Quick Tips for Filing for Federal Financial Aid

Quick Tips for Filing for Federal Financial Aid   (ARA) - Whether you'll be sending your kids to college in 2008 or heading there yourself, you've no doubt already heard of the FAFSA (The Free Application for Federal Student Aid). After all, it is one of the most critical financial aid forms a student will have to complete.

Much like filling out a bank loan application, the FAFSA determines how much federal aid a student is eligible to receive (in the form of grants or loans) based on U.S. Department of Education guidelines -- including information such as your family's assets and previous year's income.

"Although it is easier to file the financial aid application once parents have completed their taxes, the FAFSA can be filed using the best estimate of your prior year's income. Applicants will have the chance to update the information they initially provided at a later date," says Stephanie Behrends, spokesperson for 2nd Story Software, Inc., developers of TaxACT tax preparation software and online services.

Behrends continues, "Certainly, the state in which a student resides, choice of school and academic standing are components which contribute to the total amount of aid a student will receive in the form of scholarships, grants and loans. However, it is crucial for students to understand the chances of receiving federal aid are directly related to filing the FAFSA on time and the financial strength of their family, which is calculated by using the information supplied on the application."

The FAFSA measures your family's expected contribution toward the cost of your education. For that reason, cash assets and having high adjusted gross income (AGI) will greatly diminish the amount of assistance a student can receive. Nevertheless, a bit of planning prior to preparing the FAFSA can help you save thousands of dollars toward the cost of a college or technical education.

If you are a student (or the parent of a student) seeking to maximize your chances of receiving federal aid, be vigilant by using the resources available to you, which can help you to strategize and meet deadlines.

Behrends suggests, "Early tax preparation offers FAFSA filers a distinct opportunity to coordinate the lion's share of financial information required by applicants. Tax software, like TaxACT Deluxe, which contains a College Student Financial Aid Worksheet, is a valuable resource that can help students and their parents apply for financial aid. Plus, tax software helps them take full advantage of various tax credits, deductions and strategies, which can reduce the income reported to the IRS."

While any decision should be made with your financial advisor or accountant, some worthy strategies FAFSA filers should investigate to reduce cash assets and lower reported income include:

* Prepaying state taxes December 31. Paying a due amount by December 31 will reduce your cash assets and entitle you to an additional deduction on your 2006 tax return.
* Maximizing retirement saving contributions.
* Making charitable donations.
* Contributing to a Health and Dependant Savings Account (flex spending). Flex contributions are deducted from your gross income -- greatly reducing the amount of income you report to the IRS.
* Making purchases before the end of the year. Make a qualified energy efficiency improvement to your primary residence by December 31. You'll reduce the amount of cash you have on hand and, under the Energy Policy Act of 2005, you may get a tidy tax credit worth up to $500.
* Paying off /down loans. Making an extra payment toward the principal amount of your home loan. You'll pay less interest and build a nest egg in the form of home equity.
* Paying off bills. Paying for services upfront reduces cash assets and may entitle you to a discount. For example, many customers receive rebates from their automotive insurance provider by paying for the year in full.
* Sell bad investments by December 31. You can deduct up to a $3,000 capital loss ($1,500 if you are married and file a separate return) to offset capital gains.

Funding is on a first come, first served basis. File your FAFSA the second you are eligible -- the first minute of New Year's Day -- January 1. Not only will you increase your odds of getting federal aid, you may actually receive more financial assistance because the money pool has not been diminished. However, be forewarned, if you attempt to submit before January 1, the application will not be processed.

Courtesy of ARAcontent