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The Honolulu Advertiser
Posted on: Sunday, February 1, 2009

Don't pass up opportunity to get financial aid

By Sandra Block

Hawaii news photo - The Honolulu Advertiser
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Most people won't bother to pick up a penny on the sidewalk. If they're in a hurry, they may not even stop for a dime. Most will, however, stop to pick up a $5 bill, even if they're late for lunch.

Many parents of college-bound students take the same approach to financial aid.

Those who expect to receive a lot of money take the time to fill out the forms. Families who believe they'll receive only a small amount of aid — or none at all — don't bother. Last year, 25 percent didn't complete the federal application for financial aid, according to student lender Sallie Mae.

But unless you're reading this from the deck of your yacht, you should apply for financial aid. The recession has made it more difficult for many families to pay for college. At the same time, though, economic setbacks could increase your eligibility for federal and institutional assistance.

For the 2007-08 academic year, undergraduate students received an average of $4,656 in grants and $3,650 in federal student loans, according to the College Board.

The two primary documents you'll need:

  • Free Application for Federal Student Aid, or FAFSA. This document is used to determine your eligibility for federal aid, state aid and scholarships. The Department of Education uses your FAFSA to determine how much your family can afford to contribute to a child's college expenses.

    You can apply online at www.fafsa.ed.gov. You can also obtain an estimate of how much federal aid you'll receive at www.fafsa4caster.ed.gov.

    Even families who are convinced they're ineligible for need-based financial aid should fill out the FAFSA. Otherwise, you'll be ineligible for federal student loans, which are available to all students.

  • CSS/Financial Aid Profile. This document is used by many private colleges and universities to determine eligibility for institutional aid. You can find this form at the College Board's Web site, www.collegeboard.com.

    How to increase your chance of receiving aid:

  • Know your deadlines. Some colleges and universities require you to have your application in by the end of January. Others give you until March. If a school has a limited pool of money, students who meet the deadline will get priority, says Stephen Joyce, student aid director for Bowdoin College, a private college in Brunswick, Maine.

  • But take the time you need to get it right. While it's important to meet the deadlines, "It's more important that you file accurately and understand how to present your case to your best advantage," says Kalman Chany, author of "Paying for College Without Going Broke." "Most people have little clue as to how their responses influence how much aid they qualify for."

    To fill out the form, you'll need your driver's license, latest federal tax return, W-2 forms, bank statements and investment account information.

    The process will be easier if you've already done your 2008 taxes. However, if you have an early deadline, you can use estimated income figures and revise the information after you file your taxes.

  • Advise financial aid offices of recent setbacks. If you were laid off late last year, your 2008 tax return probably won't reflect your current financial situation. When your child is applying to state colleges and universities, include a letter explaining your job loss, Joyce says. For applications to a private school, include the information in the comment section of the CSS Profile, he says.

  • Be aware of recent changes in the financial aid formula. This year, the formula won't include untaxed Social Security benefits when calculating how much a family can afford to pay, Chany says. That benefit could help older parents with college-age children, as well as widows or widowers who receive Social Security survivor's benefits.

  • Understand how the bear market will affect your eligibility for aid. Most parents saw the value of their 401(k) plans and other retirement savings plans plummet last year. Unfortunately, that won't increase your eligibility because the financial aid formula doesn't count retirement plans. However, non-retirement assets are included, so losses in taxable investments could boost your eligibility.

    The federal financial aid formula doesn't count equity in your primary residence, so a decline in the value of your home won't affect eligibility for federal aid.

    However, some private schools include home equity in their aid formula. If you're among the millions of homeowners who are "underwater" — you owe more on your home than it's worth — you could be eligible for more institutional aid.