FAFSA Tips

The FAFSA is, essentially, the inputs to a complicated formula. Like any math problem, you can manipulate the result by changing the inputs. By carefully constructing the way your information is reported on the FAFSA, you can end up with a much, much greater result. Start with some simple tips:

  1. Leave No Field Blank
  2. Show Fewer Assessable Assets
  3. Students Assets are Assessed More than Parents
  4. Show Less Income
  5. Minimize Capital Gains

Leave no field blank

Blank is not a valid answer on the FAFSA, but zero is. Use valid information throughout, but enter 0 if there is nothing to put in a field. Remember, the most basic mistakes are the easiest to fix, so check and re-check your form. Have someone else - a fresh set of eyes - check it for you. Whatever you do, avoid having your application rejected because you overlooked the obvious.

Show fewer assessable assets

One fundamental purpose of the FAFSA is to assesses the assets that students and parents can contribute toward higher education. But, if you read the small print, not all assets are created equal. According to the 2007 form, you may be assessed on:

Notice that expenses are left out. Think the computer a student will need. Think cars. You might even consider pre-paying bills: rent, electricity, internet, etc. Anything you can do to get rid of your cash, savings, and investments will help lower the amount the government expects you to put toward education costs.

Students assets are assessed more than parents, relatives

The old stereotype of the penniless college student is a great goal for the FAFSA. The assets of students are assessed at a higher rate than parents, though less drastically for 2007 than in the past. Still, students should spend their cash and savings before parents to minimize the amount expected to go toward education.

For average students (dependent on parents), assets are assessed at the following rate:
Students: 2007: 20% | 2006: 35%
Parents: 2007: 12% | 2006: 12%

Show less Income

Another fundamental purpose of the FAFSA is to assesses the income that students and parents can contribute toward higher education. This is done based on the Adjusted Gross Income (AGI) shown on the prior years taxes. Some basic strategies to minimize your income for tax purposes are are:

There are endless strategies, and this might be a great year to invest in professional tax help. But be thorough, and avoid the easy mistakes. For example, even though you could file a tax extension and use an estimate of on the FAFSA, it is recommended that you use actual data to keep from overestimating.

Minimize Capital Gains

If you own investments, the FAFSA presents a unique opportunity. Capital gains - the profit when you sell an investment - is taxable as income and will be assessed under the FAFSA. But capital gains can be offset by capital losses. So, if you stand to profit from the sale of investments, you might take the opportunity to also sell off lossy investments. By locking in your loss and offsetting your capital gains, you lower the taxable income reported on the FAFSA for the following year. In essence, you receive a financial incentive to sell your losers, similar to a premium from an investors perspective.