6 reasons to apply for federal student aid


This month, millions of Americans have started the annual ritual of completing the FAFSA, or the Free Application for Federal Student Aid. And every year plenty of parents wonder if they should go through the hassle of filling out this federal financial aid form.

If you're on the fence, here are six reasons to complete the FAFSA:

1. You're house rich

The FAFSA doesn't ask if a family owns a primary home. If you have a ton of equity in your residence, this illiquid asset won't jeopardize your chances of financial aid at all.

2. You're divorced

There is a strange quirk in the FAFSA methodology that favors some families of divorce. The FAFSA only asks for the financial information of the custodial parent. As far as the FAFSA is concerned, which parent is considered custodial depends upon where the child has lived for the 12 months from the day that the FAFSA is filed.

For example, if mom is a doctor and dad is a teacher, it would make sense for the child to live with the dad for six months and one day, because his salary is lower. Only the dad would include his income on the FAFSA. If the father remarried, however, the income of the new spouse would also be included.

3. You have more than one student in college

Some families that won't qualify for financial aid with one child in college are eligible when two are attending simultaneously. With two children in college, the expected family contribution (EFC) -- what the FAFSA formula concludes the parents can afford -- drops by roughly 50 percent. For example, if your EFC were $25,000 for one college student, it would drop to about $12,500 for each child when two are in school. Parents with twins or triplets can really make out well, thanks to this FAFSA provision.

4. You might qualify for state aid

Many states provide financial aid grants to residents, but you won't be eligible for these programs unless you complete the FAFSA.

5. Students gain access to federal college loans

Students are not eligible to borrow through federal college loans without applying for financial aid. If you skip the FAFSA, students miss the opportunity to borrow money through the Stafford Loan program, which is the superior loan for them. The Stafford Loan offers a fixed interest rate and an income-based repayment plan for students who graduate without decent jobs.

6. Parents can borrow through federal college loans

Admittedly, the deal that moms and dads can get when they borrow through the federal government for college isn't as attractive as a Stafford Loan. The interest rate on the Parent Plus Loan is 7.9 percent plus a 4 percent fee on the borrowed amount. Borrowers have 10 to 25 years to repay the loan.

Bottom Line: When in doubt, file the FAFSA. It couldn't hurt, and it just might save you thousands of dollars.