FAFSA: An Investment in the Future


If you have children or loved ones who plan to go to college, it’s important to familiarize yourself with FAFSA or Free Application for Federal Student Aid. The FAFSA qualifies you for federal aid. Many state governments and colleges also use this application to award their own financial aid. It can open the door to grants and scholarships, work-study jobs, and loans.

Filling out the form in the RIGHT way can be very important. Your answers could accidentally decrease the amount of aid available to the student. Let’s explore three difficult areas commonly faced by FAFSA applicants.

#1: Divorced or Separated Parents

With as many as 50% of marriages ending in divorce, many applicants will need to be aware of the best ways to handle this situation on the FAFSA form. Only one parent is responsible for completing the FAFSA if they are divorced or separated.

In order to decide who should fill out the application, think about the time spent with the student. Who has the student lived with most during the last 12 months? It’s not based on legal custody as you might think or who claims the student as a dependent on federal income taxes.

#2: Head of Household

College financial aid administrators look very closely at federal tax returns and their information. Since most people claim head of household status incorrectly, you may be asked to amend your tax returns. If you want to move forward, you’ll need to comply or risk being denied financial aid.

#3: Grandparents & 529 Ownership

Grandparents often open 529 accounts with themselves as the account owner and their grandchild as the beneficiary. This is done to save on state taxes or to maintain control over the account. However, it’s usually better for the grandparent to contribute to a parent-owned 529 plan.

It’s best to set-up a 529 plan with either the student or the student’s parent as the account owner. This way, the 529 plan is reported as the parent’s asset on the FAFSA and qualified distributions are ignored. The goal is to show your need for financial aid and not reduce your eligibility.

If you already have a grandparent-owned plan, don’t worry. You can:

  • Fill out paperwork to change the account owner to be the student or the parent.
  • Rollover a year’s worth of funds from the grandparent-owned 529 plan to a parent-owned 529 plan.

Don’t Lose Out by Doing Nothing

You should file the FAFSA annually unless you are disqualified for too much income or other factors. Although the FAFSA form may seem complex, there are many free resources to help you. Visit the FAFSA website to learn more. The first day you can file the FAFSA is October 1, so start early and file as close to this date as possible.

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