Regardless of whether your child is two or twelve, the thought of college has probably crossed your mind. In the business of life and never-ending financial pressures, it is all too easy to ignore impending college years. But, your child’s education is one of the most important investments you can make, and, with today’s costs, it pays to have a plan in place.
These days, a high school graduate can expect to pay upwards of $200,000 for an undergraduate degree at a top school (1) and over $10,000 each year for in-state tuition alone at a public institution. (2) Thankfully, there are some genius ways you can maximize the financial aid your child receives to pay for their education.
Financial Aid Basics
Before we get into the tips and tricks to get as much money as possible, let’s look at how financial aid is determined. Here are the five factors that the federal student aid board takes into consideration:
- Parental income
- Number of children in college simultaneously
- Marital status of parents
- Assets in your child’s name
- Schools on your child’s list
Keep in mind that these factors are not all weighted equally. For example, income has a much greater impact than assets.
Expected Family Contribution
The FAFSA, or Free Application for Federal Student Aid, is the method used to potentially qualify for financial aid at your child’s college of choice. When you fill out this application, you will be asked to provide your financial information, which will then be calculated as your Expected Family Contribution, or ‘EFC’.
There are two types of aid available:
- Need-Based Aid: Colleges will offer need-based aid if a student can demonstrate their family has limited resources to provide for their education costs.
- Merit-Based Aid: To qualify for merit aid, students must show academic achievement, high test scores, and/or above average talents or accomplishments.
The College Factor
One of the main determinants of financial aid is the college choices on your child’s financial aid application. As an example, state universities rarely give nonresidents need-based financial aid, and many high-end colleges don’t offer merit scholarships to high-income families. For private institutions, much of the aid is in the form of loans, which only leads to a heavy debt load after graduation.
How To Conquer The FAFSA
If you have a high-income or plenty of assets, you are not out of luck. Use these five tips to maximize the amount of financial aid your child might receive:
1. Exclude Retirement Accounts
Retirement accounts such as IRAs, 401(k)s, 403(b)s, etc. are exempt from your application. Your best bet to get the most money possible is to save as much as you can in these accounts before the college aid application base years. Also, avoid withdrawing money from retirement accounts in financial aid application years since the funds will be treated as taxable income.
2. File Early
Apply for aid as soon as possible after January 1st. Some schools and states award aid on a first-come-first-served basis until it runs out.
3. Move Assets
Your child’s individual assets will count for 20% for aid purposes, but yours will only count for 5.64%. (3) Take a look at your child’s assets and, if possible, move money out of their name and into yours. This step alone can affect your child’s eligibility by thousands of dollars in aid.
If your children have assets that can’t be moved or that you decide against transferring, make sure you use those assets first when paying for college expenses. This will increase financial aid opportunities in their subsequent college years.
4. Pay Down Debt
Your debt doesn’t affect your financial aid eligibility, but your cash reserves will. Consider using your excess cash to pay off debt, therefore reducing the amount of savings you have to declare on your FAFSA.
5. Double Up On College Enrollment
The more kids you have in college at the same time, the better. Having two children enrolled in college simultaneously can decrease your EFC by 40% - 50%. (4) If your children are close in age, think about delaying college for the eldest so they can overlap.
Hopefully this overview gives you both confidence and peace of mind as you draw closer to your children’s college years. In our next post, we’ll be discussing even more tips to help you become a genius about financial aid so you can both preserve your wealth and protect your children’s financial future. If you want to discuss your options with someone who knows the ins and outs of college planning, schedule a phone call today!
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.