A Guide to the FAFSA for College
As a parent, it’s important to understand how federal student loans may help your child afford the cost of college. The first step is understanding what the Free Application for Federal Student Assistance (FAFSA) form is.
The FAFSA is a form that students complete to get federal student loans. The FAFSA is filed annually for every year that a student wants or needs federal assistance through college. There are several types of federal loans you can get by filing the FAFSA. It is important to file the FAFSA on time each year to receive the proper loan amount. Parents can use 529 plans to save for college, allowing their children to take out smaller loans. In some cases, students may not have to file the FAFSA at all when their parents save via a 529 plan.
We’re here to help families afford the cost of college using 529 plan savings accounts. To learn more about how to start saving now, download Sootchy for 529 plans today.
What is the FAFSA for College?
The Free Application for Federal Student Assistance, more commonly referred to as the FAFSA, is an annual form students and their parents can complete in order to receive student loans from the federal government. Filing the FAFSA annually can help you more easily afford the cost of college, especially when you already have a started 529 plan with Sootchy.
Affording college tuition can seem impossible for families, especially if they wish to send multiple children to college. Filing the FAFSA can result in students getting loans from the federal government, allowing them to more easily afford tuition.
Often filing the FAFSA is preferable to students and families over getting a loan from a private bank. The fixed interest rate on federal student loans is generally lower than private student loans, enabling students to pay back loans more easily after completing college. Typically, federal student loans are made in a student’s name, not a parent’s.
Filing out the FAFSA form can be a complicated process. Once you and your child complete the application process, you may receive a loan offer. Generally, loans are based on income and need. For example, your child’s federal student loan may be lower if you have a considerable annual income and few expenses. Comparatively, suppose you have a lower income and have already sent several children to college, meaning you have more expenses. In that case, your child’s federal student loan may be higher.
Which Types of Loans Can You Get by Filing the FAFSA?
There are several types of federal student loans you can get to help cover the cost of college by filing the FAFSA. Understanding the different types of loans available is important so that you can make the best decision for yourself and your family.
Direct Subsidized Loans
Direct subsided loans are available to students who file the FAFSA that demonstrate financial need. These loans are available to undergraduate students only. The amount you can borrow is determined by your school and is based on your cost of attendance and other any other financial aid you receive. With a direct subsidized loan, the U.S. Department of Education pays the interest rate as long as a student meets the necessary requirements.
Direct Unsubsidized Loans
Eligibility for direct unsubsidized loans is not based on income need. These loans are available to undergraduate, graduate, and professional students. Students are responsible for paying the interest on direct unsubsidized loans they receive by filing the FAFSA
Direct PLUS Loans
Eligibility for direct PLUS loans is not based on financial need. That said, a credit check is required. If you have an adverse credit history, you may need to meet additional requirements to be eligible for a direct PLUS loan. These loans are available to graduate or professional students and parents of dependent undergraduate students. The amount you can borrow via a direct PLUS loan will depend on the cost of your college attendance minus any additional financial aid you have received.
Direct Consolidation Loans
Suppose you are eligible for multiple federal student loans. In that case, you can combine all of them via a direct consolidation loan with a single loan servicer. Direct consolidation loans can help organize payments and consolidate all federal student loans with one fixed interest rate based on the average interest rates of all your loans.
When Should You File the FAFSA for College?
There is a deadline to file the FAFSA for college. Generally, the earliest deadline is by the start of February, but this may vary from school to school. Filing the FAFSA is an annual process, meaning you have to re-file each year that you wish to receive federal student aid to help you afford the cost of college.
It is important to file the FAFSA as soon as you know which college or university you are attending in the fall. This is because students and families often need time to prepare for the cost of college, and knowing which federal student loans you are eligible for, and the size of those loans, can help with that preparation. Essentially, it is best to file the FAFSA as soon as possible if you require federal assistance to pay for your college tuition.
Students and parents need to re-file the FAFSA every year. That is because federal student loans are based on a family’s current financial information. Income and expenses might change dramatically within a year, qualifying you for a smaller or larger loan. So, filing the FAFSA is an annual process for every year you wish to get federal financial aid to help you cover the cost of college.
What Information Do You Need to File the FAFSA?
Filing the FAFSA is no simple process. The form itself is comprised of over a hundred questions that summarize your family’s financial information and personal details. Because of that, you need to have lots of information on hand in order to successfully file the FAFSA for college.
The FAFSA application process is a long one. Most questions are catered to students, though some involve a parent’s financial information. The following are some of the common questions that can be found on the FAFSA application each year:
- Student’s and parent’s name
- Student’s and parent’s Social Security number
- Student’s and parent’s date of birth
- Student’s state of legal residence
- Student’s grade level
- Student’s degree history
- Student’s high school information
- Student’s high school completion status
- Student’s criminal history
- Student’s interest in a work-study program
- Student’s and parent’s tax return history
- Student’s marital status
- Student’s dependents
- Number of family members in the household
- Number of family members in the household currently in college
- Student’s housing plans
In addition to the questions mentioned above, there are dozens more on the FAFSA application. Though federal student loans are generally taken out by students and not parents, a parent’s assistance may be required to complete the FAFSA form. Keeping all FAFSA-related information on hand is important, and so is gathering information throughout the year that may be necessary to complete the FAFSA in the future, as re-applying on an annual basis is necessary.
Can a 529 Plan for College Impact the FAFSA?
Filing the FAFSA can result in a federal student loan that can help you afford the cost of college. Some parents want to start preparing earlier and do so by opening a 529 plan account for their children. The question that most parents have is, will a 529 plan account impact the FAFSA and the amount of a student’s federal loan?
Starting a 529 plan with Sootchy early in your child’s life can help you save and earn funds on contributions via sound investments. Since the FAFSA is largely based on a family’s financial information, you may be wondering if an asset such as a 529 plan impact a student’s federal financial loan eligibility? In some cases, it might.
Generally speaking, having a 529 plan will only impact a federal student loan if a student owns an account. Because the FAFSA prioritizes a student’s financial status over their parent’s, a 529 plan account may be considered an asset if a student owns it. However, suppose a parent owns a 529 plan account, which is often the route parents take. In that case, the student loans their child may be eligible for may be unaffected.
Owning a 529 plan account is different from being a beneficiary of an account. A parent can start a 529 plan with Sootchy, own it, and name their child as the beneficiary. Suppose a student is the beneficiary of a 529 plan. In that case, the account will not be considered their asset, and their federal student loans may be unaffected.
Generally, it’s not a good idea to make your child the owner of a 529 plan account if you plan to file for the FAFSA to get federal student loans. If a student owns an asset like a 529 plan account, their eligibility for federal financial aid might be affected.
Do You Need to Report 529 Plan on the FAFSA?
If a parent owns a 529 plan account and plans to use that to help cover the cost of college in tandem with federal student loans, they may need to report that asset on the FAFSA. There are more intricate rules for other situations, depending on who owns a 529 plan.
Generally, custodial parents that own 529 plans need to report a plan on the FAFSA. A 529 plan will be seen as an investment asset in this case. Any distributions from a 529 plan will most likely be ignored and have no impact on the FAFSA or a student’s eligibility for federal financial aid. This is the case regardless of who is the beneficiary of a particular 529 plan.
Things get a bit more complicated if a student’s parents are divorced and the non-custodial parent owns a 529 plan account. In that case, the account is not reported as an investment asset. However, distributions are reported as untaxed income to the student on the FAFSA.
Understanding how the FAFSA, federal student loans, and 529 plans intertwine can be difficult for parents looking for assistance when sending their children to school. The professionals at Sootchy can help answer any questions you might have so that you feel comfortable seeking the financial aid your family needs.
Affording College Tuition with the FAFSA and 529 Plans
Filing the FAFSA annually can help your child receive federal student loans while in college. In addition to filing the FAFSA, parents can take things a step further by opening a 529 plan account for their children with help from the professionals at Sootchy.
Saving for college can seem like an impossible feat. While you can file for the FAFSA to get federal student loans for your child, there is no guarantee that those loans will be sufficient to cover the cost of college for the time being. While federal student loans can be helpful, they must also be paid back. Parents may not want their children to be liable for paying back considerable federal student loans. The other alternative is seeking loans from a private bank, which might be even more costly for students and their parents.
To aid in your saving efforts, consider starting a 529 plan with Sootchy. These state-sponsored saving and investment plans allow parents to make regular contributions over time. Contributions are invested, resulting in tax-free earnings that students can use to cover tuition and other college-related expenses.
Depending on when you start a 529 plan, you may be able to save enough to cover the cost of college entirely. Sometimes, parents may wish to spread their earnings from 529 plans across multiple children. In that case, filing the FAFSA and getting smaller federal student loans for your kids may be helpful. Taking this two-step approach can lower the cost of college for your family and help you give all of your children the gift of a college education.
Download Sootchy to Start Saving for College Today
If you want to begin preparing for the cost of your child’s college tuition now, the professionals at Sootchy can help. Download Sootchy for 529 plans to begin saving and investing in your child’s future today.
