Everyone is feeling the pressure from the recession – high oil prices, volatile financial markets, real estate foreclosures, etc. But our students are also feeling the squeeze as they try to get into college. The cost of an education will increase about twice of the general inflation rate according to www.FinAid.org. Students are finding that their parents make too much money for some aid and not enough for others. The information that a family puts on the Application for Federal Student Aid (FAFSA) will determine the Expected Family Contribution (EFC) which the US Department of Education uses to determine a student’s financial need. Here are the secrets the pros use:
You can find out what investments reported on the FAFSA are condered in the EFC calculation here – www.fafsa.ed.gov/. Remember that income, dividends, and capital gain distributions show up on a tax return. Colleges have no way of knowing the applicant or family’s net worth except from that information.
Prepaid tuition plans no not count as investments so use those for education planning if you think you will need financial aid in the future. Check out a review of those plans by Morning Star here – http://advisor.morningstar.com/articles/doc.asp?s=1&docId=12851&pgNo=0
Traditional and Roth IRAs do not count but a conversion to a Roth would not be wise since it will show as income on the tax return and the return is part of the FAFSA.
Assets held in a trust for a student are part of the EFC calculation. If grandma wants to put some money in a trust for the student, have her give cash instead.
Private schools tend to use the CSS/Financial Aid Profile which you can find here – https://profileonline.collegeboard.com/index.jsp.
Graduate schools usually do not give out loans. You must use Stafford loans and private loans.
Some web resources for you:
There are also lots of good college coaches out there but beware of those helping to hide assets- that’s unethical. But helping a client maximize their chances of getting financial aid by navigating the systems effectively is… priceless.
Coaching Question – What amount of financial aid will your student need?