Avoid these 8 financial aid mistakes
(MoneyWatch) This is the time of year when millions of parents and students are grappling with financial aid forms. It's also the time of year when many families make financial aid mistakes.
Here are eight mistakes to avoid when completing the Free Application for Federal Student Aid (FAFSA), which families must fill out to be eligible to get financial assistance at thousands of schools, and the CSS/Financial Aid PROFILE, which approximately 20 percent of private institutions use.
1. Procrastinating. There is no federal deadline to submit the FAFSA, but state financial aid programs and colleges do impose aid deadlines. Check with schools on your child's list to see what their deadlines are, as well as your state aid program. You can find a link to every state's financial aid programs at the website of the National Association of Student Financial Aid Administrators.
A growing number of states offer aid on a first-come, first-served basis. It's OK if you have to submit your aid application with estimated tax information. You can use the IRS data retrieval toolto update the FAFSA after you've completed your taxes.
2. Failing to check for errors. When a parent or student makes mistakes on a financial aid form, it's highly likely that the household won't generate the right "expected family contribution." The information that a family shares on the FAFSA and the PROFILE calculates their EFC, which is a dollar figure that represents the minimum amount that a family can expect to pay for one year of school.
This might seem like a no-brainer, but parents don't always bother to correct FAFSA mistakes even when it can hurt them financially. Last year, more than 750,000 students notified about FAFSA errors by the U.S. Department of Education failed to revise their aid applications, which potentially cost them money.
3. Including retirement assets. Don't include retirement assets on your FAFSA. I wish the aid application was clearer on this point. The FAFSA only wants you to divulge your non-retirement assets. If you include your IRA or 401(k) assets on the FAFSA, it could squash your chances for need-based aid.
4. Providing the wrong tax figures. Parents should list the federal income tax that they paid or will pay based on their 2012 federal tax return -- not the tax withholdings on their W-2 forms. The advice is the same for the students themselves.
5. Avoid blank answers. If the answer to a question is zero or not applicable, write "0" or "Not Applicable" on the online form. Leaving blank answers can cause miscalculations.
6. Don't inflate your education. Some institutions will award applicants brownie points if they are first-generation college students. If parents didn't graduate from college, select "high school" as the highest education attainment.
7. Failing to seek help. If you are overwhelmed by the process, seek help. You'll learn where you can turn for assistance by clicking on my recent post on FAFSA resources.
8. Failing to appeal a financial aid award. Schools don't broadcast this fact, but it is possible to successfully appeal disappointing financial aid awards. If the aid package your child receives is underwhelming, you can ask a college to reconsider the award. Just don't approach the school and announce that you want to "negotiate." Be diplomatic.
