Going to college is exciting and can result in getting an education that leads to a career path of your choice. The negative part about going to college is the expense. Depending on the school and your degree path, the costs can vary from a few thousand a year to tens of thousands per year. Grants, scholarships and student loans can help pay for your college expenses but you must complete a FAFSA form to start the process.
FAFSA
A FAFSA is the Free Application for Federal Student Aid and is used to determine if a student qualifies for a Federal Pell Grant. Additionally the FAFSA must be filled out for students to apply for student loans. The FAFSA form requires a student to enter information from his tax return, or in the case in which a student is a dependent, information from his parents' tax return is used.
Adjusted Gross Income
The FAFSA form requires you to include your adjusted gross income. The adjusted gross income (AGI) is the amount of money you have earned minus the deductions that are withheld from your pay checks. The deductions are generally Social Security, health insurance, 401k deductions, federal and state income taxes.
Taxable Income
Taxable Income is the amount of money you have earned that you will be required to pay taxes on. Upon filing out your taxes you will deduct your exemptions and deductions allowed from your adjusted gross income. The remaining amount is your taxable income. This number is not used on the FAFSA form.
Reducing your AGI
Your AGI, in addition to other factors on the FAFSA form, establish your estimated family contribution (EFC). The EFC helps determine the amount of financial you may receive in the form of a Federal Pell Grant. The amount of AGI you can have and still qualify for the pell grant will vary based on the other factor such as the number of people in your family. You can reduce your AGI by paying more into your 401k, health plans, or putting money into an IRA.
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