Questions about the Free Application for Federal Student Aid.

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Answers on the Fafsa and Financial Aid
By MARK KANTROWITZ
GUIDANCE OFFICE
Fafsa Q. and A.

Mark Kantrowitz, an expert on paying for college and the founder of FinAid.org replies to reader-submitted questions about the Free Application for Federal Student Aid.

For many high school seniors and their parents, this is the season for tackling the Free Application for Federal Student Aid, a notoriously cumbersome process that the government is trying to streamline this year.

To help, we’ve enlisted Mark Kantrowitz of the Web sites Finaid.org and FastWeb.Com (a scholarship search site). His answers to questions already submitted by readers will continue through the weekend. (While we are no longer accepting questions for this feature, readers may comment using the box below.)

Questions and answers have been edited, including for space and style. Mr. Kantrowitz previously answered more general questions about financial aid last April. — Jacques Steinberg

Q.
Are there any guidelines regarding income and assets in order to
generally qualify for financial aid? While I realize that the amount of
aid a student receives depends on a number of factors and that there is
no set income cutoff beyond which students are eligible for aid,
general guidance would be helpful in planning and knowing what to
expect.

—Anonymous

A.
Financial aid eligibility is based on a complicated interplay of
multiple factors. There are no explicit cutoffs based on income or
assets. However, 96 percent of Pell Grant recipients in 2007-8 had an adjusted gross income (AGI) of $50,000 or less. But the number of children in college can have a big impact on aid eligibility.

Among families with two children in college who received Pell Grants, 16 percent had an AGI greater than $50,000. Among families with three children in college who received Pell Grants, 23 percent had an AGI greater than $50,000.

The distribution of other types of financial aid isn’t as well-targeted according to income. For example, 46 percent of students receiving institutional grants from colleges had AGI over $50,000, with 17 percent having AGI over $100,000. The unsubsidized Stafford loan and the PLUS loan are available without regard to financial need. Families can qualify for the Hope Scholarship tax credit with income up to $90,000 for single filers and $180,000 for parents who file joint income tax returns.

Q.
Does the government offer student loans that are interest-free while in
school to be paid off after graduating at minimal interest? That’s the way it was when i went to graduate school. Does that opportunity still exist?

—joan levy

A.
The federal Department of Education pays the interest on the Perkins
loan and subsidized Stafford loan during deferment periods. This
includes the in-school deferment and the economic hardship deferment.
Eligibility for the Perkins loan and the subsidized Stafford loan is
based on financial need.

The federal government does not pay the interest on the unsubsidized
Stafford loan and the PLUS loan while the student is in school. The
interest continues to accrue during a deferment. Borrowers may defer
payment of the interest by capitalizing it, which adds it to the loan
balance.

The Perkins loan was previously known as the National Defense Student
Loan (NDSL) and the Stafford loan was previously known as the Guaranteed
Student Loan (GSL). The names of these loan programs were changed in the
late 1980s.

Q.
Early filing of the Fafsa and CSS profile is encouraged, but does an
earlier filing make any difference in the amount of money you might
receive? My husband works for our state government and layoff rumors are
rampant in his department. We have been holding off to see if any of the
rumors are true. From what some others have written, it sounds like
amending these forms is difficult.

—Linda

A.
The Free Application for Federal Student Aid (Fafsa) is used to
determine eligibility for state grants in addition to federal student
aid. All public colleges and most private colleges use the form. Some of
the states have very early deadlines in February and March. For example,
Connecticut has a Feb. 15 deadline this year. If you miss the state
deadlines or the college’s priority deadlines, you might receive less
aid. You should not wait until you have been admitted to college or have
filed your income tax returns to submit the Fafsa. Either complete your
federal income tax returns early, or use estimates based on your W-2 and
1099 forms and the last paystub of the year to submit the Fafsa as soon
as possible after Jan. 1. You will have an opportunity to correct any
errors in your estimates later.

The Fafsa is based on your previous tax year income, regardless of whether
you are still employed. So impending layoffs will not affect the
information you submit on the Fafsa. If and when your husband receives a
layoff notice, he should ask the college for a professional judgment
review (sometimes called a special circumstances review or financial aid
appeal). College financial aid administrators have the authority to make
adjustments to the data elements on the Fafsa on a case-by-case basis to
compensate for special circumstances such as job loss.

Q.
Where is money from a 529 college savings plan included on the Fafsa form?

—Cathy

A.
The asset value of a 529 college savings plan is reported as an
investment on the Fafsa (Questions 42 and 90 on the 2010-11 Fafsa). If
the student is a dependent student, the 529 plan is reported as a parent
asset. If the student is an independent student, the 529 plan is
reported as a student asset.

Distributions from 529 plans are not reported on the Fafsa.

Q.
My daughter is 19 and will be a junior next fall. She is looking at moving out on her own at that time. She is responsible for her own health insurance, as well as all her expenses. Should she fill out the Fafsa herself? Would that be a benefit to her financially?

—Julie

A.
Your daughter is still considered a dependent student even if she has reached the age of majority and is self sufficient. A student is not considered independent for federal student aid purposes until she reaches age 24, is married, is a graduate or professional student, has a dependent other than a spouse, is a veteran or active duty member of the Armed Forces, or satisfies certain other criteria. Since she is a dependent student, parental information will still be required on the Fafsa.

Colleges may grant a dependency override in unusual circumstances, but self-sufficiency is not one of them. Parent refusal to contribute to the child’s education or to complete the Fafsa or to comply with verification are also not sufficient grounds for a dependency override. Likewise, parents cannot make a dependent student independent by not claiming the student as a dependent on their income tax returns. The more typical cases where a college might grant a dependency override include institutionalization or incarceration of both parents or court protection from abuse orders against the parents.

Q.
Do you have to put every college you applied for on the Fafsa or just
one? How do you add one after submission? If you have little or no
income through job loss (a common situation for many this year), the
form bypasses a lot of questions. Is that sufficient even though a 1040
will likely be requested by the school anyway as verification?

—High School Girl

A.
For a college to receive your Institutional Student Information
Report (ISIR), the college equivalent of the Student Aid Report (SAR),
their school code must be listed on the Free Application for Federal
Student Aid (Fafsa). The paper version of the Fafsa has spaces for four
colleges and the online version of the Fafsa has spaces for ten
colleges. To add a college go to the online Fafsa and select “Add or
Delete a School Code” in the “Fafsa Follow-Up” section. If you already
have ten colleges listed, wait until you receive your SAR, to be sure
that the colleges have received their ISIRs. Then delete the listed
colleges to make room for additional colleges.

Don’t worry about the form skipping a few questions because of your
answers to previous questions. That’s part of the new skip logic that
avoids asking you a question when the answer is obvious. This saves you
time when completing the form. Your Fafsa may still be selected for
verification. (Colleges are required to verify at least 30 percent of the
applications. The Fafsa processor automatically selects some Fafsas for
verification because of answers that are prone to error, such as some of
the dependency status questions, or because of answers that seem
inconsistent with each other. The rest are selected by the college. Some
colleges voluntarily verify 100 percent of applications because it improves the accuracy of the information.)

Later this year the online Fafsa will allow applicants who have already
submitted their federal income tax returns to prefill the Fafsa with the
relevant information from their income tax returns. (While students who
are submitting the Fafsa soon after Jan. 1 for a fall enrollment are
unlikely to have filed their income tax returns before the Fafsa, nearly
two-fifths of students submit their Fafsas on or after July 1.) Students
who choose to prefill the Fafsa with their tax information and do not
modify that information are less likely to be selected for verification.
After all, there’s no point in verifying information that came from the
I.R.S.

Q.
As a college freshman, I’m wondering about loans. Are there limits to
the amount of loans a student can take both per year and in total? I’m
in the situation where I may have to meet the rest of the costs for a
dream school if my parents cannot afford most of it, which is likely.
Obviously a good education means more than debt, but will I be able to
get the loans I may need (maybe $20,000 a year for three years)?

—V

A.
Dependent undergraduate students can borrow up to $5,500 from
the unsubsidized Stafford loan during the freshman year, $6,500 during the sophomore year, and $7,500 a year during the junior and senior years. There is also an aggregate loan limit of $31,000. Their parents can borrow up to the full cost of education minus other aid received through the Parent PLUS loan program. If the parents are denied the PLUS
loan because of an adverse credit history, the student becomes eligible
for higher unsubsidized loan limits, the same as for independent
students. These limits provide an additional $4,000 a year during the
freshman and sophomore years and an additional $5,000 a year during the
junior and senior years. The aggregate limits increase to $57,500.

The unsubsidized Stafford loans and the PLUS loan do not depend on
financial need. Both can be defered while the student is in college and
for six months after graduation. Interest continues to accrue, but is
added to the loan balance if unpaid, increasing the size of the loan.

If your parents are unwilling to borrow from the Parent PLUS loan
program, private student loans are an alternative. However, your parents
will likely have to cosign the loans. Cosigners are just as obligated to
repay the debt as the primary borrower. The interest rates on private
student loans are variable, compared with the low fixed rates on federal
education loans. Federal education loans also are more available and
have better repayment terms.

If you really will be borrowing more than $60,000 for your undergraduate
education, you are probably overborrowing. You should not borrow more
than your expected starting salary after you graduate for your entire
education. If you borrow more, you will find it more difficult to repay
the debt and are at greater risk of defaulting on the debt. Consider
transferring to a less expensive college, since debt at graduation
correlates strongly with the tuition, fees, room and board charged by a
college.