November 15, 2019
I love Christmas, but doesn’t it seem to you like Christmas starts earlier and earlier every year? Here it is November and I’m seeing Christmas decorations and ads for gift ideas everywhere. Of course, my girls absolutely love this time of year. The music, the pretty lights, and yes – the shopping. Maeve was home from college for the long weekend, and over lunch on Saturday she joined Sophie and Phoebe in plotting out all of the people they need to buy gifts for this year. It’s still weeks away from Black Friday and they’re already excited to hit the mall!
I had to put the temporary brakes on Maeve’s plans, though, by reminding her that we have a few other things to focus on before we can jump headfirst into the Christmas season. School things, of course. This past weekend, not only did we get her courseload worked out for next semester, but we also sat down to complete some financial paperwork, namely the FAFSA form. I include Maeve in this process because while the old man is absorbing most of the cost, she needs to have some skin in the game. The kid has matured so much that she’s beginning to really understand the financial impact college has on a household.
Submissions for the Free Application for Financial Aid, commonly known as the FAFSA, opened up on October 1, 2019, for the 2020-2021 school year. And anyone who has a child in college knows how important this form in helping with tuition. Yet it’s not uncommon for some folks to fail to submit this application for aid. I get it . . . it is a bit intimidating. So this week, let’s dig into what the FAFSA is and why it’s so crucial to take the time to submit it.
I find that many parents of college-bound kids often dismiss the idea of financial aid for college because they think they make too much money. But, in 2019, families earning as much as $180,000 per year can be eligible for some form of help, so it’s worth applying.
In fact, as recently as 2018, the U.S Department of Education reported that all dependent undergraduates, no matter what their family income, could qualify for at least $27,000 in unsubsidized Stafford loans over four years. This potential amount still holds true in 2019.
In order to qualify for both loans and grants, you have to fill out the FAFSA, which is the official form you use to request financial assistance from colleges, states, and the federal government. The U.S. Department of Education uses these forms to help determine if you qualify for their “lower-interest” loans to help cover the cost of college.
I firmly believe that everyone in college or grad school or going next year should fill it out. “No one should automatically assume they’re not going to qualify,” says Dana Kelly, vice president of professional development and institutional compliance at the National Institute of Financial Aid Administrators. While state-level Pell grants are reserved only for those with family income of $60,000 or less, those with higher incomes can still qualify for federal unsubsidized loans that aren’t need-based.
The loans offered can be either subsidized or unsubsidized, and are based on your financial need. Both are federal student loans for eligible students to help cover the cost of higher education at a four-year college or university, community college, or trade, career, or technical school.
Generally speaking, the big difference between direct subsidized and unsubsidized loans is that subsidized loans have slightly better terms to help out students with financial need. At a high level, a subsidized loan is available to undergraduate students with financial need. Your school determines the amount you can borrow, and the amount may not exceed your financial need.
The U.S. Department of Education pays the interest on a subsidized loan while you’re in school at least half-time, for the first six months after you leave school (referred to as a grace period), and during a period of deferment (a postponement of loan payments).
A direct unsubsidized loan, on the other hand, has no requirement to demonstrate a financial need. The selected school determines the amount you can borrow based on your cost of attendance and other financial aid you receive. With this loan, you are responsible for paying the interest on the loan during all periods. If you choose not to pay the interest while you are in school, your interest will accrue and be added to the principal amount of your loan.
Your school determines the loan type(s), if any, and the actual loan amount you are eligible to receive each academic year. However, there are limits on the amount in subsidized and unsubsidized loans that you may be eligible to receive each academic year and the total amounts that you may borrow for undergraduate and graduate study. The actual loan amount you are eligible to receive each academic year may be less than the annual loan limit.
After you graduate, leave school, or drop below half-time enrollment, you will have a six-month grace period before you are required to begin making loan repayments. During this period, you’ll receive repayment information from your loan servicer, and you’ll be notified of your first payment due date. Payments are usually due monthly.
There are several repayment options available that are designed to meet the individual needs of borrowers. Your loan servicer can help you understand which repayment options are available to you. Generally, you’ll have ten to twenty-five years to repay your loan, depending on the repayment plan that you choose.
Whichever type of grants or loans you hope to get, it’s critical that you complete the FAFSA application online as soon as possible after October 1st of each year. Many schools and some states have a limited pool of grants and loans, which are awarded on a first-come, first-served basis. You now can use an earlier year’s taxes on the application, so you no longer have to wait for the current tax year or amend your application with current-year tax information after taxes are filed.
When it comes to completing the FAFSA form, be sure to put something in every line of the application, even if it is just a zero. If you miss a line, the application could be returned to you. After you have fixed the errors and resubmitted the application, you’ll go to the bottom of the pile so take care to fully and accurately complete it the first time.
You know, having gone through the college admissions process it became crystal clear to me that college is big business. And in the world of big business, it is all about having an edge over your competition. We, as good parents, try to give our kids every opportunity to succeed in life. Properly managing the expense of college is just another way for us to help set them up for the highest probability of success. So take the time now to get the FASFA completed and submitted – and then you can go enjoy the holidays in peace!
And as always – be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at firstname.lastname@example.org.
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