Put off by those financial aid applications looming over you? You're not alone! In fact, it's a consistent top-three concern from respondents — both parents and students alike — to our annual College Hopes and Worries survey who worry that this will be the toughest part of the entire college application process. I've heard this concern many times over the years, and I completely understand! The forms ask for a lot of information, including a breakdown of your current assets, in order to assess what is considered an appropriate amount of aid to offer. Parents, I'm here to tell you that financial aid forms, just like any test your child might be facing, can be easily tackled if you know what to expect on them ahead of time!
Now, I know that the natural inclination when discussing financial assets is always going to be to look as good as possible, but this is one area on your child's financial aid applications where it's better to not look your best. Quite frankly, those in power here aren't going to give you money if they don't see your whole financial picture, warts and all.
What Must Be Claimed
The first step a form like the FAFSA will take to determine how much money you or your child needs will be to see how much money you have available right now. This is determined through a review of your assets. There are plenty of things you'll claim here (some you might not think of at first like stocks or bonds), but the main forms will be cash and balances in your checking/savings accounts.
Now, while this can create a picture of what funds you have at hand, the FAFSA understands that there will always be costs and expenses working against those assets as well. So, the larger idea here is to gain an idea of your net assets.
Figuring in Debts and Liabilities
To determine your net assets, you'll also have to divulge your debts. Don't worry — this is one area in which your debts will actually help you! However, the only debts that are considered here are those that act against the assets you've already claimed. These can include:
- Margin loans
- Passbook loans
- Home equity loans
You might be wondering why credit card debt isn't on that list. That certainly acts against your cash or account balances, doesn't it? Well, the FAFSA doesn't see it that way. To them, any type of plastic debt is seen as choosing to live beyond your means, regardless of what purchases you've been making. But don't sell yourself short yet — there are ways to make those debts work in your favor too, even if they don't officially appear on your applications.
Using Assets to Pay Debt
While credit card debt may be working against money in the bank, if there actually is money in the bank, this might be a good time to use it. If that sounds irresponsible, I assure you that I'm in no way suggesting you go on a shopping spree! All I mean is that by paying off credit card debt with money in the bank, not only do you reduce interest paid to the credit card company, you also reduce your net assets on the need analysis form and can pick up some more aid.
Similarly, if you were already planning a major purchase in the near future, you might as well make it now. Need to replace your boiler? Want to prepay that summer vacation you've got on the calendar? Why wait? Since you're not claiming your credit card debt or these purchases on your financial aid forms anyway, making those purchases now (and using anything but credit to do it!) can minimize the amount of money you are claiming by just transferring it around a little.
Knowing how to best represent your assets will give you a great head start. For a more detailed breakdown of filling out forms, including a line-by-line walkthrough of the FAFSA, check out our book Paying for College, and don't miss our book 8 Steps to Paying Less for College for help finding funding in places you might not expect!