Students Are Leaving Financial Aid Money Unclaimed

Posted By Donna Fuscaldo on August 4, 2015 at 11:54 am
Students Are Leaving Financial Aid Money Unclaimed

Unless you have wealthy parents or another benefactor, federal financial aid is most likely going to be a component of how you fund your college education. But applying for government money isn’t always as simple as filling out the paperwork and sending it along. Make a mistake and it can cost you – in terms of how much money you are eligible for, or whether you get any at all.

Consider this: According a January 2015 report, U.S. high school graduates left more than $2.9 billion in free federal grant money on the table, all because they didn’t complete the Free Application for Federal Student Aid, or FAFSA. Nearly half of all high school graduates (47%) failed to complete the form. The worst offender in terms of dollar amount? California, which left nearly $400 million in funding unclaimed. Utah was home to the worst completion rates: 40% of eligible students did not fill out the FAFSA.

“There are a number of different things happening as far as financial aid goes that people need to pay attention to,” says Rick Ross, co-founder of College Financing Group. “The most important piece is to make sure you meet the college-specific financial aid deadlines.”

Missing the deadline will cost you

Getting your application in on time may seem like an easy task, but colleges and universities around the country have different deadlines. For instance, Ross says, some higher education institutions want to see applications as early as January, while others don’t need them until as late as April.  Remember – if you’re applying for state financial aid, the deadline is going to differ from federal aid, as will the deadline for different schools you are applying to. If you miss the deadline, you’re out of luck for that school year.

Another reason to get the application in sooner rather than later? Some federal grant money is given on a first come, first served basis, which often means a larger package for the early birds, since there is more funding to go around.

According to Gwen Thomas, author of “The Parents’ Smart Guide to Sending Your Kids to College Without Going Broke,” parents and students should start thinking about federal financial aid as early as middle school. At that point, they should be considering what scholarships, grants and other merit-based awards the student is eligible for, as well as the cost of the colleges the child is considering. “A lot of it is timing and planning,” says Thomas. “The most crucial thing is for families and students to not start in their senior year. You need to start before that to see what options are available.”

Too much information isn’t always good thing

With around two-thirds of full-time students relying on financial aid, according to The College Board, it’s not just important to meet deadlines. It’s also important to ensure that you’re getting as much aid as you can. Nobody wants to leave money on the table, but that often ends up being the case. The same 2015 report shows that in 2013, 47% of high school graduates didn’t complete the first step that would have gotten them Pell Grant money – aid that doesn’t need to be paid back. The College Board estimates that 57% of federal dollars are given in the form of grants, while 34% comes from federal loans.

Since a lot of financial aid is need-based, it’s in the best interest of parents and students to make sure their financial information is accurate on their application – particularly if they use aggregation software to get a full picture of their net worth.  According to Jeff Rossi, founder of Peak Wealth Advisors, people often inadvertently add value to their FAFSA application by including the savings in their retirement account or listing their home as an asset. “The more assets you have, the less the need is going to be,” says Rossi. “FAFSA doesn’t want to know your retirement plan.”

Deploy smart strategies to get maximum aid

When it comes to federal financial aid, what the student brings to the table also factors into the amount of aid they get. Student assets are calculated at a higher rate than parents’, in terms of the percentage that will go toward the expected family contribution. The expected rate of contribution is 20% for students, and just 5.64% for parents.  Often, when families are applying for financial aid, they don’t think about the contribution rate, and leave their child’s life savings in his or her bank account.  Rossi says that by moving the money out of the child’s name before applying, parents can reduce their expected family contribution. He suggests applying the child’s savings to a 529 college savings plan, or putting the money in the parent’s name.

Grandparents can help fund a child’s college expenses through a 529 too, and although this is a good thing, it can have pitfalls. Withdrawals from 529s held by grandparents will be considered income of the student and can negatively impact need-based financial aid when included on the FAFSA. One way to avoid that, says Rossi, is to draw down the amounts from the grandparents’ 529 during the child’s senior year, when you know you won’t be applying for aid again.

With tuition costs constantly rising, it’s understandable that parents want their kids to get all the financial aid they can. But in some cases, the means parents go through to hide their money isn’t worth it. After all, it’s not realistic to withdraw all your savings just to show fewer assets – you could lose out on any appreciation from interest rates or investment gains.  And lying on the FAFSA application can be considered fraud in many cases – Rossi says about one-third of all FAFSA filings are vetted.  “It’s not worth trying to circumvent the system,” says Rossi. “Just be thoughtful and deploy good strategies.”

Donna Fuscaldo
Donna Fuscaldo is a freelance journalist hailing out of Long Island, New York. She has also written for,,,, Business Insider, Dow Jones Newswires and the Wall Street Journal.

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