the child's asset.
There is no look-back period for this question, so the assets can be moved at any point prior to when the FAFSA is completed.
Questions 61-64: Parent name.
You may think this is a no-brainer, but the FAFSA has some quirky rules about who is technically a “parent.” Parents who live in the same household–even if they are not married or are not financially supporting the student—have to provide their financial information on any FAFSA filed for a student under the age of 24.
If the student's parents are divorced or separated, and living separately, only the parent with whom the student lives the most needs to complete the FAFSA. The FAFSA does not care which parent claims the student as a tax deduction or which parent has the least or most money. However, if the parent completing the form has remarried, the new spouse's assets and income need to be reported.
Questions 90 and 91: Parent savings and investments.
The value of qualified retirement assets and your primary residence are exempt and do not need to be disclosed. Mistakenly listing your $150,000 401(k) could unnecessarily disqualify you from aid you should otherwise receive.
Also, be careful not to double-report family savings as assets of both the parents and the child (and based on our tip above in questions 41 and 42, report as a parent asset whenever possible).
And as mentioned above, if parents are divorced, only the household with whom the student lives the most should complete the FAFSA and report savings and investments.
Question 92: Value of small business.
The correct answer is probably $0. Read the question carefully and you’ll see that the FAFSA only asks about the value of small businesses with more than 100 employees. Owners of any business with 100 or fewer employees should enter $0.