Net Gains: Get Money for College -- Now!

If you're the parent of a high school senior headed to college in September, it's time to get to work.

You need to get cracking on those financial aid forms you've been dreading. And that means you also need to begin work on your federal tax return.

A weekend afternoon spent watching playoff football sounds more appealing, but the hours spent preparing financial aid forms can be one of the better investments you make. The simple fact is the earlier you file the key forms, the better your chances of securing help to cover college costs.

Don't despair if you haven't started. It's still early. The financial aid filing season only began nine days ago. You could not file the key financial aid form — the Free Application for Federal Student Aid, or FAFSA — before Jan. 1.

"This is absolutely the time to begin complete the FAFSA," said Timothy M. Hayes, a Pittsford, N.Y., financial planner who specializes in college planning.

The absolute deadline for filing the FAFSA varies by state. Many require it to be filed by March 1 for students to qualify for state aid, but some require it to be filed even earlier. Connecticut, for instance, requires the form be filed by Feb. 15. The financial aid Web site says ideally that is that date by which all families should try to file the FAFSA.

There are three basic steps to the financial aid application process.

First, you must complete a rough draft of your 2007 federal tax return. The second step in the financial aid process is preparation of the FAFSA form. The third one is to file any forms required by individual schools. Quite often, this means filing the CSS Profile published by the College Board.

It may seem too early to begin work on your tax return, but you will need to prepare at least a preliminary version to get started on the FAFSA. Much of the information needed for the form is drawn from your tax return. Given that many tax forms such as W-2s have yet to arrive, you should start work using information from paycheck stubs, account statements and other year-end financial documents. If necessary, you can update the FAFSA after you finalize your tax return.

The form is available at You can print a copy of the form or request one be sent to you, but you are better off completing and filing the online version. It makes for speedier processing, and it helps avoid simple entry mistakes.

When you're ready to tackle the federal financial aid form, here are several tips from Hayes, founder and president of Landmark Financial Advisory Services LLC, outside of Rochester, N.Y., and a former executive director of the National Institute of Certified College Planners

First, Hayes said, pay close attention to what section of the form you are filling out. One part applies to the student; another part applies to his or her parents.

Other tips from Hayes:

When it asks what type of financial aid a family is seeking — loans, work study or both — parents should answer both. Some prefer their children not working during the academic year, but those parents should keep their options open and see what is awarded. "The work study might be pretty simple," Hayes said. Any type of financial aid award can always be declined later. (Question 26)

When asked about income tax paid last year, be sure not to use the amount withheld from paychecks. This figure usually is not correct and could inflate the figure if you are due a tax refund later on. If your tax return is not done, Hayes says to use your best estimate and then amend the FAFSA later if necessary. (Questions 36 and 80)

For the coming academic year (2008-2009), Coverdell Education Savings Accounts or 529 college savings plans owned by the student in custodial accounts do not need to be reported under student-owned investments. That will change for the following academic year, 2009-2010. Normally, assets owned in a student's name reduce financial aid at a higher rate than parental assets. Not needing to disclose Coverdell's or 529s owned by a student will improve financial aid chances. (Question 44)

With respect to divorced or separated parents, the assets and income of the parent with whom the students spends the most time should be listed, regardless of who claims the student as a dependent for tax purposes or whether parents share joint custody. (Question 56)

The federal financial aid formula provides an offset for parents the closer they get to retirement. The offset is based on the age of the older parent. If the older parent has a birthday around the time the FAFSA is ready to be filed, you should wait the extra day or two to allow the parent to report the higher age. (Questions 61 and 65)

The forms ask both about the total income of parents from working, separate from an earlier question on their adjusted gross income as calculated on a tax return. To be sure they receive credit for Social Security tax paid, Hayes said parents look to box 3 on a W-2 form. Box 1 is income after contributions to a 401(k) or other retirement plan and does not reflect the income on which Social Security tax was paid. (Questions 82 and 83)

With respect to the net worth of parents' investments, do not forget debt connected to the investments, such as margin loans, that reduce the value of an investment. (Question 88)

Overall, the FAFSA is "pretty good but can sometimes can be a little ambiguous," Hayes said.

That's why his most simple advice may be the most important: "Pay attention."

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning ( in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at