Tips on the 6 trickiest FAFSA questions
The FAFSA is a quintessential government form, meaning it isn’t always as easy to understand as it should be. Far too many families make mistakes that are unnecessarily costing them money.
Check out the following tips on how to tackle the 6 trickiest questions:
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.
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.
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.
Parent name
You may think this is a no-brainer, but the FAFSA has some quirky rules about who is technically a “parent.” Check out this Who counts as a parent? wizard.
If the student’s parents are divorced or separated, and living separately, only the parent who provides the majority of financial support needs to complete the FAFSA. The FAFSA does not care which parent claims the student as a tax deduction or who the student lives with. However, if the parent completing the form has remarried, the new spouse’s assets and income need to be reported.
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, report as a parent asset whenever possible).
And as mentioned above, if parents are divorced, only the household that provides the majority of financial support should complete the FAFSA and report savings and investments.
Value of small business
Formerly, only small businesses with more than 100 employees needed to be reported on the FAFSA. Now, however, the value of all businesses need to be reported, regardless of size.
The “value,” or net worth, of a business is determined by subtracting any debts owed by the business from the current fair market value of the business or farm (including the value of land, buildings, inventory, equipment, machinery and livestock).
*an earlier version of this article had tips based on a previous version of the FAFSA