It’s time for Step Three of the FAFSA. This is a short section and has one purpose: to determine the dependency status of the student. All questions are asked of the student.

• If all questions are answered no, the student will go to Step Four and be considered dependent.
• If any of the questions are answered yes, the student will skip Step Four, proceed to Step Five, and be considered independent.

Becoming an “independent student” is not easy. Do not assume that because your child has moved out, appears to have their own life, or files their own taxes that the Department of Education will consider them independent — it’s not that simple.

Let’s take a look at the questions. Remember these questions are asked of the student.

46. Were you born before 1/1/87?

Answer yes if you are separated but not yet divorced.

48. Will you be working on a master’s or doctorate program during 2010-11?

Refer to the FAFSA notes for exceptions, but you will usually answer no if you are a National Guard or Reserve enlistee who is on active duty for state training purposes.

Refer to the FAFSA notes for exceptions, but you will usually answer yes if you have engaged in active duty in the U.S. Armed Forces and were released under a condition other than dishonorable. Answer yes if you are not a vet but will be by 6/30/11.

Support means money, gifts, loans, housing, food, clothes, car payments or expenses, medical and dental care, and payments of school costs.

The same support listed in question

You may need to provide proof of these to a school financial aid department.

To answer yes, you must provide a copy of the court decision.

Again you will need to provide proof.

You may be required to provide proof. To gain this proof, you must have been in high school and have a liaison who made the determination. If not, contact your financial aid office for assistance.

Same as question 56.

Same as question 56.

So we have completed Step Three and determined our dependency status. If you are a dependent, your parents or guardians will complete Step Four.

Until next time!

It’s time for Step Two of the FAFSA form; I know it’s just what you all have been waiting for! Get your financial forms (taxes, W-2s, checking and savings statements, investment statements, etc.), and we will get started.

This section covers questions 33–58 which are about the student. If the student is single, separated, divorced or widowed, all questions will need to be answered about the student alone. If the student is married, he or she will need to include information about their spouse.

Please note, most students who are not considered independent, will most likely not have a large income or asset listings to report on the following questions. In most cases these questions primarily relate to those that are independent students.

Questions (the following questions are summarized; please review the FAFSA to see the full questions):

33. Have you completed your IRS income tax return?

The options are the IRS 1040, 1040A or 1040EZ, a foreign return, or a tax return with Puerto Rico, another U.S. territory or Freely Associated State.

This is a very important question and can affect whether your FAFSA is figured with a Zero Expected Family Contribution (EFC), which will afford you the most financial aid possible. If you are eligible to complete the 1040 or 1040EZs (you make less than $100K, do not itemize deductions, do not get income from a business or farm and do not get alimony) and you make less than $30K, you may be eligible for a Zero EFC.

Line 37 from your 1040 (if 1040A—line 21; if 1040EZ—line 4) includes a total for these items: wages, salaries, tips, taxable interest, ordinary dividends, taxable refunds, alimony, business income, capital gain (or loss), IRA distributions, pensions and annuities, rental real estate, farm income, unemployment compensation, and Social Security benefits. These items make up Total Income. Thirteen additional fields, which include things like health savings account deductions and student loan interest deductions, are then subtracted from the Total Income to make the Adjusted Gross Income.

This is line 55 from the 1040 (if 1040A—line 35; if 1040EZ—line 11). Be careful if you are estimating this amount and ensure you get it correct. Many people confuse this with the withholding amount they see on their W-2s and they are NOT the same.

This is line 6d from the 1040 (and 1040A; for 1040EZ, see notes) and is basically a summary of all those people who are covered on the taxes. Remember: This portion is about the student only.

There should be a dollar amount listed here even if the student worked but did not earn enough to file taxes. Check the W-2 for this info.

As above, check the W-2.

Please list an average total balance of these accounts. Be careful in overestimating.

Net worth means current value minus debt. Investments to include for this question include real estate, trust funds, UGMA and UTMA accounts, money market funds, CDs, stocks, stock options, bonds, other securities, installment and land contracts, commodities.

If the student is a beneficiary on a 529 account DO NOT list the asset here — the 529 is a parent asset.

The net worth of the business or investment farm includes value of land, buildings, machinery, equipment and inventory. Debt includes only those debts for which the business or farm was used as collateral. If the business your family owns and controls more than 50% and has 100 or fewer employees, it is not counted here. The farm is not counted if you live on it.

a. Education credits, from line 49, Form 1040 or line 31, Form 1040A

The Hope Credit is a tax credit for college students in their first two years of college. It provides a tax credit of up to $1,800 on the first $2,400 of college tuition and fees. You can claim the Hope Credit on your tax return if you are enrolled at least half-time at an eligible education institution, and you were responsible for paying college expenses.

The Lifetime Learning Credit is a tax credit for any person who takes college classes. It provides a tax credit of up to $2,000 on the first $10,000 of college tuition and fees. You can claim the Lifetime Learning Credit on your tax return if you, your spouse, or your dependents are enrolled at an eligible education institution and you were responsible for paying college expenses.

b. Child support paid by you

c. Taxable earnings from need-based employment programs such as Federal Work-Study and fellowships or assistantships

d. Student grant and scholarship aid (Enter any student grant and scholarship aid reported to the IRS of the parents Adjusted Gross Income. This includes AmeriCorps benefits as well as  grants and scholarship portions of fellowships and assistantships.) )

e. Combat pay (Only include taxable pay. Do not enter amounts reported on your W-2 in Box 12, Code Q.)

f. Earnings from work under a cooperative education program offered by a college (If you worked at the college in a program other than the Federal Work-Study program, check to see if you need to report earnings here.)

a. Payment to a tax-deferred pension and savings plan (will be listed on W-2 boxes 12a-12d, codes D, E, F, G, H, and S.)

b. IRA deductions and payments to self employed SEP, SIMPLE, Keogh (1040 line 28 plus line 32; or 1040A, line 17)

c. Child support received

d. Tax exempt interest income (1040 or 1040A line 8b. Interest income, such as interest from state and municipal bonds, that is exempt from federal income tax.)

e. Untaxed portions of IRA distributions (1040 15a distributions minus 15b taxable amount, or 1040A line 11a minus 11b)

f. Untaxed portions of pensions (1040 line 16a minus 16b or 1040A line 12a minus 12b.)

g. Housing, food and other living allowance paid to military, clergy (On base military housing or value of basic military housing allowance is NOT included.)

h. Veterans non-education benefits such as disability, death pension, etc.

i. Other untaxed income not reported (report worker comp and disability but NOT welfare payments)

Step Two is completed! I know it may not have been lots of fun, BUT this same information is collected for the Parent in Step Four so by the time we get there you will be an old pro at this.

See you next time.

It’s time to break down the Free Application for Federal Student Aid (FAFSA) and show you what the form and its 107 questions is asking for, and give you a bit of advice along the way.

The current version of the FAFSA covers July 1, 2010–June 30, 2011, so seniors in high school and those already in college will complete the form this year.

The following information covers Step One (questions 1–32). This section is the easiest to complete as it's primarily demographic information about the student. All questions that say “you” or “your” refer to the student. Students should leave blank any questions that do not apply to them (the online form gives you the option to say “not applicable”).

Questions

1. Last name

2. First name

3. Middle Initial

4.–7. Permanent mailing address

8. Social Security number

9. Date of birth

10. Permanent telephone number

11-12. Driver's license number and state if applicable.

13. Email address
If you provide an email address you will be notified when the form is processed. Note: The email address you provide will be shared with your state and the colleges you list on the FAFSA. Provide an email address that you check often so you can access your Student Aid Report (SAR) when it’s completed (3–5 days).

14. Are you a U.S. citizen?
If yes you can skip to question 16. If no and you are an eligible non-citizen, complete question 15, which asks for your alien registration number.

15. Alien registration number

16. What is your marital status?
Options include Single, Married, Remarried, Separated, Divorced, or Widowed. If you are separated but not yet divorced, you will be considered married on the dependency verification questions that appear later.

17. Month and year you were married, separated, divorced, or widowed

18. State of legal residence

19. Did you become a legal resident of this state before January 1, 2005?
States have varying criteria for determining if you are a resident for purposes of state financial aid (and in-state tuition). If you established a true, fixed, and permanent home in any state more than four years ago, you meet its residency criteria, according to the U.S. Department of Education.

20. If you answered NO to question 19, give the date you became a resident

21. Gender
If female skip to questions 23

22. If you are male, age 18–25, and not registered with Selective Service, you can select to be registered through the FAFSA

23. Have you been convicted for possession or sale of illegal drugs for an offense that occurred while you were receiving federal student aid?
If you answer yes (and are completing the online FAFSA) you will automatically be presented with an online Student Eligibility Worksheet to complete. Once you complete the worksheet, you will receive your current eligibility status immediately.

24. Highest school your father completed

25. Highest school your mother completed

26. When you begin college what will be your high school completion status?
Choices include high school diploma, GED, Home schooled, None of above.

27. Will you have your first bachelor’s degree before July 1, 2010?

28. When you begin the 2010–2011 school year, what will be your grade level

29. When you begin the 2010–2011 school year, what degree or certificate will you be working on?

30. When you begin the 2010–2011 school year, what do you expect your enrollment status to be?
Full-time enrollment status generally is 12 credit hours, 3/4-time is generally 9 hours, and half-time is generally at least 6 hours.

31. In addition to grants, are you interested in being considered for Work-Study or student loans?
Answers can be Work-study, Student Loans, Both or Neither. I suggest saying yes even if you may not be interested in these options. You can always say no after you receive your award letter.

32. Are you planning to complete course work necessary to become an elementary or secondary school teacher, either now or in the future?
The Teacher Education Assistance for College and Higher Education (TEACH) Grant program provides grants to students enrolled in participating colleges who intend to teach in a public or private elementary or secondary school that serves students from low-income families. Answering yes to this question will get you more information on the TEACH Grant. See information at www.teachgrant.ed.gov.

We got through the first step of the FAFSA! It wasn’t that bad, was it?

Next we will start Step Two. This section is financial-data heavy, but we will walk through each question so you understand what is needed. See you soon!

So it’s just what you have been waiting for! Not a late holiday party, a big birthday bash, or a ‘winter’s almost over’ celebration… it’s time to apply for financial aid. Okay, so party hats are not required for this one, but by applying for financial aid, you won’t miss out on any opportunities to find funds to help you pay for college. This post starts my series on the Free Application for Federal Student Aid (FAFSA).

So maybe the form is worrying you — most anything with 107 questions might be scary — but remember that answering these questions is the only way to qualify for federal financial aid.

The best way to tackle the FAFSA is to plan ahead and follow a few tips:

• Complete the FAFSA online. It’s quicker, it gives you online assistance, you can save it and come back later, and you get your results faster (3–5 days). You'll need a PIN from www.pin.ed.gov.
• Have the documents you need to complete the form right by the computer, including: (All of the items listed are required of both student and parent, if both are completing the form.)
• • Social Security number
  • driver's license (if you have one)
  • 2009 W-2 Forms and other records of money earned
  • 2009 Federal Income Tax Return (if completed)
  • IRS 1040, 1040A, 1040 EZ, or foreign tax return
  • 2009 untaxed income records
  • child support received
  • worker's compensation
  • current bank statements
  • current business and investment mortgage information
  • business and farm records
  • stock, bond, and other investment records
  • alien registration or permanent resident card (if you are not a U.S. citizen)
• Set aside some time so you can get it all done at once. It will take more than five minutes but shouldn’t take more than an hour or two. Remember part of the FAFSA is for the student and part is for the parent (the parent who the student lived with more during the past 12 months. If your parent is remarried, include information about that stepparent.). Parents and students can complete their portion of the form at the same time or separately.
• The sooner you submit it, the better your chances are of getting financial aid: Some aid, especially state aid, is first-come first-served. Check the FAFSA deadlines for your state at www.fafsa.ed.gov/before003a.htm#state_deadlines.

Most people don’t love doing their taxes, so I understand why many people dread the FAFSA. But I find that reading the PDF version of the current form really helps to make the process easier.

What if you haven’t completed your taxes yet? You can estimate your taxes or use your previous year’s tax return, and update the information later if needed. Remember, it’s important to file the FAFSA as soon as possible.

So sit back, breathe deeply, get a strong cup of coffee, a healthy snack, and apply for federal financial aid.

Over the next few weeks, we will use this space to break down the seven sections of the FAFSA. It won’t be quite as exciting as the start of American Idol, but hopefully it will make you feel more confident.

Did you know you may be able to avoid out-of-state tuition rates in a neighboring state through reciprocity agreements? These pacts between states offer each other's residents discounted or in-state tuition rates!

The Western Undergraduate Exchange provides reduced tuition rates for two- and four-year schools for out-of-state students in 15 western states, including Alaska, California, Hawaii, Idaho, Nevada, Washington, and more! Through the program, residents are eligible for scholarships that allow them to pay 150% of the in-state tuition rate — an incredible savings!

Similarly, Minnesota, North Dakota, South Dakota, and Wisconsin have a reciprocity agreement that reduces or eliminates nonresident fees for students living in these states.

The Midwest Student Exchange Program provides discounts to students in Indiana, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, and Wisconsin. With more than 140 participating colleges and universities, public institutions agree to charge students no more than 150% of the in-state resident tuition rate for specific programs, and private institutions offer a 10% reduction on their tuition rates. Participating students will typically realize savings between $500 and $3,000 annually, which can make a huge difference!

Before you resign yourself to a second- or third-choice school that's in-state, talk to your guidance counselor or a financial aid officer and find out what options you have!

Last week I explained what the Expect Family Contribution (EFC) was. Today you get to learn about how to avoid having a higher EFC than you should!

Hundreds of articles have been written that recommend gaming the FAFSA by appearing to have fewer financial resources than you do to get more aid. I don’t recommend you do this.

Aside from the ethical and legal aspects of shifting assets and income to manipulate the system, almost anything you do to affect your EFC will have an impact on your personal income, assets, and taxes.

What about shifting assets?

For example, you may decide to spend all your personal savings on a new car, hoping this would lower your EFC by lowering your assets.

But would spending $30,000 on a car mean your child would get $30,000 more in financial aid? No. Only a maximum of 5.64% of your assets are counted in the financial aid formula.

This would be like giving up $30,000 for $2,260 (at most) in additional financial aid (some of which will be student loans).

Not only would you be trading real dollars you have for pennies in aid, if you need the money, you won't have it. You’ll have to borrow the funds and pay them back with interest.

Common sense principles

The following common sense principles will affect how financial aid works for your family and keep your EFC low.

Don't overpay your share. Some parents believe that they are 100% responsible for financing their child's education. This is not the view of the federal government or college financial aid offices. They believe that the paying-for-college responsibility rests with:

1. The student first
2. Parents second
3. College, including financial aid, last

The financial aid formula assumes that students will contribute a large percentage of their income and assets to pay for each year of college.

If parents pay for everything and let their children keep their savings accounts untouched, they will be penalized, because the formula will keep assessing the same high percentage against the child's assets every year.

Build your 401(k) and IRA accounts. Under the federal and institutional methodologies, your retirement accounts are not considered assets that can be used to pay for college. Plus, under current tax laws, you may withdraw money from these accounts and use it to pay tuition without paying a penalty.

Check your pride at the door. Some families are embarrassed to reveal financial information to a total stranger, but this kind of pride could cost you. While financial aid calculations seem very mechanical and pre-determined, they are not. Your financial aid administrator is a professional who can can strongly influence the process.

If you have suffered a setback — especially one that is not reflected in your FAFSA or past year’s taxes — let your financial aid officer know. He or she can modify the results of the financial aid calculations. Financial aid administrators are there to help and can save you money if you let them.

The bottom line:

Don't waste time with strategies that may result in tiny increases in financial aid (which may be offset by higher taxes or lower asset levels) and that, at worst, could result in fines or jail time. Instead, focus on getting your taxes done early and correctly.

Financial aid award letters tell you exactly how much financial support the school is able to provide for the upcoming year. The most common sources of aid are:

Grants: Money that does not have to be repaid.

• Federal Pell Grant
• Federal Supplemental Educational Opportunity Grant (FSEOG)
• ACG
• National SMART Grant
• TEACH Grant
• Institutional grants
• State-sponsored grants

Work-Study: Money earned by working.

• On-campus (work for the school)
• Off-campus (private nonprofit organization or a public agency)

Scholarships: Money that does not have to be repaid.

Any scholarships you informed the school about, as well as those the school has to offer, will be included on your award letter.

Student loans: Money borrowed that must be repaid.

• Federal Stafford Loan (subsidized)
• Federal Stafford Loan (unsubsidized)
• Federal Parent PLUS Loan
• Federal Graduate PLUS Loan
• Federal Perkins Loan
• State loan programs
• Private loan programs
• Other loan programs

Items to Consider

• Read your award letter carefully to be sure you understand all terms and conditions so you can decide if you want to accept any, or all, of the aid offered.
• Look for instructions for your next steps. You may need to complete additional paperwork such as loan applications.
• See if grants or scholarships are available for more than one year. If so, what conditions apply? If not, are any options listed for the following years?
• Remember, unless otherwise stated, this letter applies only to the upcoming school year.

Report Changes

After filing the FAFSA, any changes in financial or family circumstances must be reported to the school. Additional outside sources of financial aid, parental unemployment or illness, or change in enrollment or family status could affect the award. Even name and address changes must be reported.

Accepting the Award

Once you've chosen your school, you should inform the school in writing how much of the award you plan to accept. If you don't respond by the date indicated, your award could be in jeopardy.

If you think you need help paying for your college education, the Free Application for Federal Student Aid (FAFSA) is your starting point for applying to most student financial assistance programs, including federal, state, and campus-based aid.

Beginning January 2, high school students headed to college in the following fall can submit their FAFSA for financial awards and low-cost loans. With $144 billion available, early applicants have the best chances of getting the most money for college.

If you are dreading the FAFSA, take a deep breath and relax. Completing the FAFSA is free. It takes a little time, but it is not as difficult as you may think. If you follow these basic steps, you could complete your FAFSA on the web in as little as an hour or two.

Step 1: Get a Social Security number (SSN). If you submit the FAFSA without a SSN, your application will not be processed. To apply for a SSN, visit Social Security Online, www.ssa.gov.

Step 2: Request a PIN. With a PIN you can apply for and “sign” the FAFSA online, check the status of your submitted FAFSA, and make corrections. If you plan to submit your FAFSA online, you (and one of your parents) can request a PIN at the U.S. Department of Education pin registration website, www.pin.ed.gov.

Step 3: Make note of state and college deadlines and requirements. College and state deadlines tend to be earlier than the federal deadline (many as early as February or March) and may require an application in addition to the FAFSA. Play it safe — collect these dates and information early.

Step 4: Obtain the FAFSA on the Web worksheet. Use this tool to help gather the information needed to complete the official FAFSA. Worksheets are available from your high school guidance office, public library, and online at www.fafsa.ed.gov as early as October.

Tip: You are not required to use the worksheet; it is an optional tool you can choose to take advantage of before submitting the official FAFSA. You cannot submit the official FAFSA until after January 1; however, the worksheet lets you get a jump on gathering information and answering questions well before that date.

Step 5: Complete the FAFSA on the Internet. To access FAFSA on the web, visit www.FAFSA.ed.gov. (It is also offered in Spanish.) Apply as soon as you can after January 1, because funding may be awarded on a first-come, first-served basis.

Tip: If your family’s tax return is not ready for filing, don’t put off completing the FAFSA. Estimate the tax information and submit the FAFSA. Be sure to make corrections later, if necessary.

Step 6: Review your Student Aid Report (SAR). Your SAR summarizes the data you reported on your FAFSA. When you receive your SAR, carefully review it line by line. Make corrections or changes, if necessary. If your FAFSA information is complete, an Expected Family Contribution (EFC) is printed in the upper-right corner. Schools you listed on the FAFSA will receive electronic copies of your SAR.

Step 7: Determine if you need to verify your FAFSA information. At least 30% of submitted FAFSAs are selected for verification. If you’ve been selected, an asterisk ( * ) will appear after your EFC number. When submitting tax returns and other documentation, follow instructions carefully.

Step 8: Compare award letters. If you’re eligible for aid, schools at which you are accepted will send you an award letter. Carefully compare amounts and types of aid awarded.

Good luck!

I was thinking about all the packing-for-college lists that are in my mailbox, the ads about getting everything you need for college, and flashbacks of my own shopping and packing for school. That lead me to today’s topic: What to really pack for college.

This isn’t a list of everything your child should take. (You can find a great list at www.collegeanswer.com/packing.) It is a list that came from an actual college student, who completed her freshman year. I was sure that so many freshmen take everything they see on these lists, and then only use about half of the stuff or wish they had something different. So what better way to find out than ask a student?

Remember that your child will be sharing a room and usually not a very big one. The beauty of social media sites (like Facebook) is that kids can communicate with their assigned roommate way before arriving. They’ll quickly be able to sort through color choices, personality, and probably have a good feel for what they will see once you get the room set up. Use the summer to decide how to handle large items, like a fridge, microwave, lounge chairs, etc. And use the time to inform the soon-to-be roommate of sleep-talking or -walking issues, a love for music while sleeping, the alarm that sounds the latest Black Eyed Peas songs, etc. These are great things to communicate before the first night sharing a room.

I talked to the daughter of one of my friends and neighbors, who is heading back to school as a sophomore this fall. Ariel is extremely organized, so you may find these notes are a little more than you need. That’s okay. All lists or advice that you use must be adjusted to your child. If he hates to swim, don’t pack a swimsuit; it can be as simple as that.

One of the first things Ariel mentioned (I found it a bit surprising but a very valid point) is to be careful if your student plans to take expensive things. She said it was really in reference to the fact that so many of her friends’ valuables were lost or stolen. So if your child wants to pack expensive personal items, you may want to pack a small lockbox to keep them in. She also mentioned that she and her roommate rarely, if ever, watched TV. She said, “TV was a waste of time because you can’t get any good channels and there is so much to do at college, you won’t need it.” Not sure everyone will listen to that, but it’s a very valid point.

Here are a few of the great points she mentioned that you rarely see on what-to-pack lists:

1. Shower bucket: Most every list has this on it, and most everyone is glad they brought one. But what they are often missing are the drain holes. Whatever type of container you get, simply drill several holes in the bottom so all that water and shampoo doesn’t end up as mold.
2. Clothes: Obviously everyone takes them, but are you packing things that will really be worn? Best quote from my interview was this: “Unlike high school, no one cares what you wear in college.” Bring comfortable clothes and, if the college is going to have cold weather, take warm clothes.
3. Nothing with an open coil: For example, hot plates or toasters. You can’t have it so don’t even risk it.
4. People will sit on your bed: One of the best suggestions was about the comforter that kids probably plan to pack. Most people who come to the room will look for a seat, and this is mostly likely the bed. Think about sticking the comforter in the washing machine — not easy. A better option might be two microfleece blankets that can easily be cleaned.  

And here's a great list of some of the Must Haves and Don’t Needs.

Must haves

• A fan (This was the number one thing that was mentioned. The dorms are hot all year long.)
• An iPod or MP3 player
• Laptop
• Two sets of extra long and extra narrow bed sheets (each school will advise what their mattresses are like — their beds are not that wide)
• First aid kit (If everyone knows they have it, they need to be ready to share.)
• Any medical items that are used regularly 
• Alarm clock (Don’t depend on the cell phone; they won't leave their alarm clock at a party.)
• Earplugs (dorms get noisy)
• Software documentation (it doesn’t help if the instructions and guide books are hundreds of miles from your computer)
• Paper calendar (helps to have a visual of events and show the roommate what’s on your schedule)
• Hooks with an adhesive backing
• Duct tape (use it for everything)  
• Lounge chairs (butterfly, papasan, etc.) (If they plan to have a game system in their room, they may need several.)
• Two whiteboards — one for inside the room and one for friends on the outside of the door
• Lots of whiteboard markers and duct tape to keep them from being taken.
• Throw-away plastic food containers
• Disinfectant wipes
• Deep conditioner and lotion — school water is REALLY hard.

Don't needs

• DVDs (download and watch movies on the laptop)
• Under-bed storage containers (Wait until getting to school to see if they are needed. Kids found that they didn’t need the extra boxes and sent them home with their parents.)
• Computer printer (many schools have wireless printers in their common areas; it may save you the money and space of having one in the room)
• Bottled water (very bulky for a dorm room; buy a container with a filter and refill when it's empty)
• Light bulbs and repair kits (school will supply)

A great place to shop for all your college shopping needs is through Upromise.com. By purchasing all your school items from the website at great back-to-school online stores like Bed Bath & Beyond (2% savings), Borders (3% savings), Gap (2% savings), Lands’ End (3% savings), Office Depot (2% savings), Target (2% savings), and hundreds of others, you get a percentage of your purchase placed in your account. 

Have fun at the stores!

So last time we covered the Education Investment Planner (EIP) savings tool, the module made for families of younger children. Today we are off to explore the EIP paying tool to find out just what you parents of soon-to-be-high-school-seniors might expect.

Let’s get started. Just like the savings tool, the EIP really is done more accurately when you have all of the materials you need. For this tool the same types of things should be used, including investment account statements, savings statements, 529 statements, scholarship awards that your child may have won, etc. It’s always better to start prepared.

You can get started at Salliemae.com/invest. Select the link at the bottom for “parents of a high school student” or, if you are the student, select “I am a high school student.” 

The tool takes you to the Student Information page where you will be asked to complete these fields:  student’s year in school, degree they are pursuing, student’s state of residence, citizenship, and where the student is in the planning process.

Next you are taken to the Estimating Costs page where you will complete these fields: school location, name of school (type a few letters of the school name and you should see what’s available), enrollment status, start date, and number of years attending school. 

Let’s talk a moment about the school that you have selected. Most parents have an idea of where they would like their children to go, and that could be driven by schools they attended or by cost (and what they assume they can afford). Talk with your child (hopefully you have done this before the start of your child’s senior year) about

• what they are looking for in a school (size, location, etc.),
• what they hope to do after school (some degrees are more specialized and not offered at all locations), and
• what you can afford.

Don’t skip this part of the conversation unless you want to explain this after they are accepted to a school you can’t afford. It’s important to not limit their dreams, but if you are paying the bills, the cost of the school must work into your budget. I suggest three schools and no more than six to have on the list before senior year.

You now get a chance to see the estimated school costs for the first year of college for your student. The chart will break down the first year costs into tuition, room and board, fees, and books. If you are already having a trouble with this one year of costs remember you will be seeing more. But also remember that you will have a chance to enter your own savings, scholarships, and other money that can help you cut these costs. 

One of the best things I have noticed about this tool is the fact that so many parents forget to figure costs for all four years; they simply look at just one year of cost. But now the EIP shows you the entire cost, with the estimated total for your selected school appearing right in front of you. After selecting the Continue button, it’s your chance to start entering your personal contributions and start bringing down the costs.

The tool allows you to enter the following items: 529 savings, parent savings, student savings, and other sources. The tool also lets you enter the total amount that you plan to pay out of income while the student is in school. These amounts will be divided over the number of years that the student is enrolled. Next you get to enter any awards your student may have received. For many of you completing this tool before the senior year, you may not have anything to enter in these fields; I suggest you select the Apply Average Aid button. Keep in mind that these are average aid figures and not everyone will get these amounts.

If you do have items (awards your student has already been given or scholarships they have won) to enter, you can place those in the following fields: school-awarded  scholarships and grants, federal grant amount, state awarded scholarships and grants, and other scholarships and grants. 

Now your plan is funded and you are looking at the total costs for the years you selected, including any personal contributions you have added. Hopefully you see a better picture than before you added your own contributions. If not, remember that you still have time to put money aside. So many families assume that, just because they are a year away from sending their child to school, there is no hope to save. That is definitely not true. Many families can accumulate a good amount of money in the next five years.

This looks good so far, but you are not done yet. Most of you know about student loans, and many of you have used those loans to pay for your school costs. Let’s look at the costs of college with those loans figured in. The federal Stafford Loan page requires you to answer three simple questions: “Will a parent or guardian claim the student as dependent?” “Is the parent or guardian planning to take out a student loan to cover some of the costs?” and “Is a creditworthy adult planning to cosign?” You are not committed to your answers here, so you may want to choose “Yes” to see all the options.

The tool now figures the amount of federal Stafford Loans that go into your plan. The federal government sets an amount that can be borrowed by each grade level; that is the amount you will see in your plan. The government recently updated the amount that students can borrow; so if you are planning far in advance, you may see this amount change in coming years. 

Now you are at the point where you as a parent can choose what loans (if any) you plan to take out to pay for your child’s college costs. The tool lets you choose between the federal Parent PLUS loan and private student loans. All private student loans are funded by private companies and are typically applied for in the parent’s name or have a parent as a cosigner. The tool will show you exactly what you have left to fund to fully pay for your child’s college costs. You can choose to use both or neither of these loan types.

I decided to fully fund my plan with the loans and then was able to see my plan with $0 remaining to be funded. The plan lets you look at the breakdown from total cost of attendance all the way through the different ways to fund the plan.  

Do not miss the information in the lower left corner that shows student and parent monthly payments for each year and after graduation. I think this is a perfect way to really see what paying for college through loans means. If you select the Continue button and go to the Repayment section, you get a great look at exactly how these payments are broken down between federal and private loans. There’s lots of great information here and, after completing the tool, you may need to come back to this page to read all of the information. (Save your plan so you can do just that.)

 

Select the Student Loan Debt-to-Income Ratio tab at the top of the page. We often hear about parents and students who are shocked at the payments they have to make after they get their first bill. I am sure if they had looked at a page like this they would not be surprised. The tool allows students to select their annual gross income after graduation (make sure they don’t over-estimate: many kids think they will make $200K in their first job out of school and last I checked most new grads don’t get close to that) to see exactly what their payments will do to their debt-to-income ratio. The chart will appear in colors that show manageable, caution, or red flag. Spend some time making sure you are not in a red flag situation.

Now you are done and you can share your plan with others (email it to your child so they can see what the costs will be), save and print your plan. (Why do all the work and not be able to review it later — you can always make adjustments to what you first built.)

I truly believe that this tool is the perfect thing for parents of high school sophomores, as so many parents don’t think about the planning process until right before the senior year. If you are still enjoying your time before the senior year starts, I recommend getting to the EIP and really looking at your personal plan.

Good luck!