Year-End Financial Aid Moves
December 20, 2012
Prepare to File the FAFSA
Families should file the Free Application for Federal Student Aid (FAFSA) as soon as possible after January 1. While the federal government has an 18-month filing cycle for the FAFSA, ending on the following June 30, some states have very early deadlines, such as deadlines in February and March. Other states award state grants on a first-come, first-served basis. So it pays to apply as soon as possible.
The FAFSA cannot be filed before January 1. But you can prepare for filing the FAFSA by gathering the necessary documents (Social Security card, driver’s license if any, W-2 and 1099 forms, last paystub of the year, bank and brokerage account statements, etc.) and completing the FAFSA on the Web Worksheet. This worksheet is available in the HELP section of the FAFSA web site by clicking on “Getting Started/Before You Apply” and then on “FAFSA on the Web Worksheet”.
Minimize Income During the Base Year
This year’s federal income tax return will affect eligibility for need-based financial aid for the following academic year. For example, financial aid for 2013-14 (the award year) is based on the 2012 federal income tax return (the base year).
Changes in family income during the base year can have a big impact on the expected family contribution (EFC) and eligibility for need-based aid. So families should be careful about realizing capital gains during the base year. Either the capital gains should be offset with capital losses, or the capital gains should be taken before December of the student’s junior year in high school.
It is never too late to start saving for college. Every dollar you save is about a dollar less you will have to borrow. Every dollar you borrow will cost you about two dollars by the time you repay the debt. So it is literally cheaper to save than to borrow.
Almost three dozen states offer state income tax deductions or credits for contributions to the state’s 529 college savings plan. Sometimes the state income tax deduction is based on contributions net of distributions. But even then one can make a contribution on December 31 and take a qualified distribution on January 1 without affecting eligibility for the tax deduction.
Families should also start searching and applying for scholarships immediately. Often families wait until the spring of the senior year in high school to start figuring out how to pay for college. By then they have missed half of the deadlines during the senior year, as well as scholarships awarded to students in younger grades. There are even scholarships students can win in elementary school; see www.finaid.org/age13 for a list. Use a free scholarship matching service, like Fastweb.com, to search for scholarships. Fastweb notifies you whenever there’s a new scholarship that matches your personal background profile.
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