“How do I file as an independent on the FAFSA?” or “How do I qualify as an independent student?” are some of the most common questions asked this time of year.  Once students and parents start digging into the FAFSA form, they quickly realize that independent students have lower EFC’s and therefore have a much better opportunity for financial aid than dependent students.  When this realization is coupled with the common position that “College is my student’s responsibility, not mine…” families quickly look to find out what does it take for a student to file as an independent on the FAFSA form.  It’s difficult… very difficult.

It is not as simple as not claiming your child as a dependent on your tax forms.  That is only a very small, if even insignificant aspect of student dependency status.  Below are the questions that the FAFSA form uses to determine dependency.

1. Are you older or will you be older than 23 during the award year?
2. Are you married?
3. Are you working on a graduate level degree?
4. Are you currently serving in the US Armed Forces other than training?
5. Are you a veteran?
6. Do you have children you support more than 50%?
7. Do you have other dependents you support more than 50%?
8. At any time since you were 13 regardless of present condition… are your parents deceased, or in foster care, or a ward of the court?
9. Are you or were you an emancipated minor as determined by a court?
10. Are you or were you in legal guardianship as determined by a court?
11. At any time on or after July 1, 2008, did your high school or district determine you to be an unaccompanied youth who was homeless?
12. At any time on or after July 1, 2008, did the director of an emergency shelter or federally funded transitional housing program determine you were a unaccompanied, homeless youth?
13. At any time on or after July 1,2008, did the director of a runaway or homeless youth center determine you to be an unaccompanied youth who was homeless or were self-supporting at risk of being homeless?

Questions 1 through 8 were the standard dependency questions for years.  Not until last year have the questions been expanded.

These questions are pretty straight forward.  If the student can answer “yes” to any of the above questions, then they can file “independent” status.  If they cannot answer “yes” to any of the above questions, then the student will be considered a dependent student.  In some very unusual circumstances, students can get a waiver from the financial aid office at the college which they are enrolled.  But a parent’s desire for a student to take care of their own college expenses is far from likely to merit a waiver from a financial aid officer.

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The FAFSA is the standardized financial information form used by all colleges and universities across the country.  For 2010, sweeping changes have come to the FAFSA form.  This 60 minute webinar will orient you to the FAFSA in its new form.  We will be covering:

• FAFSA on the web
• The PIN website
• Financial Aid Priority Deadlines
• The FAFSA worksheet
• EFC and how it impacts you

The webinar will be at 7pm (central time) on Wednesday, January 20th.  Register below.

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College Finances 101: Introduction to college funding and financial aid is now available for review.  This recording was made on the evening of December 8th, 2009 and covers the following:

• The college funding environment
• The college financial aid system
• Expected Family Contribution (EFC)
• FAFSA
• CSS Profile
• Financial Aid Priority Deadlines
• College Financial Track Records
• College Application Strategies
• College Financing
• Strategies and Tactics to Minimize College Costs and Increase College Financial Offers
• Negotiating the College Financial Award

This overview runs about 71 minutes. After you have finished watching, click the link below the video to request a PDF of the presentation be emailed to you.

Should you have any problems viewing the video, you may need to update your computer’s flash player.  You can do that at the Adobe website.

Webinar Response Form

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The FAFSA income protection allowance used to compute financial aid eligibility is taking a big jump for 2010’s dependent student filers.  According to the Department of Education, the income protection allowance is being increased from $3,750 (2009/10) to $4,500 (2010/11).  This is the largest single year increase I can recall in 10 years.

The income protection allowance is the amount of money a dependent student can earn in a non-work-study job, before that money is assessed towards their expected family contribution (EFC).  The increase of the allowance will allow students to earn more money without fear of losing half of it on their EFC.  This is very good news for many students who feel they are being punished for taking responsibility for their own education costs.

Here’s how this works.  Under the 2009 rules (applied to 2008 income), a student who earned $5,000, would be assessed on $1,250 of their income towards their EFC.  This would increase their EFC by approximately $625.  This year, the student earning $5,000 will be assessed on only $500 of their income; increasing their EFC by approximately $250.

Now here’s the really good news.  For many students, this will mean they could earn up to $7,000 or more in 2009 without it negatively impacting their expected family contribution.  How is this so?  Remember that work-study income is not assessed towards the EFC at all.

So let’s assume that a student is awarded a work-study position at their college for $2,500.  They work this job over the school year.  The student can have a second part time job or a summer job as well where they earn up $4,500 for a total of $7,000 in annual income… and not increase their EFC.

The key is maximizing work-study income.  The more you can gain in work-study, the more benefit the student gets out of their income protection allowance.  If the student can get $1,500 in work-study, they can earn $6,000 total.  If they can get $3,000 in work-study, they can earn $7,500 total.  This is an excellent example of why you always want to include work-study in your FAFSA application.

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People have often asked me, “what’s the cheapest way to get my kids through college?”  My typical response is “have triplets.”  Generally that is followed by a quick laugh by everyone involved.

By the time I am talking with families, their “family planning” is long over with.  So my response is at least half jesting.  But there is a tremendous amount of truth to the comment as well.

College finances are typically more manageable the more students you have enrolled.  The expected family contribution (EFC) is substantially affected by the number of students you have in school at the same time.  In fact for the parent’s portion of the EFC, it is split equally among the students enrolled in college.  So if the parent’s EFC is $20,000 with one child in college, it will be $10,000 for each child when there are two in college.  Now this may not sound like that big of a help at first, but consider the following.

The Ellis family has two children, two years apart.  The oldest will start college in 2010, and the second child will start in 2012.  We’ll assume for this example that each child will complete college in four years.  For the first child, the Ellis’ EFC is $15,000, and because they have done proper planning, the children will not have an EFC contribution to add to the parent’s.  So their total EFC is $15,000.  Now suppose that the EFC remains constant throughout the two students’ time in college.  For the two years that both are in school at the same time, 2012-13 and 2013-14; their EFC will be spit between the two students.  Each will have a $7,500 EFC.  So for all six years, the combined EFC is $15,000 x 6 = $90,000.  And because they also chose very generous colleges, that $90,000 is all they had to come up with out of their own pockets.

Now let’s look at the McNeal family.  The McNeals have two children who are twins.  Both of them will be going to college in 2010.  Again we’ll assume each child will graduate in four years, and they also have a $15,000 EFC.  In the McNeal’s case since both students enter and leave college at the same time, they will only have to come up with the EFC for four years instead of six.  So their cumulative EFC is $15,000 x 4 = $60,000.  Now if they chose very generous schools as well and were only expected to pay the EFC, then their out of pocket costs would be $60,000 to get both their students through college.

Consider one more example… the Jones family has twins.  Their EFC is $15,000.  One child wants to go to an “expensive” private college (sticker price: $50,000 per year).  The other twin really wants to stay around home and goes to the local community college (sticker price $5,000 per year).  The EFC is still split equally between the twins, both at $7,500 each.  For the one twin going to community college, their EFC doesn’t even get down the the cost of the school and doesn’t really give them much benefit.  But for the student going to the “expensive” private college, they still receive the full benefit of the split EFC.  The first student’s cost will be $5,000 per year.  And because the family chose a college with a generous financial track record, the second student’s out of pocket cost will be $7,500.  So the family’s annual out of pocket costs will be only $12,500.

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Once again I have been in an online debate on one of the college financial aid forums about the likelihood of finding money to pay for college.  There is a pervasive misconception out there that only the most selective colleges provide the needed money to only the most excelled students.  This is a crock!

First a quick definition… “need” is a term used to describe how much money the government and schools think you need help with after subtracting your expected family contribution from the school’s cost of attendance.  COA – EFC = Need.  You can get a copy of my manual if you want to know the ends and outs of that process.

There are only a handful of colleges across the country that guarantee in writing that they will meet 100% of the student’s need.  Many parents and students get hung up on these few schools and think they are the only legitimate options for getting the most money.  What they are not taking into account are the hundreds of colleges across the country that routinely meet 100% of the students’ need but never put it in a written promise.

Now what are you most interested in?  Do you want a promise?  Or do you want the money?

If you want to get the most money for your student, it is foolish to focus on a few highly selective colleges.  You want to have a well thought out college selection strategy.  It is the strategy you employ that will get your student the money they need and deserve, not some illusory promise.

The basics of that strategy are:

• Always apply to 6-10 colleges.
• Focus on colleges with generous financial track records.
• Always have a safety school where you know your student will get in no matter what.
• Always have 4 or 5 match schools where your student will likely be in the top 50% to 25% of the incoming Freshman class.
• Never short the safety school or match schools if you want to add stretch schools.

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“Why did my financial aid award change?” is typically a question asked after the student has lost money compared to the previous year.  Rarely does anyone ask this question if they received more money.

Here are 6 reasons why a student’s financial award offer will change from year to year…

1.  The family’s income has changed.  If income goes down, then the expected family contribution (EFC) will likely go down.  This typically results in a better fianancial aid package.  However, it is more likely that your income went up from the previous year.  This means your EFC went up and your financial aid package will be lowered according to the establised guidelines.

2.  The family’s assets have changed.  As with income; if the assets go up, EFC goes up.  If the assets go down, EFC goes down.  Since most families will spend assets while their students are in college, this will most often have a downward pressure on your EFC (good for you).  But if you won the lottery or inherited money, those new assets are going to drive your EFC up (bad for you… sort of).

3.  The number of students in college changed.  The more students you have in college… the lower your EFC will be.  If a student graduated last year and you only have one in college this year, then you will see a big spike in that student’s EFC.  Consequently, they will get less financial help from the college.

4.  Changes in the federal Stafford loans.  Stafford loan amounts increase as a student progresses through college.  Currently freshman students can borrow $5,500; sophomores – $6,500; juniors – $7,500; and seniors – $7,500.  As students are able to borrow more under the Stafford program, colleges will typically lower the other sources of help in the financial award.  For instance, the student get’s an addition $1,000 in a Stafford loan, but their college grant is lowered by $1,000.

5.  Your college’s endowment has taken a hard hit in the market.  One of the unfortunate results of the current recesion is many colleges have seen their investments drop… big drops in some cases.  This means the schools have less money they can give to their students.  The recession is unfortunately limiting the amount of money many schools are able to give away compared to previous years.

6.  Your college is a cheap-skate.  It is rare, but some colleges will do a bait and switch to get freshmen students.  They will give them very generous offers their first year, but then pull back the money in the subsequent years.  This is not common, but there are unfortunately some institutions that will do this.

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Yesterday I was in an online conversation where a student started out asking, “Can you help me rank these schools in terms of financial aid…”  The first response the student received was, “It is impossible — and totally meaningless — to “rank [schools] in terms of aid…”

This is absolutely and totally wrong!  I don’t know why it shocks me when I see responses like this.  Maybe I just don’t want to believe that the old wive’s tales and bad information are as pervasive as they are.

Well… whatever the reasons are for my reaction, I can’t let this misinformation go without addressing it head-on.  You can rank, evaluate, compare colleges based upon how they treat financial aid; or how generous they are.  Let me show you how…

First of all, you need to estimate your expected family contribution (EFC).  There is a calculator at Collegeboard.com that works fairly well.

Now we need the cost of attendance (COA) from the schools you are interested in.  Each school will have a different cost of attendance.  This can be found at the colleges’ websites, Collegeboard.com, Kiplinger, or a dozen or more other websites.

Subtract the EFC from the COA to find out what your financial need (FN) is at each of the schools.  The formula looks like this…

COA – EFC = FN

Now multiply the financial need at each school by the schools’ financial track records: % of need met; % of gift aid; % of self help.  This will provide you with how much money the school is likely going to give you, and consequently, how much you are likely to pay at that college.

And Voila!  You now have a fairly accurate estimation of your out of pocket costs and at each of the colleges.  You can now see which schools are generous and which are not.  You’ll be surprised.  You are proabably going to find out that some of the schools that look cheaper in the beginning will actually wind up costing the most in the end.

The Secrets to Real College Savings has a far more detailed explanation of how this calculation works.  I recommend you get a copy.

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Most people know that their assets (savings, checking, stocks, bonds, mutual funds, etc.) all contribute to the expected family contribution when they complete the FAFSA form.  However, most don’t know what the Education Savings and Asset Protection Allowance is, nor how it helps them.  We typically refer to this table as the Asset Protection Allowance or the APA.

This table is available only the the parents of the students.  It is the amount of cash and other assets that a parent can accumulate before those assets are assessed towards their expected family contribution.  For FAFSA purposes, those assessed assets do not include home equity, retirement accounts, annuities, small businesses, family farms, or cash value in life insurance.  Those assets are exempt from the calculation in their entirety.

Here are two examples of how the APA helps…

Family #1: 2 parents – oldest parent is 45 – $30,000 in cash and investments.

The family’s APA is $48,700 (see the table below).  $30,000 is less than their APA, therefore none of their cash and investments will counted towards their expected family contribution.

Family #2: 1 parent – age 42 – $30,000 in cash and investments.

The family’s APA is $18,600.  $30,000 minus $18,600 equals $11,400.  Therefore $11,4000 will be included in the calculation to determine the student’s expected family contribution.

Keep in mind that only parents have an APA, student’s do not.  As soon as a student has $1 in their name, it will be counted towards their EFC.

The APA will be adjusted for inflation periodically.

This table was produced with information from Table A5 of the 2009-2010 EFC Formula Guide from the Department of Education.

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