Is there a high school senior in your house? Well, there may be another semester of school, final exams, and graduation still ahead, but it's still time to start thinking about college -- how to pay for college.
Beginning this month, parents and students can start filing the paperwork to apply for financial aid for the 2007-08 school year. The process begins with the Free Application for Federal Student Aid, administered by an office at the U.S. Department of Education.
You must file this form to apply for federal student aid, such as grants and loans, as well as most state and college aid. Everyone, from colleges to the government, recommends that parents get a jump on this task as soon as possible. Schools typically award aid on a rolling basis -- first come, first served.
Even if you don't think your family will qualify for need-based aid, it's worth your time to fill out the form. It may enable you to get federal loans at better rates than you could find in the private market. Besides, your student may qualify for certain grants or scholarships.
That means you probably should get started now, or as soon as you've filed your 2006 tax return. (Now you have two fun weekend jobs to look forward to!) To get started, search your house for the following documents for you and your college-bound teenager: driver's licenses; W-2 forms; 2006 federal income tax returns; records of untaxed income; recent bank statements; business or farm records; and stock, bond, or other investment records. You'll need all this information because, by the time you're finished, the Department of Education will know more about you than your own mother.
The FAFSA folks recommend that you complete your 2006 tax forms before tackling the application, because many of the questions ask for information reported on your tax return. Some directly reference lines on IRS forms, such as adjusted gross income and exemptions. You can fill out the student aid form without having done your taxes first, but FAFSA will require you to go back and correct any tax or income information that changes.
When filling out the aid application, you'll be asked questions about your income -- for example, about your contributions to certain retirement accounts, and about your receipt of Social Security benefits, child support, and veterans' benefits.
In addition, both parents and students will be asked to report their assets in cash, savings, and checking accounts. You'll also be asked about the value of your investments, business, and real estate, excluding your home.
Despite all this (and more), the Education Department estimates that first-time users will spend less than an hour filling out the official paperwork, either online or on paper. (They obviously don't include the hours you'll spending searching through piles of unopened mail looking for the proper documentation.)
Once you've done all this work, the information will be run through an analysis that weighs a number of factors, including your income, assets, age, dependents, and any unusual financial circumstances. In about three weeks, you'll receive a Student Aid Report. It details how much money the government expects parents and students each to contribute toward college expenses, otherwise known as the Expected Family Contribution, or EFC. That calculation determines your eligibility for federal student aid.
The financial aid office at the college your student attends will use your EFC and other information to put together your package of financial aid, including grants, loans, and work-study program eligibility. That package depends, of course, on how much your selected university costs. The school and your state may have additional aid programs. If you have an unusual financial situation, like a job loss or unexpected medical bills, you'll need to contact the school's financial aid office.
And that's it -- for federal aid. Your college, particularly if it's private, may want even more information. To find out how all the asset information reported on the FAFSA will be assessed, read ahead to "College Financial Aid 102." Then take a minute to urge your little scholars to work harder on their homework so they can get some big scholarships.
Related schooling in Foolishness:
Check out our College Savings Center for more help on how to make sure your children don't put you in the poorhouse when they head off to college. Also, you can get a copy of our Guide to Paying for School, written by Robert Brokamp, which will show you the way. Finally,Motley Fool Green Light can help you meet all your money goals, from paying for college to saving for retirement.