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, medical care, and payments for school.

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.

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 able to complete one of these forms (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, your spouse, or your dependent are a first-year or second-year college student, 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 (AmeriCorps benefits and items typically captured in Other Income line 21 of the 1040. Report grant and scholarship aid here ONLY if the amounts received exceeded the cost of tuition, fees, books, and supplies AND you reported this amount on your tax return.)

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.

By now, most high school seniors should have started their college application essays, hopefully with outlines and rough drafts completed. If not, it's time to start brainstorming! Besides the main essay, there's usually a few specific questions, and your responses here are just as important. But don't feel like you have to write a perfectly crafted essay for each application — if you're applying to five or more schools you could run yourself ragged! Instead, learn how to edit two or three essays to answer a variety of questions.

Most college essay questions are open to interpretation and do not need to be answered literally. The key is in changing the introduction and conclusion to make it fit! So, say you have an essay about growing up with a multicultural background and your journey to find your own identity. If an essay asks about what you hope to accomplish in college, you can easily add in how through hard work you plan to continue your journey as you choose a career path, make new friends, and move into adulthood. 

Whether you edit an essay you currently have or are inspired to write something completely new, have someone else proofread it and confirm it answers the question coherently!

Right about now, many high school seniors are filling out a stack of college applications. So from now until the end of the year, I'm going to try to focus on helpful application tips to make the next few weeks as bearable as possible!

A huge part of your application will be listing the activities and jobs that made you the unique snowflake you are today! Start by listing everything, even one-time events like the time you marched in a protest in DC. Name the organization, program, or business; provide a one-sentence description; list when and how often you participated; and cite any leadership position or major accomplishments you had.

Now that you have your list, select which activities and jobs you want to highlight and in what order (in case you run out of space, you over-achiever, you!). I recommend going in this order:

1. Activities, programs, or businesses you started yourself. This probably does not count the lemonade stand you ran in third grade.
2. Activities and jobs where you had leadership responsibilities, like manager or president.
3. Activities where you held a lesser position, such as treasurer or secretary.
4. Activities, programs, or jobs where you excelled or can cite a major accomplishment.
5. Activities of academic importance (such as the National Honor Society) and community service.
6. Everything else!

Hopefully this will help you organize your college application process a little! Stay tuned for more tips, and please share any you have in the comments.

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!

For any student, getting into college involves a lot of preparation and work — standardized tests, letters of recommendation, admissions forms, financial aid, and so on. If you are a "first-in-my-family" student, preparing for college could involve jumping even more hurdles.

College preparation

Preparing for college is a long process that should begin as early as junior high, according to many experts. If your parents attended college, they can give you guidance on how to navigate this process — what classes to take, how to manage all the tests and forms, how to pick a school, and so on.

But if you are the first in your family to attend college, you might not have that kind expertise available at home. Be sure to speak to your high school guidance counselor who can provide you with advice and help!

Financial barriers

The cost of going to college has been outpacing inflation, making it more expensive for everyone to attend college. For some students, the price seems to put a college education beyond their reach. If you are one of those students — especially if you are the first in your family to attend college — you may need reassurances that price isn't a barrier.

Experts report the best way to overcome financial obstacles is to develop a college financing strategy well in advance. Be sure to check out Sallie Mae's Education Investment Planner and Free Scholarship Search to help you get started!

Family obligations

If you are from a low-income family, you may feel pressured to choose between attending college or supporting your family. Part-time classes might be the way to go, just be sure manage your time well.

If you defer college to work, you can always go back to school! Continuing education is tailored for those over age 24.

There's time to fulfill family obligations and to earn a college degree. In the end, though, a college education could benefit your family by improving your chances to get a better-paying job. So weigh your options carefully and never sell yourself short!

I only know a handful of people who's career has any correlation to what they studied in college.While this isn't necessarily a bad thing, it's always good to assess your personality, skills and interests to chose a major, and eventual career, that's right for you. The sooner you start, the sooner you can retire, right??? Here are some tips and tools to help you get started:

Personality

Your personality traits can determine which careers are best suited to you. For example:

• Are you shy or outgoing?
• Patient or impulsive?
• Good with children or adults?
• Do you like animals or machines?

For a closer look at yourself, take a personality inventory — a questionnaire that asks how you would think, act, and feel in specific situations.

• The most popular personality inventory is the Myers-Briggs Type Indicator® (MBTI). Unofficial versions of this personality inventory are available online and can be completed in 30 minutes. Your answers to the multiple-choice questions will be evaluated and you'll receive an explanation of your personality type.
• PersonalityType provides the most abbreviated version and also presents popular career options.
• Humanmetrics offers a longer, more personalized version.
• The official version of the MBTI is available in print. This official test is administered by qualified trainers, and trained professionals evaluate the answers. Check with a guidance counselor to see if this test is available.

Based on what you find in your personality inventory, you might realize that the job of your dreams may not be perfect after all. On the other hand, what you learn about your personality, coupled with your skills and interest, could point you to your perfect role in life.

Interests

What makes you happy? If you had a spare moment, what would you do?

• Do you like to paint or draw?
• Take dance classes?
• Like the mental challenge of chess?
• Do you love to read?
• What are your hobbies?

Your answers to questions like these can say a lot about you. Your interests and skills offer additional insight into your personality and what you really love to do. And knowing that is important when you start thinking about your future.

Another way to understand your interests and how they relate to your career is to take the Strong Interest Inventory®. If this is not already part of your high school's career or college prep curriculum, check with your guidance counselor.

Skills

What are you good at?

• Do you excel in sports?
• Do people call you when they're having computer problems?
• When it comes to literature, do you see beyond the writing and into the meaning intended by the author?
• Can you take a motor apart, put it back together, and have no extra parts left over?

Beyond just answering these and similar questions by yourself, you can learn more about your talent for career-related (or "vocational") skills by taking an aptitude test.

One particularly thorough test is the Armed Services Vocational Aptitude Battery (ASVAB). It is designed to measure your aptitudes while you're in high school.

As a bonus when you take the test, you'll get Exploring Careers: The ASVAB Workbook. It will help you interpret your ASVAB test results.

The ASVAB includes eight short tests that cover:

• General science
• Arithmetic reasoning
• Word knowledge
• Paragraph comprehension
• Mathematics knowledge
• Electronics information
• Auto and shop information
• Mechanical comprehension

Note: Taking the ASVAB does not mean you're enlisting in the Armed Services.

While the U.S. Army, Air Force, Navy, Coast Guard, and Marines use the test to place recruits in a military career field, the Department of Defense, in cooperation with the Department of Education, developed a version for high school students.

Many high schools administer this test as part of their college preparation routine. If the test is not available at your school, talk to your guidance counselor to arrange a test date. 

Above all, don't forget to talk to you parents, friends, teachers and guidance counselor!

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.