College aid: the nitty-gritty guide

Kiplinger's Personal Finance Magazine, Jan, 1998 by Kristin Davis

The paper hats and noise-makers are back in the closet. Now, if you're the parent of a college-bound student, you can get out the calculator and the green eyeshade -- to take on the twin tasks of filling out your financial-aid forms and tax returns. The two go hand in hand because you'll need at least estimated figures from your tax forms to plug into your financial-aid applications.

Enter this just-in-time guide to help you complete the Free Application for Federal Student Aid (FAFSA), required by most colleges, and the Profile, required by many private schools (see the box on page 97). Our line-by-line tips -- tailored to parents with dependent students -- will help you avoid mistakes that could cost you financial aid. Plus, while most aid-boosting strategies require long-range planning, we've flagged a few last-minute opportunities to maximize your eligibility.

The earliest you can file your FAFSA is January 1, at which point you don't yet have all the W-2s and other tax documents you need. But don't let that stop you. It's better to file early using estimates, and update the data later. Filing online (www.ed.gov/offices/OPE/express.html) can speed the process.

Financial-aid forms are just as complicated as tax returns, but there is one big difference: You can't see your bottom line. The applications simply ask you to supply financial and household data, which you send off to a processing center. A few weeks later, you get back a Student Aid Report that tells you (obliquely) what you'll be expected to contribute to college costs under federal aid formulas. The figure appears unheralded in the upper right corner of the report: "EFC9000," for example, means that your "expected family contribution" is $9,000.

(You can take some of the mystery out of the process by computing your own EFC. Guidance counselors and financial-aid officers can give you worksheets, or you can use an online calculator, such as the one at www.finaid.org/finaid/calculators.)

You may be tempted to plunge into the form and ignore the 12 pages of instructions except as a last resort. That could be dangerous. For instance, the question about the number of people in your household may seem cut-and-dried, but you'd short yourself if you overlooked an unborn child or an older child you're supporting away from home. The sections highlighted here are those where mistakes are most common.

WHO YOU ARE

Sections A, B and C, which ask for personal information and enrollment plans, are generally self-explanatory. On lines 32-34, though, be sure to indicate that you want to be considered for work-study, student loans and parent loans. Marking "no" won't increase the grants you're offered, and you can always turn down a loan or work-study job if you decide that a home-equity loan or other employment is a better choice.

Section D (Household Information), a critical piece in the EFC puzzle, presents a major obstacle for some parents but also a few opportunities.

* Line 46, where you report your marital status, is a bone of contention for many parents who have divorced and remarried. If you are the parent with whom the child lived for most of 1997, you'll be the one completing the form. And you must include your new spouse s income and assets, even if he or she isn't helping with college expenses. The aid formulas do not recognize legal agreements that absolve the stepparent from college expenses or make the noncustodial parent responsible. Sometimes you can persuade a financial-aid officer to make adjustments later. But for now you have to report the joint data -- and cross your fingers.

* The more household members you include on line 49, the higher your "income-protection allowance," which shelters a modest portion of your income from the aid formulas. You can include any children that get more than half their support from you, even if they're living on their own or with your former spouse. The instructions don't say so explicitly, but you can also include a child who will be born during the coming academic year. The number of household members reported here does not have to match the number of exemptions you'll take on your tax return. But if they differ, you'll probably be asked to explain.

* If you indicate on line 50 that your household will have more than one college student, your estimated family contribution will be divided among them, boosting aid eligibility for each. To be included, a parent or sibling must be enrolled at least half-time and working toward a degree at an institution that's eligible for federal aid. Mom's continuing-education class at the community college would not count.

WHAT YOU EARN

Because your EFC will be based predominantly on your 1997 income, Section E (Income, Earnings and Benefits) is the heart of the FAFSA. You'll be asked for your adjusted gross income (Agi) -- basically, income before subtracting exemptions and deductions -- and other data from your 1997 income-tax return.

* On line 53 you report the student's 1997 AGI (if any) and on line 65 your own AGI, which will be used to determine your family contribution from income. If you are no longer living with your spouse due to death, divorce or separation but will file a joint return for 1997, you should show your portion of the joint AGI -- ditto for taxes paid and untaxed income, discussed below.