By Amy Hamilton

For students entering college this fall (2015), now is the time to apply for federal student financial aid. Whether you’re a student, parent or a Financial Aid Administrator, The FinAid website is a great resource.

There are many factors affecting eligibility for financial aid. For example, a student who didn't qualify one year might become eligible during the next year when a brother or sister enrolls in college. A change in family financial circumstances might affect your eligibility for student aid.

To apply for student financial aid from the federal government, including the Pell Grant, Perkins Loan, Stafford Loan and work-study, you will need to submit the Free Application for Federal Student Aid (FAFSA). There is no charge for submitting this form. The FAFSA is also required by all state and many school student assistance programs.

FAFSA Deadlines

The FAFSA should be submitted as soon as possible after January 1, but no sooner. You cannot submit the form before January 1, because the need analysis process uses your financial information from the prior tax year when calculating eligibility for the upcoming award year.

To meet the deadlines for most states you should submit the form no later than March 1, with February 15 being ideal. Do not wait until you've filed your income tax returns with the IRS. You should either estimate your income - you'll have a chance to correct errors later - or complete your tax returns early. (Your December pay stub should contain information about your total income for the year. You'll find this helpful in estimating your income.)

When estimating your income, try to be as accurate as possible. Use your actual pay stubs from December. If your estimates are inaccurate, it will have a significant impact on your EFC. You will then have to correct the financial information when the Student Aid Report (SAR) arrives.

Impact on Need-Based Financial Aid Eligibility

The need-based financial aid treatment of family assets depends on whether they are owned by the student or the parent. During need analysis, the federal financial aid formula assesses a percentage of student assets and a percentage of parent’s assets. Student assets are assessed at a flat rate of 20% (effective July 1, 2007). Parent assets are assessed on a bracketed scale with a maximum rate of 5.64%. Parent assets are also partially sheltered by an asset protection allowance based on the age of the older parent (around $45,000 for most parents of college-age children). Parent assets in retirement plans and the net market value of the family's primary residence are also sheltered, as well as small businesses owned and controlled by the family. Accordingly, the impact of a college savings plan on need-based financial aid depends on whether the plan is considered a student asset, a parent asset, or neither.

The following summarizes the impact of section 529 plans on financial aid eligibility:

• Section 529 college savings plans are treated as an asset of the account owner, and so have a low impact on financial aid eligibility. College savings plans are reported on the Free Application for Federal Student Aid (FAFSA) as an asset of the account owner, which is typically the parent. Distributions from a college savings plan have no impact on financial aid eligibility (i.e., they are not counted as untaxed income or a resource).
• Section 529 prepaid tuition plans are now treated as an asset and are reported on the FAFSA, just like section 529 college savings plans. The asset value is the refund value of the plan. Distributions have no impact on financial aid eligibility. This change went into effect July 1, 2006. (Previously they were treated as a resource, which reduced need-based financial aid 100%.)

For more information on the FAFSA, click here.