College Game Plan

Early FAFSA start may help parents save on college

Source: FAFSA

Taking advantage of the new start date for determining financial aid eligibility could help your family make smarter college decisions.

Families can file the Free Application for Federal Student Aid (aka the FAFSA), a form that determines eligibility for financial aid, as early as October 1 this year — three months earlier than previously allowed. The new FAFSA format also allows families to file using income data from their latest tax return.

The old timeline had early filing families estimating data on student aid forms as they waited for W-2s, 1099s and other year-end tax return documents. During the 2013-14 academic year, about 20 percent of aid applicants filed their FAFSA before they filed a tax return, according to Department of Education data.

The result of the changes is that consumers can get a more accurate picture of how much they will be expected to contribute toward college bills much earlier in the application process. For early birds, that means even before college application and outside scholarship deadlines have passed.

"This allows them to be much more proactive," said Becky Krieger, senior director for wealth management teams at Accredited Investors in Edina, MN.

(It's up to the individual schools to determine eligibility for federal and other kinds of aid, the details of which will be sent in an offer letter if your student is accepted. You may be on the hook for more, or less, than that original expected family contribution.)

Ideally, families could use the information gleaned from filing the FAFSA as a jumping off point to discuss college affordability, Krieger said — and maybe reassess which colleges make their application cut.

Nearly two-thirds of kids age 8 to 14 say they expect their parents to cover the cost of "whatever college I want to go to," according to a T. Rowe Price survey released last month. But only 35 percent of parents say they will be able to cover most or all of the cost.

The survey, conducted in February, polled 1,086 parents and 1,086 kids. It has a margin of error of plus or minus 3 percentage points.

Start by looking at each school's estimated cost of attendance. Families can assess how far their savings will go and how much of their current income could be used to cover bills without compromising other goals like retirement, said Andrew Sivertsen, a partner and senior financial planner at The Planning Center in Moline, IL.

"FAFSA gives parents a jump-start to say, 'Here's what we can afford to help you on, and here's what you're going to need to do,'" he said.

Of any remaining tab, some might be covered by scholarships and grants from the college, state and other sources. Early filers may be less likely to miss college and state aid deadlines, and increase their chance of receiving aid doled out on a first-come, first-served basis.

But families should also carefully consider how much they or their student might need to borrow to bridge the gap and attend a particular school — and whether it makes financial sense to do so.

"Do you really need to go to a school that costs $40,000 a year to get a degree that qualifies you for a job earning $30,000 a year?" said Richard Stumpf, a certified financial planner at Financial Benefits in Wichita, KS. "At some point you're going to have to pay that money back."

Make sure your student understands how that debt could impact his or her life after graduation, he said. That conversation may be enough to prompt students to add a few cheaper schools to the application mix.