Understanding FAFSA Anticipated Family Contribution

[leebee]

We are struggling with financial aid because my husband is a 1/3rd owner in an LLC. An LLC is a pass-through entity, meaning that the company doesn't pay the company's taxes; any loss or gain is passed through to the owners and paid through their personal tax return. I am OK with paying taxes (all right, less is better, but still...), but it really messes us up with financial aid. The company is a small scientific research and development firm (3 owners, 2 full time employees, a part time bookkeeper) and last year they turned a profit on paper; we never saw any of that income as it went right back into the company. However, we had to pay tax on that money, even though we never actually saw a penny of it (DH has no income from the company), and of course record that on the FAFSA. Our actual combined gross income is around $60K, but we paid tax on $88K, and FAFSA based their decisions on the $88K. Needless to say, DD is going to the local state university instead of the private colleges that accepted her. Even with good scholarship money (60% of the total cost of room, board, tuition, and estimated books), we (she and we) would have been almost $90K in debt after four years. As she said, "Mama, I want to be a dancer and an English teacher; how would we ever pay off that debt?" Good thing I have a smart girl, but she worked hard in high school, graduated 5th in her class, had a combined SAT of 1900, and spent 24 hours a week training in the dance studio. It breaks my heart that she couldn't go to the colleges she wanted to attend after all her hard work. Fortunately (?), my mom's passing left me a very small inheritance that allowed us to NOT have to take any loans this year except a small loan through the state that is subsidized and that, if DD actually becomes a teacher, will be forgiven if she teaches for 4 years (25% of the loan is forgiven for each year of teaching). Still, it's not the school she'd dreamed of attending and worked hard to put within academic reach, and it makes me feel like we failed her as parents because we couldn't get jobs that would allow us to save enough to send her to a private college.

 

[lastminutemom]

Generally speaking, most colleges now seem to require the FAFSA for all scholarships, even merit ones.

leebee, you do have a smart girl. Teachers, and other professions that aren't well paying, really should not end up 90,000 in debt.

Keep in mind, that very few colleges and universities meet full need without the use of loans. So, if your efc is X and the cost is Y, the package will probably include loans and most colleges may still gap you as well.

 

[NotUrsula]

One my good friends has a daughter my DS's age (19, she's in her 2nd year at CC). She said she had heard from a friend that if you don't take a child as a dependent on your taxes, they're considered independent and qualify for more scholarship, grant and loan money on their own -- and she was basing her DD's college funding plan on that! I found the info online saying just what was said above (there's a gov publication with all the rules and regs), and she was stunned to find out that not only is that not true, but that her new husband's income would be included in the financial calculation. You REALLY have to do your homework these days! If she had, her daughter might be able to plan to go away next year like she wants to.

Those were the old rules; they were changed about 25 years ago.

 

[pershing]

Subscribing...

great, great topic.

Almost should be sticky-ed, I think, since it's one of the biggest expenditure's you'd need to budget for. (And the biggest thing standing in the way of another WDW trip, lol)

Although my son wants to go to Full Sail, which is right next to WDW...lol.

 

[lucigo]

Turn in your FAFSA as SOON AS POSSIBLE after the first of the year. I didn't get our taxes done right away as I am self-employed, and so our FAFSA didn't get done until April. My oldest is at UCF. Instead of getting her money in August of this year on the day she was expecting it she instead got a letter saying she was being audited. Long story short she didn't get her money until about 2 weeks ago! Thats 3 months I had to help her cover her rent!! Their reasoning for it taking so long as that we turned it in late. I didn't even know it was late in April!

I have a son also in college, and we didn't get his money for 2010-2011 until a year later. They seem to like torturing people, so even if you get an "award" don't expect to get it on time or you could end up in financial straights. Have a backup plan!

 

[lucigo]

Subscribing...

great, great topic.

Almost should be sticky-ed, I think, since it's one of the biggest expenditure's you'd need to budget for. (And the biggest thing standing in the way of another WDW trip, lol)

Although my son wants to go to Full Sail, which is right next to WDW...lol.

My DD lives right down the road from Full Sail (she goes to UCF). We have year passes to Disney. I'm going down Wednesday to see the Christmas lights.

 

[maggiew]

Turn in your FAFSA as SOON AS POSSIBLE after the first of the year. I didn't get our taxes done right away as I am self-employed, and so our FAFSA didn't get done until April. My oldest is at UCF. Instead of getting her money in August of this year on the day she was expecting it she instead got a letter saying she was being audited. Long story short she didn't get her money until about 2 weeks ago! Thats 3 months I had to help her cover her rent!! Their reasoning for it taking so long as that we turned it in late. I didn't even know it was late in April!

I have a son also in college, and we didn't get his money for 2010-2011 until a year later. They seem to like torturing people, so even if you get an "award" don't expect to get it on time or you could end up in financial straights. Have a backup plan!

There is a website that lists suggested due dates by state. When we filled ours out, I seem to remember that the suggested date for Illinois was March. So your April date could be considered "late".

http://www.fafsa.ed.gov/fotw1112/pdf/Deadlines.pdf

Maggie

 

[msmayor]

Turn in your FAFSA as SOON AS POSSIBLE after the first of the year. I didn't get our taxes done right away as I am self-employed, and so our FAFSA didn't get done until April. My oldest is at UCF. Instead of getting her money in August of this year on the day she was expecting it she instead got a letter saying she was being audited. Long story short she didn't get her money until about 2 weeks ago! Thats 3 months I had to help her cover her rent!! Their reasoning for it taking so long as that we turned it in late. I didn't even know it was late in April!

I have a son also in college, and we didn't get his money for 2010-2011 until a year later. They seem to like torturing people, so even if you get an "award" don't expect to get it on time or you could end up in financial straights. Have a backup plan!

Its not necessarily about getting it in as soon as possible, its about making sure you file by whatever the priority deadline is for your particular school.

Most schools have such a deadline, and it is often around the end of January/beginning of February. Those are the folks that are 'first' in line for institutional aid, and anyone filing AFTER the priority deadline has to wait until everyone else that filed on time gets their share. Then, whatever is LEFT after that is distributed to the late filers. There is often not much left after those that met the deadline have been taken care of.

Whats important to note is that you do NOT have to complete your tax return before filing. You may use estimates in order to meet the priority deadline, and then just update the FAFSA once your tax return is complete. You only update the income numbers, NOT the savings and investment values. Those are always the value as of the date you complete the initial filing.

Using estimated income numbers will generate a tentative financial package which is adjusted, if necessary, once the final income numbers are provided.

Its FAR better to use estimates and file on time than wait until you have your tax return done.

 

[kacaju]

So do they take into account car loans, credit cards, mortgage amount or anything else you may owe? or is this strickly your income?

 

[Marionnette]

So do they take into account car loans, credit cards, mortgage amount or anything else you may owe? or is this strickly your income?

Your debts are not a consideration. Only what you make comes into play.

 

[Boston Tea Party]

Still, it's not the school she'd dreamed of attending and worked hard to put within academic reach, and it makes me feel like we failed her as parents because we couldn't get jobs that would allow us to save enough to send her to a private college.

We are dealing with the same thing here. I am hoping that my daughter doesn't get into USC so it won't be our fault that she cannot attend...

 

[msmayor]

So do they take into account car loans, credit cards, mortgage amount or anything else you may owe? or is this strickly your income?

Income and savings for FAFSA. Your consumer debt doesn't come into play at all.

Now if your child goes to what is called a "Profile" school, more extensive financial information is required. Your home equity and other items may come into play.

Just about the only time outside debt would be considered for aid purposes is in the event of catastrophic medical bills, but even that would not be handled by FAFSA. You would have to request a special review by each individual school to have that considered for aid purposes.

I think what is vital for folks to remember is the following:

1. FAFSA does NOT "give" any aid. It is merely a tool used to determine eligibility levels for federal aid and to give schools a benchmark family contribution amount.

2. The Estimated Family Contribution (EFC) amount generated by your FAFSA filing is NOT meant to be what you must spend out of your current income alone. It is expected that you have been saving and planning all along and that a portion of that comes from savings.

3. If your EFC is calculated at, say, $10,000 and the cost of attendance at the school your child is planning to attend is $45,000/year, do NOT expect that you will get $35,000 in free money for your child to go there. Many, many schools 'gap' their aid, meaning they do NOT meet the full need determined by cost of attendance less EFC. Even schools that claim to 'meet full need' doesn't mean its met with free money...there are often loans in the package.

4. All aid is NOT free. Stafford and PLUS loans are LOANS...debt...but they are considered aid in the grand scheme of your package. Once again using the $10,000 EFC and $45,000 cost of attendance, your total aid package could look like this:

Estimated Family Contribution: $10,000
Stafford Loan - subsidized: $3,500
Stafford Loan - unsubsidized: $2,000
Parent PLUS Loan - $29,500

Not a single penny of free aid, but a perfectly acceptable and logical financial aid package from any school.

5. Pay VERY close attention to application deadlines for merit scholarships. Many, many schools require you to get your applications filed for merit scholarship consideration by November or December 1. Anyone who is now just starting the application process has missed the boat on possible big money.

6. You will never have a better opportunity for merit scholarships and outside "free" money than as an incoming freshman. Don't miss the deadlines.

 

[monarchsfan16]

There is a website that lists suggested due dates by state. When we filled ours out, I seem to remember that the suggested date for Illinois was March. So your April date could be considered "late".

http://www.fafsa.ed.gov/fotw1112/pdf/Deadlines.pdf

Maggie

Do NOT pay attention to the dates on this website. Look at the individual school websites. Many STATE schools have deadlines prior to what is listed on this site.

 

[Debbie7452]

Another thing to consider is the terms of those loans. The parent loans we were offered had terrible terms. The interest rate was not great and it started accumulating interest right away, NOT after graduation as I naively imagined. We decided to forgo any loans as long as we can scrimp and save and struggle to meet the payments. Our school offers a "payment plan" where we spread the payment over the semester for a small one time fee. This helps a lot. This is an in state school and my daughter has a great scholarship but it's still hard without loans. We came so close to funding our state's "tomorrow fund" She would be going for free if we had gotten that done (I missed the deadline )

 

[leebee]

Merit money as an incoming freshman is one of the most important deadlines to remember! This is money that is given, gratis, based on the student's high school record and recommendations. However, you have to get not only the Common Application and/or the school's app turned in on time; your entire application package, including transcripts and recommendations, has to be submitted by the deadline (which is as early as October 15 for some schools, but almost all of them have a deadline by mid-December). DD's was due Dec. 15, so we had it submitted by mid-NOvember AND had her request to her high school submitted, so it should have been no problem. However, her guidance counselor "lost" (or something) her request, and didn't get her transcripts to UMaine until February. Not only did DD not get a merit scholarship (which would have been about $5000, guaranteed for 4 years, provided she kept a 3.0 GPA), but by then there wasn't even any work study to give out. She ended up with a small amount of scholarship money from graduation awards, a supplementary grant, and loans.

Regarding loans... UNSUBSIDIZED loans are NOT the best deal around. About the only thing they have going for them is that you don't have to be approved for them (unlike PLUS loans which we cannot qualify for based on earnings/debt ratio). Interest and repayment on unsubsidized loans start immediately. That's (marginally) OK if it's the parent taking the loan, but unsub loans offered to the student are a nightmare. There are basically two choices: Pay the monthly interest on the loan until graduation (i.e., paying for the privilege of borrowing without reducing your debt), or postpone the interest payments, which then become part of the principle you owe when you graduate. How's a kid who is going to college full time supposed to swing that? I mean, I know there are kids who put themselves through school, who go to school full time AND work full time, but seriously... talk about ballooning what a student owes ! I think offering a kid with no financial knowledge or savvy a loan and encouraging them to roll the interest to a future date is just supporting an irresponsible attitude towards borrowing and debt... to say nothing about becoming a windfall for the banks! At least subsidized loans offer the kids the money "interest free" and "payment free" until 6 months after graduation, giving them the opportunity to find a job and get on their feet which will allow them the stability to then start making payment.

 

[leebee]

sorry, double post...

 

[Lucky4me]

dd is a jr in high school this year. I've filled out a pretend fafsa to see what we come up with now. It said zero EFC. Our income will be even lower next year than it is this year.
There is no way we can take out parent loans to send dd to college. She is a well rounded student, overall 3.9 gpa, scored just above average on her psat's, plays sports, is involved in other school activities and has overcome learning disabilities. With all of this, she is only ranked in the top 25% of her class. I'm not sure she'll qualify for merit scholarships. She's not the best player on her sports teams, she's not the smartest student in the school. If they gave out scholarships for busting a**, she'd get a full ride. I've never seen anyone who works so hard.


This thread scares me because I was assuming she'd be eligible for need based aid in the form of grants and scholarships.
ACK!
We're attending a financial aid meeting at school next week, hopefully we'll learn more then....

 

[leebee]

dd is a jr in high school this year. I've filled out a pretend fafsa to see what we come up with now. It said zero EFC. Our income will be even lower next year than it is this year.
There is no way we can take out parent loans to send dd to college. She is a well rounded student, overall 3.9 gpa, scored just above average on her psat's, plays sports, is involved in other school activities and has overcome learning disabilities. With all of this, she is only ranked in the top 25% of her class. I'm not sure she'll qualify for merit scholarships. She's not the best player on her sports teams, she's not the smartest student in the school. If they gave out scholarships for busting a**, she'd get a full ride. I've never seen anyone who works so hard.


This thread scares me because I was assuming she'd be eligible for need based aid in the form of grants and scholarships.
ACK!
We're attending a financial aid meeting at school next week, hopefully we'll learn more then....

You are smart to be starting NOW instead of waiting for senior year. Senior year is too late to be learning about all this. If you have an EFC of zero and you get applications, etc., in on time (EARLY is best) you will qualify for pell grant, supplementary grant, student loans, work study, and college resources (scholarships and grants). Just make sure she applies to the state schools as well as the private schools. Private schools have much bigger endowment funds and can usually give better aid, even though they cost more. Don't give up hope... and get the complete application packages and FAFSA in WELL before the deadlines, and do your taxes asap after Jan 1 (gee, it'll be 2013 then, if your dd is a junior!)

 

[tlmcma]

We will be starting this process for my daughter next year. I have been divorced from her biological father since she was 2, and remarried when she was 4. I have primary custody of her - so it looks like according to this thread that it will be my income and her step-dad's used to determine the estimated contribution? Her bio father actually has a much higher income than us, and has been paying child support faithfully. Will the child support be taken into account in the formula, even though those payments will stop the day she graduates high school? I could see if it was going to continue, but in our case I will not be getting child support for her after graduation day. I guess I'm a little confused as to why it wouldn't be her 2 biological parents filling out the forms with their income levels. That may work to our advantage, but it does seem somewhat wrong when my ex-husband makes so much money to base it on her mother and step-dad's income alone.

 

[tinkerbell313]

. (unlike PLUS loans which we cannot qualify for based on earnings/debt ratio).

PLUS loans do not look at debt to income, credit score or employment status at all. The credit check looks at:

* Bankruptcy (Chapters 7, 11 or 12) within the past 5 years
* Voluntary surrender within the last 5 years
* Repossession within the last 5 years
* Foreclosure proceedings started
* Foreclosure within the last 5 years
* Deed in lieu of foreclosure
* Accounts currently 90 days or more delinquent (unless the last reported delinquency for the account was more than five years ago)
* Wage garnishment within the last 5 years
* Defaulted loan that has been claim paid
* Lease or contract on secured real estate
* County/State/Federal tax lien, within the past 5 years