Top Tips for Avoiding Financial Aid Mistakes

Navigating college financial aid can be complex, and last year’s bungled rollout of the new FAFSA led many families to throw up their hands in disgust. But willingness to work the system can make a significant difference in the affordability of your child’s college education. Here’s a guide to help you avoid common financial aid mistakes and maximize your student's aid package.

Meet Your Deadlines

One of the biggest mistakes parents make is missing financial aid deadlines. The Free Application for Federal Student Aid (FAFSA) is currently scheduled to open on or before December 1st this year. Last year’s opening was delayed multiple times, and deadlines were extended accordingly. But if this year is more like a typical year, many families will miss out because they waited too long to file.To avoid this, note both federal and school-specific deadlines. In a typical year, this would be especially important at schools where you applied Early Action or Early Decision, or at schools that require the CSS Profile or other institutional financial aid forms.

Always Submit the FAFSA

Some families skip completing the FAFSA because they assume their student won’t qualify for aid. But even if you don’t qualify for need-based aid, submitting the FAFSA is required for federal loans and work-study programs. If your life circumstances change, it will be much easier for financial aid officers to adjust an existing account than to create an account from scratch. And some schools won’t consider late financial aid requests, so it’s always better to apply upfront if there’s any chance your student may need assistance.

Double-Check for FAFSA Errors

Errors on the FAFSA can lead to delays or reduced aid. Mistakes with income figures, confusing parent and student assets, or leaving out required fields are common issues. Make sure your most recent tax return is ready before you begin filling out the form. Use the IRS Data Retrieval Tool to pull data directly from your tax returns for accuracy, clarify anything (like an IRA rollover) that may inflate your income artificially, and double-check everything before submitting. 

Report Assets Accurately

Overestimating assets is another pitfall. FAFSA doesn’t ask for the value of retirement accounts or your primary residence, but some parents mistakenly include these, inflating their Student Aid Index (SAI). Being precise can help you avoid accidentally reducing your child’s aid award.

Know When to Appeal for More Aid

If your financial situation changes after submitting the FAFSA, you can appeal for more aid. Many parents mistakenly believe the initial aid package is final. However, if you experience job loss, unexpected medical bills, or other hardships, you can request that the school review your situation. Colleges often have an appeals process to adjust aid.

529 Plans and Asset Management

If you have a 529 savings plan set up to help fund your child’s education, make sure to report it as a parent asset on the FAFSA, even though your student is identified as the account beneficiary. This works in your favor, as parent assets are “taxed” less heavily than student assets. This means that when the algorithm calculates how much aid a student is entitled to, the student is “penalized” more for assets they own than for assets owned by their parents. The assumption is that a student who has saved a lot during high school has been saving for college, and can be expected to use that money for college. If your student has a unique situation, talk to a financial advisor about managing these savings to maximize their aid eligibility.

Consider Federal Student Loans

While I recommend that students choose colleges they can afford and approach any sort of borrowing with caution, federal direct student loans can be a good option for students who are likely to graduate with job prospects that will allow them to pay off their loans without inordinate stress. In fact, many students benefit from taking out small, direct federal student loans. Limited to about $5,500 to $7,500 per year (less than 1/3 of the typical Cost of Attendance), these loans can help them bridge the gap between what they can afford and what college will cost. Federal direct loans come with low interest rates and flexible repayment options, so they are generally safer than private loans, parent PLUS loans, or other larger loans. Federal regulations limit the amount a student can borrow each year and currently prevent students from borrowing more than $27,000 over four years of college. 

Final Thoughts

By staying organized, meeting deadlines, and avoiding these common missteps, you can help maximize the financial aid your child receives. Take time to understand the process and reach out to financial aid offices for help—they’re there to assist you!