Five Common Myths About the FAFSA
With more than seven years experience in advising hundreds of clients on the FAFSA (Free Application for Federal Student Aid), I want to address the issues that constantly cause a lack of understanding among parents AND college financial aid officers concerning the rules surrounding this document.
(1) Every student MUST file a FAFSA.
As the name implies, FAFSA stands for “free application for FEDERAL student aid.” If a student or family does not want or does not qualify for federal aid (the amount is determined by the FAFSA formula) then you DO NOT need to complete the form. If you do not qualify and you file the FAFSA, it is used by the colleges (not the FEDERAL government) to obtain insight into the family’s finances to determine how much they will extend to the student. A FAFSA can be filed at a later time.
(2) The student should complete and submit the FAFSA.
Many parents allow their child to complete and submit the FAFSA. This would be similar to allowing your child to complete and submit the family’s income tax return. The FAFSA is an equally important financial document. If a parent wants the child to complete the FAFSA, I recommend that the parent and student do it together.
(3) I must include my IRA, 401(k) and 403(b) amounts as part of my submission for all investments.
It is a simple mistake that many, many people don’t realize – ALL retirement accounts are sheltered from the FAFSA. You do not need to report these numbers as investments.
(4) What value should I use for real estate?
The distinction must be made between assessed value and market value. I often hear people say, “the property is worth $250,000” or something like this. My question is always, “What is your mortgage, AND what is the current quick sale value of the property?” Taken together, these equal an accurate current market value. You should not include your current home as real estate on the FAFSA. The only real estate value that the FAFSA requires is rental property or property that the family owns but does not currently live in as their primary residence.
(5) I claim my student as an income tax exemption, so I need to be the custodial parent.
By formula, the custodial parent is the person who the student lives with the majority of the school year. This has NO RELATIONSHIP to who claims the student as a tax exemption.
About Paul Celuch
Paul Celuch has 30 plus years of sales and marketing experience with IBM, Burroughs, MCI, and various telecommunications companies. He also operated his own Lanier office products distributorship.
