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College 101

Hacking the FAFSA
Article Type: Quick and Dirty

Don't tell anyone we told you this.  

Students must face it, but few understand it. The elusive FAFSA application is your key to government grants, loans, and a work-study job. Unfortunately, the FAFSA has more holes than a slice of Swiss cheese. Students who get the most money from the government are frequently the ones who simply understand how the FAFSA works. Here is how to optimize your government aid eligibility:

Understand the FAFSA

Yeah, you have to know what you're filling out. If you don't, you run the risk of getting caught or not getting the amount of financial aid you deserve. There are plenty of resources out there, but here's one we like:

BestSchool's Guide to the FAFSA

Empty Your Accounts

If you have college cash stashed in a checking or savings account in your name, get it out—immediately. For every dollar stored in an account held in a student's name (excluding 529 accounts), the government will subtract 50 cents from your financial aid package. That means that if you have a full Pell Grant heading your way, but the government notices that you saved $1,000 cutting yards all summer long, they will reduce your aid package by $500. Moving funds into an account held in your parents' name will help (the government only subtracts 20 cents in financial aid for every dollar in a parental account), but keeping it in a grandparent's or relative's account is even better since those accounts are not included in the federal financial aid methodology. If generous family friends are not an option (and they may not be since there are tax ramifications to shifting funds), open a 529 plan and put your money there. Funds stored in a 529 plan are assessed at a much lower rate and only subtract up to 5.6 cents for every dollar invested.

Coordinate Your Family

If you have siblings heading back to school or your parents are thinking about going themselves, make college a family affair. The more people your household has in school at once, the higher your college costs and the higher your financial need. Waiting a few years to attend school at the same time as your siblings can double your federal financial aid package.

Pay Your Debt

When deciding how much aid you will get, the federal government will look at how much money you have in the bank, but they will not take your debts into consideration. If you or your parents have credit card debt, pay that off before applying for financial aid. The government also will not look at funds stored in home equity on your primary home, retirement plans or life insurance policies so it pays to fund those before filling out the FAFSA.

Simplify Your Needs

Households with adjusted gross incomes of $50,000 or less may be eligible to fill out a lighter version of the FAFSA called a Simplified Needs Test. Designed for low-income households, the Simplified Needs test does not take any financial assets into consideration, meaning you will be eligible for substantially more aid.

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