common financial aid mistakes, financial aid pitfalls

7 Big Financial Aid Mistakes To Avoid

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For most people, paying for college is a large expense and can be difficult to pay for fully out of pocket. Many students will look for assistance from financial aid sources such as grants, loans, and scholarships. Similar to areas such as tax law and mortgage loans, few people are experts in this field even though many of us will interact with it in our lifetime. If you are feeling confused or overwhelmed about utilizing financial aid review some of the common mistakes that students make when utilizing financial aid.

This list is unique because these mistakes can be made at the very beginning of your education journey through the very end. It is important to stay on top of your financial aid, even once school is over. 

If you feel like you have made any of these mistakes, reach out to the financial aid office at your school or your student loan servicer as soon as possible.

1. Assuming you won’t qualify for federal financial aid

This is a huge mistake that a lot of people make. The idea that you shouldn’t apply because you might not qualify can come from many different sources. You might have friends who didn’t qualify and told you not to “waste your time”. Or you could have had an older sibling who wasn’t eligible for some federal financial aid sources, so you figure you will be in the same boat. However, making this assumption could be incorrect and could cost you a lot in available aid. Federal financial aid is based on the information provided in the Free Application for Federal Student Aid (FAFSA).

The FAFSA combines information from multiple different sources such as household size, income, marital status, available assets, and more. Unless you have the exact same financial situation as someone else (which would be unlikely), it is unrealistic to base your approval expectations on their experience. 

Additionally, the FAFSA is used to determine eligibility for multiple different grants and loans. Failing to qualify for one form or funding doesn’t automatically mean you won’t qualify for others. Many of the fund types are need-based, which means they are reserved for students who are low-income or facing financial hardship. However, there are also funds that are specific to the program you are studying and your current grade level.

Most students who apply will qualify for some form of federal financial aid. The best part is that simply completing the FAFSA comes with zero obligation. The application is free and you can always decide to decline any aid that you do qualify for if you feel that it doesn’t align with your financial plans. 

2. Submitting the FAFSA with errors/failing to submit FAFSA

As far as mistakes go, this can be a big one. It is also a two-part mistake. Both entering your information incorrectly and failing to submit the FAFSA can have big consequences. If you have never filled out a FAFSA, it is a little intimidating and it will probably seem confusing. There are a lot of questions about income, taxes, and family size that you might not fully understand.

However, it is important to answer the questions as correctly as possible, since the information provided determines the federal funding that you are eligible for. Below are a couple of tips for making the process easier.

  1. Read the hints on each question: Thankfully, the FAFSA creators seem to understand that the forms are difficult and can cause confusion. Most questions have a hint that can be viewed on the right side of the screen. These hints provide additional information regarding what the question is asking. In fact, some hints are so detailed that they will provide specific answers, such as what line on your tax return to pull the information from. Unfortunately, some questions will still be confusing, regardless of the hints provided. 
  2. Call for help: Since there could be times when the hint section isn’t enough, never be afraid to reach out and ask for help. If you have already decided on a school to attend, you might be able to ask the financial aid office at your school for assistance. But, if you don’t know where you be attending, reach out to the  FAFSA hotline. The hotline gives you access to assistance from employees who are trained on filling out the FAFSA and have likely heard most of the questions you will have. The hotline number is 1-800-4-FedAid or 1-800-433-3243. 
  3. Use the Data Retrieval Tool (DRT): The DRT allows applicants to directly import their tax information from the IRS website into the FAFSA. Unfortunately, not every FAFSA applicant will be able to use the Data Retrieval Tool due to discrepancies with tax filing status or changes in marital status. But, if you are presented with the option, it makes the process significantly easier and removes the risks of data entry errors.

Once you have the FAFSA fully filled out and you are confident in your responses, make sure you sign and submit. This is done electronically using an FSA ID. The FSA ID is essentially a username and password that you create and is used in place of a traditional signature. If you do not fully sign and submit the FAFSA, none of your information will be processed and you will not be eligible for federal financial aid.  

3. Mistaking your dependency status

One huge determinant of federal financial aid packages is your dependency status. Students can be considered dependent or independent. Dependent students need to include their parent’s financial information on the FAFSA and funding limits vary between dependent and independent students. This might not seem like an issue, but many students do not understand the criteria for determining dependency status and may make incorrect assumptions regarding their status.

One of the most common areas of confusion is for students who are currently living on their own, paying their own bills, and are no longer relying on their parents for support. Typically students in these situations will assume they are considered independent and will anticipate a larger pool of available financial aid. Unfortunately, none of those factors are taken into account when determining your dependency status. The only items that affect dependency are listed below:

  • Are you 24 years or older? 
  • As of today, are you married?
  • At the beginning of the school year for the award year that you are applying for, will you be working on a master’s or doctorate program?
  • Are you currently serving on active duty in the U.S. armed forces for purposes other than training?
  • Are you a veteran of the U.S. armed forces?
  • Do you now have or will you have children who will receive more than half of their support from you during the award year?
  • Do you have dependents (other than your children or spouse) who live with you and who receive more than half of their support from you, now and through the end of the award year?
  • At any time since you turned age 13, were both your parents deceased, were you in foster care, or were you a dependent or ward of the court?
  • Has it been determined by a court in your state of legal residence that you are an emancipated minor or that someone other than your parent or stepparent has legal guardianship of you?
  • At any time since the previous aware year, were you determined to be an unaccompanied youth who was homeless or were self-supporting and at risk of being homeless?

If you answer “no” to all of these questions, then you would still be considered a dependent student. This means you will need your parent’s assistance when completing the FAFSA and you may need their help to qualify for enough funding to cover your expenses. Depending on your situation, you can ask your office of financial aid to help you submit a dependency override request.

However, these are typically reserved for extreme cases when students are legally prevented from interacting with their parents due to restraining orders or court mandates. It is important to understand your dependency status so that you can plan accordingly if your parents need to be involved. 

4. Being unfamiliar with your financial aid package

When you log onto your student account and see that all of your upcoming classes are paid for, that is a great feeling. You can breathe a sigh of relief knowing that you are clear to continue your education for another semester. However, are you aware of exactly how those courses were funded? Most financial aid offices will prepare your financial aid package and it can include any funding that you have qualified for. It is a common misconception that financial aid is only compiled of funds that do not need to be repaid, like grants and scholarships.

The type of aid in the package can vary from institution-based scholarships, federal grants, federal loans, private loans, student worker funds, and more. It is also common to complete documentation for all potential forms of aid at once. So you could be signing a master promissory note for a loan or loan counseling documentation without realizing it. For this reason, it is important to ask questions and thoroughly review all documentation that you are signing.

This is especially important if you are not interested in using student loans. Even if you are planning on using loans and they are part of your financial aid package, you want to be clear about what amount is being funded via loans and what kind of loans. I know this may seem like a silly mistake to make, but it is common and creates a lot of issues for students.  

5. Taking additional/unnecessary stipend funds

Along the same lines as not understanding your financial aid package, is taking additional aid for non-education related expenses. Financial aid is usually calculated based on a school’s cost of attendance. The cost of attendance can include the cost of tuition and fees as well as an estimated cost for living expenses. Many students are unable to work while going to school and need to request the maximum amount of funding so that they are able to receive a stipend. A stipend is essentially the number of excess funds available after paying for your tuition and fees. Depending on what your financial aid package is comprised of, the stipend funds can come from any form of financial aid.

Typically financial aid offices will use the most beneficial forms of funding first (such as grants and scholarships), so that you have the option to decline using less beneficial funds (such as loans). If you have excess funds available, these are sent to you and can be used for education expenses outside of tuition and feels. Approved education expenses can vary, but general examples are living expenses, parking passes, books, and equipment such as a computer or software. 

There is nothing wrong with needing to take a stipend, for some students it is the only way they are able to afford to go to school full-time. However, if you are receiving a stipend from your loan funds, it is important to decide if the stipend is absolutely necessary. Any time that you can reduce the amount of loan funding that you are taking out, it will make repayment once you graduate easier. Even if you receive a stipend, you can decide not to use the funds and either return them to the financial aid office at your school or to the lender if the stipend is comprised of loan funds. If you receive a stipend that is from grants or scholarships rather than loans, you still want to use those funds wisely.

Talk to your financial aid office about holding those funds for the future school year. Financial aid packages need to be reevaluated and recalculated each school year, so it is totally possible to qualify for grants and scholarships for one year and not the next. If the financial aid office can’t hold the funds (which is not uncommon) save the funds yourself. Being responsible with your stipend funds or not taking stipends at all if they are coming from loans, is one of the best decisions you can make while in school.

6. Missing notifications regarding loan payments

If you took out loans during your time as a student, you need to be aware of the repayment process and make sure that you are staying in contact with your lender. Once you graduate from school (or stop attending if you decide to stop pursuing your degree) you will have a 6 month grace period on federal loans before payments are due. If you took out private loans, the grace period can vary or not even exist. This means if you have private loans, payments could be due as soon as you are no longer an active student. It is important to know who your loan servicer is when your payments begin.

You also want to make sure you contact information is up to date so you receive notifications regarding upcoming payments as the time gets closer. This can be especially important if you were living on campus or using a college email address. If you move after graduation or decide to update your email, make sure you reach out to your servicer.

It is also important to note that you can start making payments as soon as you are ready. You don’t have to wait until your first payment is due. The grace period provided by your lender is nice and can be useful if you are still on the job hunt, but you don’t have to wait for it to expire. Start making payments as soon as it is financially feasible so that you can pay your loans off quicker and pay as little as possible in interest payments. 

7. Avoiding loan payments/talking to your servicer

Missing a payment because you weren’t notified or didn’t realize you had a payment due is one thing. However, choosing not to make a payment or avoiding talking to your servicer if you are unable to make payments is worse. No one enjoys making loan payments, but they are going to be there even if you try to avoid them. Meanwhile, you would be racking up late charges, your interest will accrue, and your balance will just get larger.

After enough missed payments, your loans will be moved into a delinquent status and then a default status. This can harm your credit and prevent you from having access to future financial aid if you need to return to school. 

 If you are financially able to make payments focus on your personal budget so that you can fit the payments in with your other obligations. If you are absolutely unable to make payments, reach out to your loan servicer. If you have federal loans there are many different payment plan options. For instance, you can apply for an income-based repayment plan which limits your payment to being no more than 10%-15% of your monthly income.

Depending on how much income you have each month, your payments could be as low as $0 per month. There are also additional options for forbearance or deferment, which could allow you to pause payments temporarily if you qualify. If you have private loans, the repayment plans might not be as flexible, but there are usually still options. Most servicers have multiple loan terms to choose from, so you could consider switching to the longest loan term to lower your monthly payment.

Keep in mind, this will increase the amount that you pay in interest over time. But that could be worth it if it allows you to maintain consistent payments and avoid late fees or defaulting on the loan completely. 

Securing financial aid for school can be overwhelming and can seem scary. But if you can avoid these 7 big mistakes, you will be on the right path. As a general rule, you can never ask too many questions or start planning too far in advance. If you know you will be attending college in the future and will need financial aid for it, start thinking about which forms or funding you are comfortable with.

You should also consider how you will accommodate loan payments if you have to take them out. The more prepared you can become now, the easier the entire financial aid process will be in the future. 

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