10 Tips for Getting the Most Out of College Financial Aid

Financing a college education is something that parents of both toddlers and high school seniors have to be concerned about. We talked to several financial aid experts about the best ways to get the most out of the FAFSA.

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Financing a college education is something that parents of both toddlers and high school seniors have to be concerned about. With the sticker price of the nation’s top private universities now topping $200,000 for four years, financial aid has become a critical component in making higher education a possibility for most families.

The Free Application for Federal Student Aid, aka FAFSA, the document that colleges around the country use to determine the amount of financial aid to award to students, was released on January 1. Some schools have FAFSA deadlines as early as mid-February, so now is the time for families with college-bound kids to get their financial documents together and prepare to apply. And for families with younger children, learning about the FAFSA and financial aid formulas in advance is smart because there are some things you can do long in advance to improve your financial aid award when the time comes. TIME talked to several financial aid experts who offered some useful tips for ensuring that families get the most lucrative aid package possible.

1. File Early

January is an ideal time to go ahead and get the FAFSA out of the way. Some schools and now seven states—Illinois, Kentucky, North Carolina, South Carolina, Tennessee, Vermont and Washington—award aid money on a first-come, first-served basis until funds are depleted. It’s easiest to file your taxes first and then use that as a reference point for filling out the FAFSA, but you can also estimate fields on the FAFSA form using your last pay stub and last year’s tax return.

If you use estimates, you’ll have to update the form with accurate information later, but the IRS Data Retrieval Tool will automatically update your application so you don’t have to worry about manually entering new numbers. Also be aware that some schools require the CSS Profile, which asks for more detailed information than the FAFSA and sometimes has a different deadline from schools.

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2. Not Sure You’ll Get Aid? File Anyway

It’s tough to predict exactly how much money a given family will receive, but Finaid.com publisher Mark Kantrowitz estimates that households earning up to $180,000 will likely qualify for some form of financial aid. Even if you make more than that, there are reasons to apply. Students who don’t apply for aid when entering college are often banned from asking for institutional aid in subsequent years. If your family’s financial situation changes while a student is in school, it can be harder to get aid if you didn’t apply for it initially. Also, qualifying for federally sponsored loan programs like Stafford Loans and Parent Plus loans requires filling out the FAFSA first.

3. Be Sure to Fill Out the Form Completely

This may seem obvious, but mistakes on the FAFSA can delay the processing of your application and shuttle you to the back of the line when it comes time to hand out aid awards. One easy mistake is leaving blank fields that don’t apply to you. Always be sure to write an “0” instead in such instances. The online version the application will help alert you when you’ve improperly left fields open.

4.  Move Money Out of Children’s Bank and Brokerage Accounts

The FAFSA formulas assume that students should be able to spend 20% of their assets on college. For parents, the rate maxes out at 5.64% of assets. (Rates for income are higher for both groups.) According to Kantrowitz, moving this money over to a 529 account in a child’s name shields it from consideration as a child asset in FAFSA calculations. A 529 that parents control will also be evaluated at the lower 5.64% rate, just like any parental asset.

Alternatively, families can use a student’s savings to pay tuition during freshman year so that the money won’t continue to limit aid awards in subsequent years.

For families with younger children, the simplest solution to avoiding the higher rates is to consistently save for college in parental accounts instead of setting up child-owned college savings accounts.

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5. Use a Supplementary Letter to Explain Extenuating Circumstances

Though the FAFSA asks more than 100 questions, there’s no opportunity on the form to explain specific family circumstances, like a recent job loss or high medical bills. If there are more facts you think financial aid officers need to know, send in a supplementary letter explaining the situation that might necessitate more aid. “The FAFSA is a critical document, but it isn’t the only document,” says Sally Rubenstone, a senior adviser at College Confidential. “Many colleges will respond in a holistic way when extenuating circumstances are spelled out to them.” It’s important to provide documentation, preferably from a third-party backing up your claims. For instance, if you recently lost your job, provide the layoff notice from your former company and documentation from the unemployment office outlining your unemployment benefits.

6. Spending Down Savings Can Help If You’re Dealing with a Large Sum 

If you have a lot of savings, you can explore options for spending some of that money before filing your FASFA. Doing things like paying off credit card debt, prepaying your mortgage, or making a big household purchase at the start of the year will leave you with a lower asset base to be assessed on the FAFSA (value of assets is considered based on the date you file). But before you go burning through all your cash, remember that the FAFSA formula actually shelters around $50,000 worth of assets from being considered in the expected family contribution toward education, with the exact amount depending on the age of the parents. In other words, the “spending down” strategy is only effective for big savers and big spenders.

7. Appeal a Disappointing Aid Package

After a college has sent you a financial aid package, there’s still an opportunity to negotiate a better aid award with the school. If there has been a substantial change to your financial situation, or schools have given you wildly different aid packages, it might be worth making a call to the financial aid office. Experts stress that it’s important to be polite and grateful for the money you’ve already been awarded. “It’s an art,” Kantrowitz says of the appeals process. “Don’t complain about how hard it is to make ends meet on a six-figure salary, because in most cases the financial aid administrator is making a lot less money than the families that they’re reviewing.”

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8. Be Prepared for Different Aid Packages

Though dozens of elite universities claim to meet 100% of accepted students’ financial need and many more accept students on a “need-blind” basis, financial aid awards can vary greatly, even at schools of similar academic quality. Only a handful of the country’s most elite college offer all financial aid in the form of grants that don’t have to be paid back. Most financial aid packages include a mixture of grants, low-interest loans, and work-study opportunities. Make sure you know how much you’re receiving as a gift and how much you’re borrowing when comparing aid packages.

9. Beware Capital Gains, But Not Retirement Accounts

When it comes to investments, realized capital gains are treated as income, so it’s best to cash in on securities before the spring of a child’s junior year in high school. However, investments sitting in IRAs or 401(k)s are not considered on the FAFSA, so a large nest egg won’t affect your aid package. In fact, socking extra money away in your retirement accounts while your child is in high school is actually an effective way to lower the asset base that the FAFSA considers.

10. Don’t Game the System

Lying about your income or assets on the FAFSA is a form of fraud punishable by a fine up to $20,000, forfeiture of financial aid awards, and potential prison time. With more collaboration between individual colleges, the Department of Education and the IRS, Kantrowitz says schools have become more savvy in sniffing out fraudulent applications. “There’s a difference between doing things like paying down debt to try to improve your picture and misreporting the amount of your income,” he says. “If you would be embarrassed or uncomfortable saying you were doing something to a financial administrator, that’s a sign that you shouldn’t be doing it.”

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For more information on how to navigate the world of financial aid, consider resources like Mark Kantrowitz’s website Finaid.org and The College Board’s Big Future website, which offers breakdowns of colleges’ average financial aid awards and average student indebtedness when graduating.