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. You can begin submitting the FAFSA, the Free Application for Federal Student Aid, as early as January 1.
As the FAFSA deadlines approach, consider these 6 tips to get more aid.
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 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 reportable income, this amount was assumed to be available for covering college costs.
Save yourself time, money and aggravation by working with a Certified Financial Planner ™ professional who is experienced as a college funding advisor. You’ll be glad you did.
