With one child in college and two more quickly approaching, I am intimately aware of the soaring costs of a college education. For the 2018–2019 school year the average cost of Tuition and Fees, not including Room and Board, was $35,830 for private colleges and $10,230 for public colleges according to data from the College Board.
Tuition and Fees for private colleges increased at an average rate of 2.3% per year in addition to core inflation over the last decade. For public four-year colleges, the increase was higher, 3.1% per year. These inflation rates are lower than the prior two decades, but they are still very high, and the cumulative impact is huge. In 1989-1990 (when I graduated college), the average annual tuition for a private college was $9,340 (in current dollars) and for a public college, it was $1,700. For public colleges, that is a cumulative increase of over 500%!
There are some important facts that HENRYs (High Earners, Not Rich Yet) must understand about the FAFSA (Free Application for Federal Student Aid).
- FAFSA is for you. Parents tend to underestimate their eligibility for need-based aid so one-third of college students fail to even file the FAFSA form. FAFSA is used for more than just federal grants; it is also required for various loan programs and drives eligibility for state grants, and school scholarships.
- Deadlines matter. Some schools award aid on a first-come, first-serve basis. North Carolina’s awards are already being disbursed and will be made until funds are depleted. The form takes about 45 minutes to fill out and it will import data from the IRS. (The 2019-2020 form relies on your 2017 taxes.)
- FAFSA and the IRS treat divorce differently. Only the custodial parent (with whom the student has lived for most of the last 12 months) is responsible for completing the FAFSA form based on his or her income. The non-custodial parent’s income and assets are not reported.
- 529 Plans and grandparent gifts. If you are fortunate enough to get help from grandparents for your child’s education, it is critical that the gifting is done properly. Improper gifting can significantly reduce the chances of qualifying for financial aid.
As one FAFSA expert wrote “Unless the parents earn more than $350,000 a year, have more than $1 million in reportable assets, and have only one child enrolled in college and the child is enrolled at an in-state public college, they should still file the FAFSA annually.” FAFSA is an important tool in reducing the biggest financial stress this side of retirement. Take the time to fill it out so you don’t leave money on the table. Let us know if we can help filling out forms with you.