Candice Choi

Knowing a few ins and outs will help ease FAFSA filing anxiety, maximize aid

By Candice Choi
Associated Press / February 10, 2011

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NEW YORK — It’s crunch time for families that are counting on loans and grants to pay for college. Deadlines to fill out the FAFSA, or Free Application for Federal Student Aid, are around the corner, and probably generating anxiety in households across the country.

The FAFSA is used to determine how much an applicant or the applicant’s family should contribute toward education costs. Schools then use that figure — known as the expected family contribution — to determine how much financial aid should be awarded.

Students who apply online at can get estimates of expected family contributions immediately. With a mail-in application, it may take two weeks or more.

Remember that it’s worth applying even if you don’t expect to qualify for need-based grants. The FAFSA is also required to apply for federal loans, which come with lower interest rates and more forgiving terms for default than with private bank loans.

Here are some things you should know:

Timing matters — FAFSA filing deadlines vary by state and school. Some are as early as this month, but filing promptly could pay off. That’s because many have first-come first-serve policies for limited pools of aid, said Jennifer Douglas of the Department of Education. And the number of students seeking aid is up sharply.

Student assets count more — To avoid surprises, it’s important to understand how the FAFSA calculates your expected family contribution. The formula is complicated, but an important rule to remember is that student assets and income are weighted far more heavily than those of a parent.

It’s too late to strategize for a fatter aid package for the upcoming school year. But in the year ahead, consider using a student’s income and assets on education expenses before dipping into a parent’s funds. That will maximize the aid offered for the following year.

■ Gifts can be optimized — Financial gifts from friends and relatives are counted as student income. If you’re looking to maximize aid, ask friends and relatives to save their financial contributions for the student’s senior year. Aid for each year is based on the student’s financial information from the previous year. Another way to maximize outside help is to transfer the money to a parent’s checking account. This minimizes the impact of the gift on the aid package, because a parent’s assets aren’t weighted as heavily. The same goes for 529 college savings plans; grandparents can transfer them to either a parent or student’s name.

■ There are blind spots — The FAFSA doesn’t factor in consumer debt, so don’t expect any extra aid even if you’re swimming in credit card bills or auto loans.

Another FAFSA blind spot: retirement funds and pensions. They’re not counted as assets, so it makes sense to sock away money into them.

Candice Choi is a personal finance writer for the Associated Press.