Filling out the Free Application for Student Aid (FAFSA) allows students to qualify for federal aid from the government, including grants, work-study and federal student loans.
The most common errors on the FAFSA include failing to fill it out, errors that affect financial aid eligibility, errors involving dependency status, and errors that affect the amount of financial aid.
Some mistakes on the FAFSA affect the amount of financial aid for which the student is eligible. Here are some common FAFSA mistakes that can impact the amount of money you will get:
- Reporting retirement assets or the family home as investments. The FAFSA ignores the net worth of qualified retirement plans and the family’s principal place of residence. Qualified retirement plans include 401(k), 403(b), IRA, Roth IRA, SEP, SIMPLE, Keogh and pension plans. If you incorrectly report these assets as investments, it can significantly reduce eligibility for need-based financial aid. These are among the most common serious errors on the FAFSA.
- Reporting rental properties as business assets vs. investments. Most rental properties should be reported as investments, not business assets. Only if a rental property is owned by a recognized business can it be reported as a business asset. This means the property must be deeded to the business, not to an individual. To be considered a business, the rental property must involve value-added services, such as maid service or a bed & breakfast.
- Reporting market value as opposed to net worth. The net worth of an asset subtracts the amount of any debt secured by the asset from the asset’s market value. Reporting the market value instead of the net worth can have a big impact on the Student Aid Index (SAI), which can reduce the amount of financial aid. Asset values are also reported as of the date the FAFSA is filed.
- Reporting 529 plans incorrectly. If a 529 plan is owned by a dependent student or a dependent student’s parent, it is reported as a parent asset on the FAFSA, and distributions are ignored. Do not report custodial 529 plan accounts that are owned by a sibling. If a 529 plan is owned by a parent, grandparent, aunt, uncle or non-custodial parent, it is not reported as an asset on the FAFSA, and qualified distributions are not reported as untaxed income to the beneficiary on the FAFSA. Who owns the 529 plan can have a big impact on aid eligibility. See also: Yes, Your 529 Plan Will Affect Financial Aid.
- Entering cents in financial figures. You report only whole dollar amounts on the FAFSA. Decimal points are ignored, causing a dollar amount to be much larger than it really is. For example, entering $123.45 will look like $12,345 on the FAFSA. Other errors involving numbers and amounts on the FAFSA include accidentally doubling a digit, inserting an extra digit or transposing two digits.
- Incorrectly reporting student or parent marital status. Sometimes applicants will swap the answers to the student and parent marital status questions. Also, marital status must be accurate as of the date the FAFSA is filed. You cannot anticipate future changes in marital status. You are considered married on the FAFSA even if your spouse is not a U.S. citizen or does not live in the U.S.
- Incorrectly claiming head of household status. Many tax preparers incorrectly claim head of household status on federal income tax returns because it yields a lower tax liability. But, you can’t claim this status unless you satisfy the requirements, which are listed in IRS Publication 17. If you incorrectly claim head of household status, the college financial aid office is prohibited from disbursing federal student aid until you file an amended federal income tax return.
- Failing to report stepparent’s income and assets. If the student’s parents are divorced and the parent responsible for filing the FAFSA has remarried, the stepparent’s income and assets must be reported on the FAFSA, regardless of any prenuptial agreements. Prenuptial agreements are ignored on the FAFSA as a matter of federal law.
- Choosing the wrong parent to complete the FAFSA. When a student’s parents or divorced or separated, only one parent is responsible for completing the FAFSA. This is the parent who provided more financial support to the student.
- Failing to count stepchildren in household size. Stepchildren are counted in the family size on the FAFSA if they are dependents according to the IRS rules. This means they are counted only if they live with the parent and stepparent for more than half of the year.
- Failing to count unborn children in household size. If a child will be born before the end of the academic year and will receive more than half support from the student or parent, it should be included in the family size figure.
- Reporting unmarried parents incorrectly. Unmarried or divorced/separated parents who live together are treated as though they were married on the FAFSA. The FAFSA focuses on the parents’ relationship with the student more than their relationship with each other.
Many of these errors also apply to the CSS Profile form. There is an additional important error on the CSS Profile, which is answering the question about how much you intend to contribute with anything other than zero. This is a ridiculous question that does not clearly indicate that the amount is in addition to the expected family contribution. Answering anything other than zero will reduce the amount of financial aid for which you are eligible. If you are asked why you answered zero, simply say that money is tight and you are unable to pay anything extra to the college.
Use our Financial Aid Calculator to estimate your financial need.