It’s time to confront FAFSA for college loans

Ready, get set ... FAFSA! If you’re the parent of a senior in high school, you’re about to embark on an amazing journey into the first step of paying for college.

FAFSA stands for Free Application for Federal Student Aid. All families should apply, regardless of income. Many colleges use the application to offer additional financial support, or scholarships, regardless of need. So now is the time to get started.

The application process begins right after Labor Day, when students and parents each create their own FAFSA account. While you can’t file the forms until Oct. 1, you can set up your account now at StudentAid.gov under the “Apply for Aid” tab. Since parents must upload the most personal financial information, these separate accounts with passwords allow for privacy from your children.

After opening your account, you’ll receive a FAFSA ID. That number, along with your password, allows you to upload the required information securely once the forms become available Oct. 1. Your most recent tax returns are gathered automatically with a secure link to the IRS.

But this form wants to know about more than your income. You’ll have to list the value of all your assets and investments — not including your family residence, retirement accounts and smaller family-owned businesses.

Even the value of your college savings in a parent-owned 529 plan is included in the asset profile, as 5.64% of the value is considered accessible for college in any one year, as part of the formula.

As you can see the FAFSA is the most intrusive form Americans are required to file, reporting not only income but assets — so the government can decide how much in federal student loans their children can receive for the coming year. You’ll have to file an updated form every year in which you reapply for aid.

The “formula” for calculating the expected family contribution is as closely guarded as the secret recipe for Kentucky Fried Chicken. But basically, the idea is to let the family know how much federal financial aid their student can receive — and how much parents should be prepared to provide.

Lest you mistakenly think that federal aid will cover all the costs of college, consider these numbers: For 2022-23 the maximum Pell Grant amount is $6,895. These grants are made on the basis of need.

As for federal subsidized and unsubsidized loans, freshmen may only borrow $5,500 per year; sophomores may only borrow $6,500; and juniors, seniors and those who study beyond their fourth year are limited to $7,500 per year.

Don’t be surprised if there is a huge gap between what federal financial aid offers and the full cost of college — every year for four years! As parents, you’ll be on the hook for the difference between the federal aid granted and the cost of attending college (which includes room and board and books and transportation). Some schools will offer additional aid in the form of work-study programs, grants or “merit aid.”

At Scholarships.com you can search immediately for more free money. But don’t count on that filling the gap.

You can make up the difference yourself by using Parent Plus loans, which do not require financial need. However, Plus loans are the most expensive way to borrow, based on rates and fees. An alternative is refinancing your home (although the interest on borrowings used to pay for college is not deductible).

Many families turn to private lenders for student loans, at high rates and with no incomebased protections. The only way out of private loans is bankruptcy.

When this eye-opening revelation hits you, it’s time to have “the conversation.” That’s the moment you tell your highschool senior that you simply can’t afford to send her or him to that dream school.

Yes, parents are allowed to say no. And it’s best to do so before hopes are raised.

Now is the time ask your student what schools he or she would like to attend. Every college website lists the total costs of attendance on its website, but you can also search this number at CollegeCalc.org.

There, you can also find and compare less-expensive alternatives. That’s the conversation: a discussion of financial reality and alternatives like attending a local community college for one or two years and then transferring to the dream school.

It’s time to get real about college costs. And that’s The Savage Truth.