Previously, we have learned that the FAFSA and EFC are the two most important terms related to the financial aid. Now, we will look into the fact as to why are they so important. The Financial Aid Officer will require a detailed information about the personal assets and income of the student and the parents. The financial aid officer will also probe into your income tax returns in order to verify, whether or not the information on the financial aid forms match with the information that you have provided to the Internal Revenue System (IRS).
**For determining your financial condition and aid eligibility, the FAO will look into the previous year’s financial details, and not the ongoing year’s.
What kind of financial details does the Financial Aid Officer (FAO) look into, before deciding on your financial aid?
Summing up everything in a nutshell, the Financial Aid Officer (FAO) and the college will decide your aid eligibility on the basis of your-
Available Income and Assets:
The money that you have earned or received in a financial year is your income; whereas the money, property or other financial instruments that you have been able to gather in years, are your assets.
Many families believe that only the money they earn from work will be counted as their income. If this was the case, then the FAO could have directly referred to your W-2 form to see if you qualify for the aid. The college is going to look into all the taxable income that the family has earned, such as the money earned from work, interests, dividends, alimony, unemployment benefits etc., along with some of the untaxable incomes too.
The financial aid system is not completely perfect. There are certain rules that can help you turn things in your favour. We term them as the loopholes. Let us discuss.
Some families have very less amount of available income and assets, and their financial situation may obstruct their child from getting his/her desired education. The financial aid system has got some loopholes in it, which can be of great help for those families. The two loopholes, also known as the simplified versions of the FAFSA, have been discussed below.
Simplified Needs Test (SNT):
If a family can successfully adjust their gross income below $50,000, and file the 1040EZ or the 1040A form, then they can have all their family’s assets excluded from the federal financial aid formulas. It means that even if the family has huge assets, but their income is below $50,000, then they can qualify for Federal Pell Grant (for undergraduate students). Also, the Stafford loan will be given without even considering the amount of money in the parent’s and/or student’s bank accounts into view.
Points to be noted-
- You should keep an eye on the accountant who files your forms, because most accountants know nothing about the financial aid, and they may talk you into filing the 1040 form. You must insist your accountant on filing the 1040A and 1040EZ form.
- The federal rule states that filing the 1040 form can also help you with qualifying for the Simplified Needs Test (related to the Q no. 34 of the FAFSA), but only if you are eligible to file the 1040A or 1040EZ, and you meet the income guidelines.
- The Automatic Zero-EFC:
The EFC of a family is considered to be zero, if the combined adjusted income of the family is below $24,000, and if the family is eligible to fill the 1040A or the 1040EZ form. If any family fulfils the above conditions, then the federal government has a great break for them. Under this loophole, the student’s substantial income and assets will be considered as zero.
Important point to be noted-
- If the family is eligible to fill the short form (1040A or 1040EZ), then they should not opt for the long form (1040), because this may decrease the amount of aid that they could actually get.
- There are some alternative ways of qualifying for the Simplified Needs Test (SNT) or the Automatic Zero-EFC. During the base income year, if any family member qualifies for the means-tested Federal benefit program, other than federal student aid, then they qualify for the automatic Zero-EFC and/or the SNT (provided the parents’ income is below the $24,000 mark).
- Further, in 2009-2010 award year, some changes were made under the College Cost Reduction and Access Act of 2007 (CCRAA). According to the change, if any family member has qualified for the means-tested federal benefit program within the last 24 months (which was 12 months before), then they can avail profits from these loopholes.
- For Dislocated Workers:
An additional benefit was added under this act. While filing the FAFSA form, if any parent reports their financial information as a dislocated worker (One who is self-employed, but is presently unemployed due to some reason.), and the parental income is below $24,000, then they automatically qualify for SNT and/or automatic Zero-EFC.