For many parents of college-bound juniors and seniors as well as graduate school candidates, it will soon be time to file financial aid forms.
Last month I covered several strategies to lower your expected family contribution (EFC) which can be found here.
For help with scholarships or other free money, you can find information at the College Board under “Fund Finder” or try some of the free resources available at www.Scholarships.com or www.FastWeb.com.
If you or a child or grandchild are going to college or grad school, you may want to consider these tips to help increase your eligibility for financial aid.
Aid Varies Based on Cost of Attendance
Tip #1: Integrate financing with college search
Don’t search for a college based on sticker price. Most students never pay the sticker price. And to improve the odds for aid, look at colleges where your student’s credentials will put him or her at the top quartile for that college.
Tip #2: Don’t Overvalue Your Assets
Too often parents will simply provide the current value of investments, real estate or businesses. This may actually overvalue assets which may reduce the amount of aid that your student may qualify for when it’s needed most. You need to consider the impact from a “liquidity” discount as well as the impact of taxes from the sale of assets.
Tip #3: Spend the Custodial Accounts
Custodial accounts like UGMAs or UTMAs may have cash accumulated in them. These accounts will be assessed at the higher student’s rate by the financial aid system. It’s better to use the proceeds to buy big ticket items that the student may need now (i.e. computers, dorm furniture, car) instead of having to list it as an asset on the aid form. Alternately, you could transfer the proceeds to a 529 account listing the parent as the owner.
Tip #4: Change the Composition of Assets in Your Investments
Investment income and dividends reported on tax returns for the Base Year (the year before your student will start the freshman year) will potentially adversely impact the offer of aid. So it makes sense to revisit your investment allocations and consider shifting from dividend-paying or fixed income investments into more growth-oriented assets.
Tip #5: Change the Types of Income Reported on Your Tax Return
For those who own investment real estate, there are ways to shift the income from investment property to income from a business which is assessed at a lower rate.
Such strategies will help lower the Expected Family Contribution and improve the odds of receiving more aid. For every $1 reduction in income, you increase your chances of aid by 47 cents.
Tip #6: Work with a Financial Planner Who Understands the Rules for Financial Aid
Not every tax or financial adviser is familiar with the intricacies of the financial aid system.
Improperly reporting income or assets will have a long-term negative impact on your student’s aid chances and may jeopardize a parent’s retirement assets.
In one case, a widowed mother of a child going to college took the advice of a stock broker who convinced here to shift more than $400,000 in cash inherited to an investment portfolio of stocks and bonds. The investments did so well producing dividends and income that the woman’s child lost out on financial aid.
As cash there was a loophole that allowed this money to be exempted from financial aid consideration. But once it had been invested and earned reported income, this amount was assumed to be available for covering college costs.
For more specific help with college funding strategies including tax planning, investing or applying for financial aid, please call 978-388-0020, 978-416-4107 or 617-398-7494.