Financial Aid
The following are the top strategies in impacting need-based financial aid eligibility:
1. To maximize financial aid, save money in the parent’s name, not the child’s name.
2. Pay off consumer debt, such as credit card and auto loan balances
3. Parents should go back to school to further their own education at the same time as their children, or have multiple children in college at the same time. The more family members that are enrolled, the more student aid will be available to each.
4. Spend down the student’s assets and income first.
5. Accelerate necessary expenses, to reduce available cash. For example, if you need a new car or computer, buy it before you file the Free Application for Federal Student Aid.
6. If you feel that your family’s financial circumstances are unusual, make an appointment with the financial aid administrator at your school. Sometimes the school will be able to adjust your financial aid package to compensate using a process known as Professional Judgment.
7. Minimize capital gains and in turn, maximize student aid
8. Maximize contributions to your retirement fund.
9. Do not withdraw money from your retirement fund to pay for school, as distributions count as taxable income, reducing next year’s financial aid eligibility.
10. Minimize educational debt
11. Ask grandparents to wait until the grandchild graduates before giving them money to help with their education. This can be used later to pay down the balance on your student aid loan.
12. Trust funds are generally ineffective at sheltering money from the needs-analysis process and can backfire on you.
13. Prepay your mortgage
14. A section 529 college savings plan owned by a parent has minimal impact on financial aid, and one owned by a grandparent has no impact on financial aid.
Keep in mind, federal regulations regarding financial aid change frequently. Therefore, strategies that work in increasing student aid this year may not work next year.
Consider these several basic principles when attempting maximize federal student aid:
1. You can maximize your need-based student aid by reducing income during base years
2. Reduce ‘included’ assets. There are two types of assets, ones that are included in the needs-analysis formula for distributing federal student aid and those that aren’t.
3. Increasing the number of family member enrolled in college and/or pursuing a degree or certificate at the same time. This effects the estimated family contribution ratio when considering distribution of federal student aid.
4. Change the student’s status from dependent to independent. This is generally difficult to do, but it will make a significant difference in the amount of student aid money received.
In regards to income:
1. If you estimate your income on the Free Application for Federal Student Aid, don’t overestimate. Using too high an income figure will have a significant impact on your expected family contribution and, in turn, the total amount of student aid money you receive.
2. Be careful when reporting the amount of taxes paid. Many people confuse the amount of withholding (W2 form) with the amount of taxes paid. Don’t let this affect your need-based financial aid eligibility.