Calculator interest loan student

The paper hats and noise-makers are back in the closet. Now, if you're the parent of a college-bound student, you can get out the calculator and the green eyeshade -- to take on the twin tasks of filling out your financial-aid forms and tax returns. The two go hand in hand because you'll need at least estimated figures from your tax forms to plug into your financial-aid applications.

Enter this just-in-time guide to help you complete the Free Application for Federal Student Aid (FAFSA), required by most colleges, and the Profile, required by many private schools (see the box on page 97). Our line-by-line tips -- tailored to parents with dependent students -- will help you avoid mistakes that could cost you financial aid. Plus, while most aid-boosting strategies require long-range planning, we've flagged a few last-minute opportunities to maximize your eligibility.

The earliest you can file your FAFSA is January 1, at which point you don't yet have all the W-2s and other tax documents you need. But don't let that stop you. It's better to file early using estimates, and update the data later. Filing online (www.ed.gov/offices/OPE/express.html) can speed the process.

Financial-aid forms are just as complicated as tax returns, but there is one big difference: You can't see your bottom line. The applications simply ask you to supply financial and household data, which you send off to a processing center. A few weeks later, you get back a Student Aid Report that tells you (obliquely) what you'll be expected to contribute to college costs under federal aid formulas. The figure appears unheralded in the upper right corner of the report: "EFC9000," for example, means that your "expected family contribution" is $9,000.

(You can take some of the mystery out of the process by computing your own EFC. Guidance counselors and financial-aid officers can give you worksheets, or you can use an online calculator, such as the one at www.finaid.org/finaid/calculators.)

You may be tempted to plunge into the form and ignore the 12 pages of instructions except as a last resort. That could be dangerous. For instance, the question about the number of people in your household may seem cut-and-dried, but you'd short yourself if you overlooked an unborn child or an older child you're supporting away from home. The sections highlighted here are those where mistakes are most common.

WHO YOU ARE

Sections A, B and C, which ask for personal information and enrollment plans, are generally self-explanatory. On lines 32-34, though, be sure to indicate that you want to be considered for work-study, student loans and parent loans. Marking "no" won't increase the grants you're offered, and you can always turn down a loan or work-study job if you decide that a home-equity loan or other employment is a better choice.

Section D (Household Information), a critical piece in the EFC puzzle, presents a major obstacle for some parents but also a few opportunities.

* Line 46, where you report your marital status, is a bone of contention for many parents who have divorced and remarried. If you are the parent with whom the child lived for most of 1997, you'll be the one completing the form. And you must include your new spouse s income and assets, even if he or she isn't helping with college expenses. The aid formulas do not recognize legal agreements that absolve the stepparent from college expenses or make the noncustodial parent responsible. Sometimes you can persuade a financial-aid officer to make adjustments later. But for now you have to report the joint data -- and cross your fingers.

* The more household members you include on line 49, the higher your "income-protection allowance," which shelters a modest portion of your income from the aid formulas. You can include any children that get more than half their support from you, even if they're living on their own or with your former spouse. The instructions don't say so explicitly, but you can also include a child who will be born during the coming academic year. The number of household members reported here does not have to match the number of exemptions you'll take on your tax return. But if they differ, you'll probably be asked to explain.

* If you indicate on line 50 that your household will have more than one college student, your estimated family contribution will be divided among them, boosting aid eligibility for each. To be included, a parent or sibling must be enrolled at least half-time and working toward a degree at an institution that's eligible for federal aid. Mom's continuing-education class at the community college would not count.

WHAT YOU EARN

Because your EFC will be based predominantly on your 1997 income, Section E (Income, Earnings and Benefits) is the heart of the FAFSA. You'll be asked for your adjusted gross income (Agi) -- basically, income before subtracting exemptions and deductions -- and other data from your 1997 income-tax return.

* On line 53 you report the student's 1997 AGI (if any) and on line 65 your own AGI, which will be used to determine your family contribution from income. If you are no longer living with your spouse due to death, divorce or separation but will file a joint return for 1997, you should show your portion of the joint AGI -- ditto for taxes paid and untaxed income, discussed below.

* Lines 54 and 66 ask for federal income tax paid. Be sure to report your total federal tax liability for the year, not just what was withheld from your pay or the balance due in April. Taxes reduce the amount of income considered available for college expenses, so underreporting could shortchange you of aid.

* Income earned from work (lines 55-56 and 67-68) is used to compute your social security tax (which also reduces available income) as well as an extra allowance for two-income couples. Don't overlook income that isn't part of your AGI but on which you pay social security taxes, such as earnings you divert to a 401(k) plan.

* Lines 57-61 and 69-73 ask about untaxed income and benefits, which are considered additional resources even if you can't really tap the money for tuition and other college costs. Contributions you made for 1997 to a tax-deductible IRA, 401(k) or other tax-deferred pension plan, for instance, are added back to your AGI and assessed as income, even though you've locked the money away for retirement. (Contributions you made in prior years are considered assets and sheltered from the aid formulas.) Last-minute strategy: One item not included in untaxed income is money set aside in an employer-sponsored flexible spending account for child care or medical expenses. If you have access to such a plan at work, take maximum advantage of it for 1998.

* Other items added to income include any social security benefits or pension income not tallied in your AGI, child support (only what you actually received), tax-exempt interest, foreign income, veterans' benefits, and living allowances for military or clergy. You're also asked to report "cash or any money paid on your behalf," which is where you'd disclose that Grandpa chipped in $10,000 toward educational expenses last year. However, if Grandpa gave your child a car, rather than cash, you don't have to include its value.

WHAT YOU OWN

Not all families need to complete Section F (Asset Information). If you and your student each have AGIs of less than $50,000 and are eligible to file a 1040A or 1040EZ (even if you actually file a 1040), assets are excluded from the aid formulas. Otherwise:

* On lines 75 and 83 you report cash, savings and chocking-account balances, excluding any student aid that's been deposited. Last-minute strategy: These accounts are fluid, and you must report their value on the day you sign and date the form. Before you do, pay any outstanding bills -- maybe even next month's bills -- to reduce your account balances.

* Lines 76 and 84 are devoted to your real estate and investment assets. Your primary home or family farm is excluded, as are cash value in a life insurance policy and assets in your retirement plans. But you must include the value of a vacation home or investment property, along with money-market funds, mutual funds, stocks, bonds and CDs outside retirement accounts. In the student's column, include custodial or trust accounts even if the student can't touch the money yet (unless a trust fund is set up exclusively for noneducational expenses, such as an accident settlement). You can omit an asset if its ownership is contested, as in a divorce.