With more than 100 questions, the Free Application for Federal Student Aid (FAFSA) presents families with many opportunities for mistakes that will affect the student’s eligibility for college financial aid.
Making an error on the FAFSA form can ruin your child's chances of getting college financial aid
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Here are 10 of the most common errors on the FAFSA that can have a big impact on aid eligibility and the amount of financial aid.
1. Failing to file the FAFSA. You can’t get aid if you don’t apply. Each year, more than 5 million students do not file the FAFSA. Of these, more than 2 million would have qualified for a Federal Pell Grant. More than 1 million would have qualified for the maximum Federal Pell Grant.
2. Failing to read and follow the FAFSA instructions. Many errors could be avoided by carefully reading the FAFSA instructions. For example, some applicants use the wrong lines from their federal income tax returns, even though the FAFSA specifies exactly which lines to use. Using the IRS Data Retrieval Tool to transfer your income and tax information from the IRS will eliminate this error.
3. Missing deadlines. Some states and colleges have very early FAFSA deadlines for state and institutional grants. More than a dozen states award state grants on a first-come, first-served basis until the money runs out. Students who file the FAFSA within the first three months may qualify for twice as much grant money, on average, as compared with students who file the FAFSA later. File the FAFSA as soon as possible on or after October 1.
4. Reporting retirement assets as investments. Retirement plans, the net worth of the family home and small family businesses are not reported on the FAFSA. Reporting these figures as investments on the FAFSA will significantly increase the reported assets and may wipe out all eligibility for need-based financial aid.
5. Entering cents in financial figures. Report only whole dollar amounts on the FAFSA, as decimal points are ignored. If you enter cents, it may yield a much greater figure than was intended.
6. Reporting the wrong year’s income. The FAFSA uses prior-prior year income. For example, the 2021-22 FAFSA is based on 2019 income. If your income has changed due to the COVID-19 pandemic, you cannot substitute 2020 income. Instead, submit an appeal for more financial aid. The college financial aid administrator can decide to substitute 2020 income or, more likely, an estimate of 2021 income.
7. Incorrectly claiming head of household tax filing status. This is one of the most error prone tax filing statuses. Even professional tax preparers often get it wrong. They choose it because it reduces the tax liability. But, there are specific criteria that must be satisfied, which can be found in IRS Publication 17. If you file your tax returns incorrectly, the college financial aid administrator must require you to file an amended federal income tax return before financial aid can be disbursed. If you refuse, you will not get financial aid.
8. Choosing the wrong parent to file the FAFSA. When the parents are divorced or separated, only the parent with whom the student lived the most during the last 12 months files the FAFSA. If the student lived equally with both parents, which can happen with joint custody in a leap year or recent divorce (which have an even number of days), it is based on whichever parent provided more financial support to the student. Choose the parent with lower household income to qualify for more aid. You may need to go back to court to modify the child custody agreement to match the student’s actual living arrangements.
9. Not reporting a stepparent’s stepchildren, income and assets. Prenuptial agreements are ignored on the FAFSA. If the stepparent is married to the parent who completes the FAFSA on the date the FAFSA is filed, the stepparent’s information must be reported as a matter of federal law. Stepchildren are counted in household size if the stepparent provides more than half their support, even if they don’t live in the household. If they are enrolled in college at least half-time, they are also counted in the number of children in college, which can yield a big increase in eligibility for need-based financial aid. This can compensate for the inclusion of the stepparent’s income and assets. Note that the stepparent’s income from the prior-prior year must be reported even if the student’s parent was not married to the stepparent at the time.
10. Ignoring the exceptions to the Schedule 1 question on the FAFSA. The FAFSA asks whether the parents were required to file IRS Schedule 1. If the parents answer yes, they will not satisfy the type of tax return requirement for the Simplified Needs Test and Auto-Zero EFC. The simplified needs test causes assets to be disregarded on the FAFSA and auto-zero EFC causes the expected family contribution to be set to zero. The question about IRS Schedule 1, however, has several exceptions. If the parents filed IRS Schedule 1 only to report unemployment compensation, the student loan interest deduction, IRA deductions or a few other reasons, the answer to this question on the FAFSA should be no.
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