How to Graduate College Debt Free – Part 6. Financial Aid

Adam Personal Finance

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This is a part of a multi-post series on graduating college debt free. Check out the other posts below:

Financial Aid

What do we mean by financial aid? In this case I’m specifically excluding scholarships which are largely merit based and focusing on “needs based” aid.

Financial need: This is the amount of a student’s total cost of attendance that isn’t covered by the expected family contribution or outside grants and scholarships. A student must demonstrate financial need to be eligible for need-based financial assistance programs.

Federal student aid: Student assistance from federal aid programs such as grants, loans, and work-study assistance and are available to students at eligible post-secondary institutions (colleges, vocational schools, and graduate schools). For our purposes I’m going to skip loans. They’re really outside the scope of our goal here.

Grants: Did someone say free money? Unlike loans, grants­­­­—which can come from the state or federal government, from the college itself, or from private sources—provide money for college that doesn’t have to be paid back. We’ll take this opportunity here to remind you again to fill out the FAFSA; many grants determine eligibility by looking at your FAFSA results.

Based on your FAFSA results, your school financial aid office may automatically consider you for certain state- or school-based grants and scholarships when assembling your financial aid package. In other cases, you may need to fill out additional forms and/or submit applications and other materials (such as transcripts, essays, portfolios).

Work-study is a part-time on-campus job required in order to receive aid, which comes directly as a paycheck. These are frequently great jobs to have in college, as they’re often sitting behind a desk with nothing to do. You  may be guarding the library door or some computer lab, where you can sit and study the whole time (or it could suck in the cafeteria).

When to Apply

January 1 of the year you plan to go to college is the first day you can file the FAFSA. College, state and private financial aid deadlines vary. Aim to file the FAFSA as close to January 1 as possible; remember that financial aid dollars are limited, and in many cases are awarded on a first-come, first-served basis. The CSS Profile becomes available on October 1. 

How to Apply

Complete the Free Application for Federal Student Aid (FAFSA) to be considered for financial aid from the federal government, state governments and many colleges. You can also apply for financial aid directly from the colleges you’re applying to and from private organizations. Some of these may require you to submit the CSS/Financial Aid PROFILE or other forms.

This detailed, step by step guide is provided directly by the government and has almost everything you need to know.

Remember that meeting deadlines is your responsibility. You have to submit your applications ON TIME to qualify for financial aid.

See this video from The College Board to assist in the application process.

You can find the FAFSA on the web here. The whole thing can be completed and tracked online. Don’t mess with paper.

You don’t have to have a completed tax return for the prior year before you can fill out the FAFSA but it will make the process much easier. Much of the data is the same and it can save a lot of time and you won’t need to make estimates.

Steps

  1. Create an FSA ID. This is the student information. Parents will create separate logins. See here for more details.
  2. Compile your documentation:
    1. Social Security Number (or Alien Registration Number if you are not a U.S. citizen)
    2. Most recent federal income tax returns, W-2s, and other records of money earned.
    3. Bank statements and records of investments
    4. Records of untaxed income
    5. An FSA ID to sign electronically.
  3. Fill out the form.

Remember deadlines for individual colleges (especially if you apply for early admission) may have deadlines before the FAFSA deadline. The FAFSA also provides a detailed help guide you can find here with point by point assistance (here).

IRS Data Retrieval Tool

The IRS Data Tool is a pretty cool option if you can use it. The Tool allows students and parents to access the IRS tax return information needed to complete the Free Application for Federal Student Aid (FAFSA), and transfer the data directly into their FAFSA from the IRS Web site. Be warned there is a time lag between when you file your return and when you can pull it in (3-11 weeks), so to reiterate again, the earlier the better.

The FAFSA suggests you use it for the following reasons:

  1. It’s the easiest way to provide your tax data.
  2. It’s the best way of ensuring that your FAFSA has accurate tax information.
  3. You won’t need to provide a copy of your or your parents’ tax returns to your college.

Post-Application

Student Aid Report (SAR)

Once you finish submitting, the government will begin the review process. Once that is complete you should receive a Student Aid Report (SAR) outlining the data you submitted. This needs to be checked carefully for accuracy.

Expected Family Contribution (EFC)

The SAR will also contain your EFC. This is how much they expect your family to contribute to your educational costs and is needs based. This means it’s based on your parents income and assets. All of this data goes to the colleges you’ve applied to as well in order to allow them to determine their aid packages. The CollegeBoard offers a helpful calculator here to estimate your families EFC as well as additional details on how it works.

Individual colleges use the EFC and their own fees to decide how much aid each student needs. This can be confusing because it will then vary college to college as their costs vary significantly. For example, John Smith’s EFC totals $20,000. At University X, which costs $30,000 per year, John will receive $10,000 in aid. At College Y, which costs $40,000 per year, the needed financial aid is $20,000. At both schools the contribution expected from John (and his parents) is $20,000, but the aid numbers will vary significantly.

Conclusion

Once you hear from the colleges you’ve applied to, compare your financial aid offers to see which options are best for you. You may be surprised by how much your offered. Be sure to check out this detailed, step by step guide, provided directly by the government and has almost everything you need to know. They also have a great page on choosing and accepting aid.

This is a part of a multi-post series on graduating college debt free. Check out the other posts below:

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