It’s that time of year again. The breeze in Northwest Indiana, now warmed by the promise of spring, is no longer considered an adversary.
As the grayness of winter moves into the rearview mirror, many families will start to focus on upcoming graduations. In our family we also have a graduate; my second daughter Genna will graduate from Purdue’s great Food Science program. Her future is bright, and we are very proud, and also happy that one more college expense is also behind us.
For families of our upcoming high school graduates, many college acceptance letters are in hand by now and it's time to turn to the money part of the conversation. If we are talking money and college freshmen, then we are also talking about the FAFSA.
As a quick primer, the FAFSA is the federal Department of Education’s application process for receiving federal student aid in the form of Pell Grants, subsidized and unsubsidized student loans and work/study funds. Completing the process generates a report containing a number called the EFC. The EFC is an acronym for Expected Family Contribution. This number is presented as a six-digit code, but the code actually directly corresponds to a dollar number.
For example, an EFC of 023500 would mean, using the government’s calculation method, the family is expected to be able to contribute $23,500 toward the student’s annual education costs. Why the government can’t simply list it in dollars is beyond me, but it's important to know individual colleges will also use this number when developing school-based financial aid packages. So, families hoping to access most types of student benefits will need to complete the FAFSA process. This involves providing a myriad of financial information for both the student and the student’s parents.
The process is completed online at studentaid.gov. While the FAFSA window now opens in the year prior to the school year being funded, I am finding most families we work with are just getting around to starting the process, now that graduation is looming and 2022 tax returns are complete.
In the past week or so, I’ve gotten two FAFSA questions it would be helpful to address in the column. One question is, if parents are divorced, separated or were never married, which parent provides their information for the FAFSA?
We’ll call the answer for this question, kind of clear. The government only considers parents separately if they live separately. So, for parents who are divorced but co-habitating, or not married and living together, financial information recorded on the FAFSA must include both parents. For parents living separately the straightforward answer is the parent with physical custody of the student completes the process. Even in joint custody situations, one parent will usually be awarded physical custody.
Once this parent is determined, if the parent is remarried, it’s also important to know the FAFSA will require the financial information for the new spouse be provided as well. The government’s instructions do qualify this answer as the custodial parent or the parent providing the “majority of financial support,” but I have found most families just use the custodial parent. If this answer is still too vague, get advice before the process is started.
The next question involves student independence for families not intending to provide financial support to the student for college expenses. In these situations, do the parents need to include their financial information on the FAFSA?
Technically, the answer is “no,” the parents are not required to input their financials. The consequence of this answer, though, is that if the parents choose not to complete their part of the FAFSA, the student will not be awarded any federal aid except for unattractive unsubsidized student loans.
The government does provide an exception to this answer if the student is qualified as independent. For students under the age of 24, however, independence is determined by a 10-question evaluation. If the student answers even one question with a “no,” he or she is not considered independent for FAFSA purposes. Three of the questions involve the marital status of the student and whether the student has any dependents. Long story short, the vast majority of parents will need to provide financials if they hope to obtain financial aid for their student.
The FAFSA can be intimidating. Feel free to shoot me an email if you get hung up. Your student’s intended school’s financial aid department can also be a good resource for questions during this process.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
