January 2, 2007
More FAFSA Tips
Here some more FAFSA advice, from FAFSAOnline.com.
FAFSA Online Secret #1 : Reduce your Adjusted Gross Income
FAFSA Aid = f(1/AGI)
Okay, you probably saw that and might have panicked. Here’s what it means. Your FAFSA aid, your federal financial aid, is inversely proportional to your adjusted gross income.
What is Adjusted Gross Income?
On your IRS tax return, Adjusted Gross Income (AGI) is the amount of money you make per year, after standard deductions and adjustments. How is the adjusted gross income computed?
AGI = Income – Deductions
The goal, and FAFSA secret #1, is to reduce your adjusted gross income. Now, there are good ways and bad ways to do that. Bad ways include losing your job and sources of income. Good ways to reduce your adjusted gross income include:
- Make the maximum contribution to your IRA.
- Make the maximum contribution to your retirement plan. (401k, etc.)
- Donate as much as possible to charity.
- Consolidate your federal student loans. Interest paid on federal student loans is deducted from your AGI. Consolidation initially (as with all loans) has you pay more interest up front than principal, so consolidation reduces your AGI more than unconsolidated student loans.
- Did you move? Other deductions include moving expenses.
- Use health savings accounts (flex spending) – these are deducted from your AGI, so if your employer offers them, take advantage!
Best advice: even though it costs money, consider using a professional tax preparation specialist (i.e. H&R Block, etc.) for your taxes if your child is in college or coming up on college in three years or less. Though you’ll pay to have your taxes done, you can discuss with a tax professional all the different options for reducing your apparent AGI, which will in turn make you more qualified for federal financial aid.
Important tip: be sure to keep your student loan paperwork throughout the year, and if you consolidate your federal student loans, keep the paperwork for both the original company and consolidating company – you’ll need both on hand when you do your taxes.
Bonus note: some tax preparers do not charge until your taxes are completed and ready to be filed. If you are unsure about how this tip will affect your tax preparation, consider at least visiting one of these preparers and making use of their expertise.”