15 Huge Financial Aid & FAFSA Mistakes

by Katherine O'Brien (and Jeff Levy)

My colleague, Jeff Levy, shares some significant mistakes families make that can seriously affect their teen’s ability to maximize merit and financial aid.

 

Financial aid and FAFSA mistakes

1. Believing advice from people who aren’t qualified to give it.

I heard from a parent that an English teacher at his daughter’s school recommended “a little-known tip.” At their College Night, the teacher suggested that students select “not applying for financial aid” on their college application and wait until they’re admitted to submit the FAFSA.

This advice couldn’t be more incorrect, unethical, and potentially catastrophic to the family. If you expect to apply for financial aid, check “yes” on the college application and submit your forms well before the college deadlines.

[As a Certified College Planning Specialist, I have been trained in financial aid. I also regularly receive additional training.]

2. Deciding not to apply for financial aid because “we’ll never qualify.”

Most families have no idea whether they will qualify or not. Data consistently shows that many who are the most eligible for need-based aid never submit the FAFSA.

3. Not filing your income tax returns before applying for financial aid.

For current high school seniors enrolling in college in the fall of 2025, the FAFSA will not become available this year until December 1, 2024 because of widespread technical problems that began with last year’s release. Questions on the form will require accurate financial information from the 2023 tax year, and, in almost all cases, those tax returns will need to be provided. [They need to be submitted to the IRS AND processed before the FAFSA filing. During your FAFSA filing process, you will pull data both the parents' and the student's 2023 tax returns right into the FAFSA.]

4. Missing the college’s institutional deadline.

Some parents believe the best way to apply for financial aid is to wait until their student has been admitted. This is exactly what not to do. Be sure to submit your financial aid forms before each institution’s deadline. Keeping track of these can be annoying if your teen applies to many schools with Early Decision, Early Action, and Regular Decision deadlines. But it must be done. Going to each college’s website to gather and collate this information will take you or your child about 20 – 30 minutes.

5. Deciding not to apply for financial aid as a freshman and planning to ask for it later.

Many schools will give a full-pay applicant a bump in the admission process in exchange for the higher net revenue they bring to the institution. If such an applicant unexpectantly [sic] requests financial aid in later years, some schools will not consider that request for institutional aid; others might delay it by a full academic year. Do not make the mistake of “outsmarting” the admission office if there is even a [small] possibility you may require institutional aid in later years.

6. Not having a savings plan for college.

One of the most destructive myths about paying for college is that the financial aid formulas will wipe out your savings. People who advise this are either ill-informed or have a hidden agenda. In the needs calculation, the penalty for savings is five cents on the dollar! The best way to prepare for the cost of college is to save, and the best way to save is to use time to your advantage. Start early and save regularly, even a small amount each month.

7. Taking a work bonus in the FAFSA “base year.”

The most significant factor in determining what a family is expected to pay towards college is their Adjusted Gross Income on line 11 of Form 1040 of their federal tax returns.

Any income that can be postponed from the base year (2023 for students starting college in 2025, 2024 for students starting college in 2026, etc.) to the following year will decrease the applicant’s Student Aid Index (SAI) and increase their eligibility for financial aid.

8. Listing the 529 savings plan as a student asset instead of a parent asset.

Even though the student is the beneficiary of the 529 savings account and the parent the custodian, the Department of Education has stipulated that these savings plans should be listed as parent assets. This is an essential advantage because parent assets are “penalized” about one-quarter as much as student assets in the federal and institutional need methodologies.

9. Accumulating parent savings in a student-owned account.

While this can be a tax advantage, it is always a financial aid disadvantage. You must check with your tax advisor for the best approach. In the financial aid formulas, parent assets are penalized at about five cents on the dollar, while student assets are penalized about between 20 and 25 cents on the dollar. But check with your tax advisor about the best approach for you.

10. Allowing the grandparents to write the check directly to the college.

The FAFSA no longer asks the student if anyone other than their parents has given the student any money or paid any bills on the student’s behalf. So grandparent contributions to college costs is not a problem if the student plans to attend, or is already attending, an institution that only uses the FAFSA in the calculation of need-based aid.

However, any money paid on the student’s behalf from anyone other than parents is reportable on the CSS Profile, a second financial aid form used by about 170 undergraduate institutions. Such a payment or gift will be considered untaxed student income and could significantly reduce the student’s eligibility for need-based institutional aid.

11. When parents are separated or divorced, believing it’s the parent the student spends more time with who will complete the FAFSA.

Beginning with the 2024-2025 FAFSA [the FAFSA for the 24/25 school year], the divorced/separated biological parent who must complete the parent section of the FAFSA is the one who has provided more financial support to the student in the year to date.

12. Borrowing more than you can afford.

College is one of the most expensive purchases a family will make. Borrowing part of this cost to earn a college degree is not an unwise choice, just as borrowing part of the cost of a home can be an intelligent way to make home ownership possible. However, borrowing too much for college can be catastrophic.

Each family will need to decide for themselves how much debt is reasonable. A good rule of thumb is to keep total undergraduate loan debt below what the student expects to earn during their first year out of college. In other words, if students borrow the maximum lifetime limit of $31,000 in undergraduate federal student loans, they can successfully manage monthly repayments if their first job after college pays at least that amount annually before taxes.

13. Not taking advantage of low-interest federal student loans.

Federal student loans are generally packaged as part of the financial aid award. These are low-interest loans with many built-in repayment protections, usually far safer and less costly than private bank loans.

The federal cap on how much a student can borrow over four years of college is $27,000 (with annual caps from $5,500 to $7,500 per year) and the lifetime limit is $31,000. Repayments begin six months after graduation. I recommend taking advantage of this loan program if it helps your family meet the high cost of college.

14. “If she gets into _______, we’ll make it work!”

This thinking usually leads parents straight into the abyss of excessive borrowing. Parent loans (federal and private) have higher interest rates, fees, and stricter repayment terms than federal undergraduate student loans. Parents must think carefully about how many actual earning years they have left before going into substantial debt at an advanced age.

There are often less expensive options for college than high sticker price schools with little financial aid.

15. Not calling the financial aid office when you have a question.

These folks are not the IRS and not your enemy. They are usually happy to answer your questions and can be an excellent resource to help you navigate the complexities of the financial aid system. [Be careful. Sometimes a student worker is the one answering the phone. Be sure to speak with a trained financial aid officer when you call. Even so, remember that their primary job is to help the college meet its institutional financial goals.]

Financial and merit aid resources for students and parents

FAFSA (Free Application for Federal Student Aid)

CSSProfile

 

Link to original article:

https://grownandflown.com/fifteen-biggest-financial-aid-fafsa-mistakes/?

A Look at the Cost of a College Degree & Ways to Reduce It

Living Happily Ever After – Is it Possible?

A Look at the Cost of a College Degree and Ways to Reduce It

By Katherine O’Brien, MA CCPS

For many, their dream is to go to college, graduate, get a good job, make decent money, and live happily ever after.  Unfortunately, for many, that does not come to pass.  In this article, we’ll explore several of the reasons why and some options to consider in order to make that dream into a reality.

What does college degree actually cost and What Can We Do to Lessen that Cost?

For those who start with about $16,000 in savings, get scholarships, grants, and work to help pay for school, they will accumulate about $42,000 in student loan debt during the six years it takes most students to earn a bachelor’s degree.

In contrast, if s/he had decided to be a restaurant server rather than go to college, the student would make about $39,000 per year (assuming s/he is in the top 25% in a metro area like Houston).  In six years, after taxes and the cost of living adjustments, s/he would make just over $81,000, rather than racking up student loans.  In other words, s/he wouldn’t have a degree, but would be $123,000 ahead of the average college graduate ($81,000 + $42,000).

How long will it take the college graduate to recover that lost opportunity cost and catch up with the restaurant server?  Assuming the graduate gets a job in a field like marketing that has a starting pay of $51,000 per year, it will take 18 years to catch up with the restaurant server, assuming s/he pays off the loans six years faster than average.  This also assumes that the server’s salary steadily increases every year.  While catching up, the college graduate will pay over $18,000 in interest, a total of over $60,000 in loan payments.

What are the alternatives?

1.     Attend a Public university to lower costs?

Many people think that the only option to make college affordable is to send their children to public universities, given their lower tuition rates.  Let’s explore this assertion.

The average in-state tuition is almost $10,000.  The average out of state public tuition is $25,600 and the average private college tuition is almost $35,000.  However, those are the sticker prices.  The average net price (out of pocket cost) for tuition is $4,000/year for publics and $15,000/year for privates, per Big Future.  In order to see the cost to earn a degree, we must also consider the average number of years to graduate: public university students average 6 school years while privates average just above 4 school years.

Here’s a look at the math:

Public universities:

$4,000/year * 6 years = $24,000 tuition, on average

$10,800/year * 6 years = $64,800 room & board, on average

+ $47,268 lost wages $909/(bls.gov median weekly earnings of FT workers with HS education)

TOTAL COST OF DEGREE: $ 136,068 + $27,000 in loans (approx.) (+ fees, books, etc.)

Private colleges:

$15,000/year * 4 years = $60,000 tuition, on average

$12,210/year * 4 years = $48,840 room & board, on average

TOTAL COST OF DEGREE: $ 108,840 + $33,000 in loans (approx.) (+ fees, books, etc.)

Here’s a second look, with figures from a different source.

At end of 6 years,

Public university graduate - $27,000 debt

Private college university graduate’s financial status = $68,480

2 years of working at $50,390 (Money mag) = $100,780 – $32,300 debt (with 75% in debt)

(Data from Mark Kantrowitz, 2012)

[For profit college graduates (88% have debt) with the average debt = $39,950]

[A word about for-profit colleges, in addition to their students carrying more debt, their graduation rates are much, much lower than non-profit colleges, with an average of only 19% graduating in 4 years.]

Since the idea of attending a public university to save money on college isn’t actually very effective, we’ll explore some alternatives.

2.     Graduate FASTER!

There are several ways to shorten the length of time to earn a degree (in addition to attending a school with a 4-year graduation rate of over 50%).  By working ahead via AP, IB, CLEP, and DSST exams as well as dual enrollment opportunities during high school, the student, depending on his or her abilities, can accumulate as much as two years’ worth of college credits while still in high school.  Students will need to research the acceptance policies of these various programs by the colleges and universities they are considering.  Each college/university sets its own policies (sometimes by college or department within the university, sometimes as an institution) regarding how these scores and credits are treated.

For some students, staying at home and taking classes online can be a less expensive path to earning a degree. There are, however, social sacrifices involved in that path that make it unsuitable for some students.  Online course completion rates are significantly lower than completion fates for in person classes.  Additionally, having the positive peer pressure to study and complete your degree is found on campuses with a 50% or higher 4-year graduation rate and  is a powerful aid to help students stay on track to graduate in four or fewer years.  Per the National Center for Education Statistics, 36% of public college students graduate in 4 years while

54 % of private college  students graduate in 4 years.

3.     Save more, Get More Bang for Your Buck

Starting earlier and saving more than the $16,000 used in the initial scenario is also helpful.  Saving takes diligent, sustained effort and, often, many sacrifices.  Every dollar saved will actually save your student $1.50; keeping this in mind can help you stay on track with your savings goals. Per CNBS and USA Today, the average amount families have saved for college (in 2018) is $18,000. This is a significant increase from 2004 when I began working with families.  It’s time to be way above average!

There are various types of accounts that can be used to save funds for college.  Some, like 529s and Coverdells, have limitations on the amount of money that can be deposited each year as well as regulations regarding the use of the funds.  Some kinds of accounts are considered assets and so are included in need-based aid calculations while others are not included.  Consequently, determining the best type of account to keep your college money in requires exploring both the tax and financial aid eligibility ramifications.

4.     Plan Ahead

Despite the high costs of college, many students arrive on campus with little to no idea what they want to study or what sort of field in which they would like to work.  As the adage goes, failing to plan is planning to fail.  Unfortunately, the vast majority of students have received absolutely no guidance regarding potential careers and majors.  Almost none have actually done a job shadow, further an internship in a field under consideration.

InsideHigherEd.com reports that, per 2017 federal data, nearly one-third of students change their majors during their first three years in college. Other studies state that as many as 80% do. Ohio State University shows data that 38% of their students changed their major between when they applied and when they completed freshman orientation.  They didn’t have data available about how many more change once they matriculate nor on how many times their students tend to change their majors.

In addition to changing majors, 25% -38% of students at 4-year colleges transfer to another college or university.  Students are much more likely to take five to eight years (or more!) to graduate when they transfer, especially those who transfer twice. 

In both cases, students often have many credits they have earned that do not fulfill their new graduation requirements.  For example, a student transferring from French into chemistry will not be able to use most of the humanities credits earned towards their graduation requirements for a BS in chemistry.

When changing majors, students typically add a year to the length of time it takes to earn their degree.  When transferring, two years additional time to degree is not uncommon. The average added out of pocket costs for one extra year of college at a public university is $62,208 ($14,940 tuition/room/board + $47,268 lost wages).  The average out of pocket costs for an extra year at a private college is $74,008 ($26,740 tuition/room/board +$47,268 lost wages).

5.     Should You Start at a Community College?

This is the path that a number of today’s parents used successfully to save a significant amount on the cost of college while still graduating in four years.  Unfortunately, in addition to having a significantly lower 6-year bachelor’s degree completion rate, getting an associate’s degree actually adds the time to degree for those who do earn a bachelor’s degree.  Approximately 25% of bachelor’s degree seeking community college students actually transfer to a 4-year college or university.  And only about 10% of those who start at community colleges have a bachelor’s degree after six years.

This path can be used successfully but it takes even more careful planning and frequent visits to the transfer counselor than the other paths to a bachelor’s degree.

6.     Get Scholarships

Scholarships are given by colleges and universities as well as private organizations.  93% of college scholarship dollars come from the schools themselves.  In fact, private scholarships impact need-based financial aid eligibility dollar for dollar so may or may not lower a given family’s out of pocket costs. (While it feels great to say that your child has received a scholarship, the actual impact on the family’s bottom line tends to be the more important factor.)

Why do colleges give students money? 

Most people are aware that scholarships are awarded for academic and athletic capabilities and accomplishments.  Some know that scholarships are also awarded by some schools for student leaders and those with special accomplishments (top debaters, for example).  Fewer are aware that scholarships are also used by some colleges and universities in exactly the same way as coupons are used, to entice you to buy their product/attend their school, rather than a competitor’s. Colleges and universities that have international reputations and tend to win large research grants tend to not give scholarships intended to entice students; they don’t need to.  Colleges that serve their region or are less well known tend to use scholarships as ways to recruit students.  Some liberal arts colleges and master’s colleges (offer bachelor’s and master’s degrees only) will give all or nearly all their students significant scholarships.  In addition, sometimes scholarships are awarded despite the fact that the family has no financial need, as an inducement to have their child attend their school, rather than another.  And, it works well! 

Lastly, a number of groups of states in the US have banded together in groups called student exchanges through which participating public universities in each state will offer students from the other states a significant tuition reduction (typically $5,000 - $10,000/year) when they attend their school.

7.     Get Help! Work with a holistic college consultant

Hiring an expert to help buy and sell a home is commonplace.  Next to a house, the next greatest expenditure is college.  Hiring an expert to assist with the process saves significant time and money, and protects people from making mistakes because "we just didn't know!"

While many college consultants only work with students to create their applications, some of us work holistically with students and their families.  For each of my clients, for example, I develop a personalized overall strategy then guide the student and his or her family through it, step by step.  I typically start by guiding students to explore possible careers then majors and schools. I evaluate the family’s financial resources then advise regarding ways to lower costs and increase resources in order to help the student accomplish his or her academic and career goals.  Working holistically, I’ve fostered my students’ personal growth and skill development, enhanced their awareness of their strengths, and guided them through the application processes, both for admissions and aid.  My clients have averaged about $75k/college in scholarships, plus need based aid.  While I work with clients from all education settings and backgrounds, I specialize in working with home educated students and Catholic students.

Lowering the family’s stress levels, providing expert knowledge, and seasoned guidance provides an improved quality of life as well as better academic and financial outcomes for my clients.

Evaluate your options and find a better way to get your degree.  College shouldn’t be a debt sentence.

If you’d like to meet with Katherine, you may schedule a consultation at CelticCollegeConsultants.FullSlate.com
 

Don't Wait!

Every April I receive numerous calls and desperate emails from parents of seniors.  Only now, when they have the financial aid offers in their hands, do they realise that COLLEGE COSTS MONEY! 

Astounding!  With many, many schools in the $50,000 and up annual price range, how did these parents miss this little fact?

I am often asked when should we start planning for college.  You should start planning for college as soon as the baby is born, maybe even as soon as the pregnancy test shows you the telltale red line!  Families with young children often do not have much money.  They do, however, have a great deal of time.  Time is a beautiful thing to have when you are growing a pile of money!  I can help young families put together a savings plan which is very effective and takes into account the financial aid rules so they can maximise their access to that pool of funds as well.

Don't be one of those families who only call a college planner when it is too late.  Call today, when your child is young! 

www.celticcollegeconsultants.com - Providing Expert Knowledge for the Journey to College!