Early bird has better chance at student aid
Arizona Daily Star
 Jan. 23, 2005

Original URL: http://www.dailystar.com/dailystar/business/57805.php

Kathy Kristof: 

It's time for the college-bound to tackle what could be the most economically rewarding test of their lives: financial aid forms.
These forms test just how well students and their parents can follow directions. Errors can cost students a bundle of the $122 billion in work-study awards, grants and low-cost loans that are given out each year to about 14 million students, experts say. And timing is important too.
"Not getting the financial aid forms done fast enough is a big mistake because so many colleges distribute aid on a first-come, first-served basis or only provide aid to those who meet the priority aid deadlines," said Ben Kaplan, founder of ScholarshipCoach.com, a Web site that provides financial aid tips.
Aid is given out by many sources: schools, state and federal governments, and private donors. Although students can apply for federal aid until the end of the academic year, most state aid, school and private donor scholarships are awarded shortly after so-called priority deadlines pass.
These priority deadlines are set by the colleges and the awarding agencies, so they vary based on the school, the student's state of residence and the scholarship. Students are advised to find the earliest of their deadlines and make a point of submitting all the forms before that date.
Some of these deadlines are in early February, so aid experts suggest that parents and students get cracking on the financial aid forms that became available this month.
"There are 14 million students applying for financial aid each year. You want to put yourself at the head of that line," said Martha Holler, a spokeswoman for student lender Sallie Mae in Reston, Va.
It's also worth noting that although high school juniors do not yet need to fill out aid forms, they should be getting familiar with financial aid rules. The reason, Kaplan said, is that 2005 will be their "base year" for aid. The income the student and the parents earn this year will have a big effect on how much aid the student can qualify for in 2006.
Many four-year universities set aside aid money for continuing students based on the amount of aid these students received in their freshman year, so that base year can affect aid for the students' entire college careers, added Kaplan, who personally won $90,000 in college scholarships.
Aid is typically based on financial need, so earning less can mean more in loans and scholarships. But it's foolish to try to earn less in a base aid year - having more money is always better than having less, regardless of the effect on aid, Kaplan said.
Here are a few tips on getting aid.
Get the forms:
Every college-bound high school senior and others planning to start college next year should fill out the Free Application for Federal Student Aid, better known as the FAFSA. It can be completed on-line at www. fafsa.ed.gov. Filling the form out online saves about 10 days in processing time, which can help students make early aid deadlines. The online application also helps students avoid careless errors that can delay applications, Holler of Sallie Mae said. For instance, it will not allow students to skip mandatory questions.
Many private colleges will require a second form called the CSS Profile, said Joseph Russo, director of student financial services at the University of Notre Dame. The best bet is to contact all target schools to determine what's required and where to get the form. Be sure to do it promptly, Russo said. Notre Dame's priority aid deadline is Feb. 15.
Gather your documents:
The FAFSA and the Profile require information about the student's and the parents' income and assets. In many cases, the forms ask for income data straight off 2004 tax forms. Those who do not have their tax returns completed can estimate, Holler said. But they will have to revise their applications later in the year to fill in the accurate figures. In addition, parents should gather bank and investment statements as well as trust account statements.
Avoid common traps:
● The FAFSA will ask students and parents to fill in their net worth. However, the FAFSA definition of net worth excludes a lot of assets that most people would otherwise include. Do not include any assets held in qualified retirement plans - that's 401(k)s, IRAs, 403(b)s, 457 plans and ESOPs. Also exclude home equity, any cash value built up in an insurance policy, and cash held in checking and savings accounts. If a family included $100,000 in home equity and retirement assets, it would needlessly cost the student about $5,600 in aid.
● The FAFSA also asks for income information from both parents. However, if the student's parents are divorced, he or she may exclude information about the noncustodial parent.
● Assets held in 529 college savings plans also can trip up those filling out the FAFSA. That's because each beneficiary of a 529 savings plan probably has a separate account listed under his or her Social Security number. However, technically the asset belongs to the donor, not the beneficiary. And those who record 529 assets as the beneficiary's property probably will lose out. Why? Every dollar held in the student's name will cost that individual 35 cents in aid eligibility. But a dollar held in the parent's name costs just 5.65 cents in aid eligibility. If Mom and Dad set up the account, make sure the 529 assets are shown as theirs on the FAFSA.
● Applicants may be tempted to skip questions that aren't mandatory, such as how many students the family has in college or in its household, but these questions can boost the child's eligibility for aid, Holler said.
● Kathy Kristof is the author of "Investing 101" (Bloomberg, 2000) and "Taming the Tuition Tiger: Getting the Money to Graduate" (Bloomberg, 2003). Contact her by e-mail at kathy.kristof@latimes.com or by mail at Kathy Kristof, c/o The Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.