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      • December Client Letter - Cruising at 30,000 Feet
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      • September 2020 Client Letter
      • Consumer Scams
      • May Client Letter-- Worst-Ever Economy Yet Stocks Show Best Monthly Gain Since '87
      • Why Waiting For A Market Rebound Could Cost You
      • How The Greatest Generation Approached September 11th
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      • The SECURE Act
      • Market update: When favorable fundamentals collide with uncertainty
    • News - Archives >
      • 2015 - To be happy, be grateful. - It's science!!
      • 2015 - Market Volatility - So Now What?
      • 2015 - Retirement planning: Start early or start late – just start
      • 2015 - Financial Planning Checklist
      • 2014 In Review - A bullish mood and risks that dot the landscape.
      • 2015 - A sneak peek at 2015 – What to keep an eye on
      • 2015 - Getting The Most Out of Financial Aid for College
      • 2014 - Cheaper by the Dozen: 12 smart year end planning moves
      • 2014 - How safe is your personal information?
      • 2014 - Hey, what’s your number?
      • 2014 - What did we do before GPS?
      • 2014 - Changing Jobs Checklist
      • 2013 - US Government Shutdown - What it means
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      • 2011 - 8 Ways to Help Couples Overcome Money Conflicts
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      • 2011 - 7 things you and your student should discuss before they head off to college
      • 2011 - 7 mistakes to avoid when exiting your business
      • 2011 - Why you need an Estate Plan even if you don’t live in a mansion
      • 2011 - Celebrating Irish Heritage
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      • 2010 - in review, and a look toward 2011
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      • 2016 - December Letter to Clients: Near Term Impact of Trump's Victory
      • 2015 - September Client-letter: Looking past scary headlines
      • 2015 - November Client Letter: The Clouds Part
      • 2015 - December Client Letter, A Baker's Dozen: 13 Smart Planning Moves

Getting The Most Out of Financial Aid for College

Financing a college education is something that parents of both toddlers and high school seniors have to be concerned about. With the sticker price of the nation’s top private universities now topping $200,000 for four years, financial aid has become a critical component in making higher education a possibility for most families.

The Free Application for Federal Student Aid, aka FAFSA, the document that colleges around the country use to determine the amount of financial aid to award to students, was released on January 1. Some schools have FAFSA deadlines as early as mid-February, so now is the time for families with college-bound kids to get their financial documents together and prepare to apply. And for families with younger children, learning about the FAFSA and financial aid formulas in advance is smart because there are some things you can do long in advance to improve your financial aid award when the time comes. 

1. File Early

January is an ideal time to go ahead and get the FAFSA out of the way. Some schools and several states award aid money on a first-come, first-served basis until funds are depleted. It’s easiest to file your taxes first and then use that as a reference point for filling out the FAFSA, but you can also estimate fields on the FAFSA form using your last pay stub and last year’s tax return.

If you use estimates, you’ll have to update the form with accurate information later, but the IRS data retrieval tool will automatically update your application so you don’t have to worry about manually entering new numbers. Also be aware that some schools require the CSS Profile which asks for more detailed information than the FAFSA and sometimes has a different deadline from schools.

2. Not Sure You’ll Get Aid? File Anyway

It’s tough to predict exactly how much money a given family will receive, but it has been estimated  that households earning up to $180,000 will likely qualify for some form of financial aid. Even if you make more than that, there are reasons to apply. Students who don’t apply for aid when entering college are often banned from asking for institutional aid in subsequent years. If your family’s financial situation changes while a student is in school, it can be harder to get aid if you didn’t apply for it initially. Also, qualifying for federally sponsored loan programs like Stafford Loans and Parent Plus loans requires filling out the FAFSA first.

3. Be Sure to Fill Out the Form Completely

This may seem obvious, but mistakes on the FAFSA can delay the processing of your application and shuttle you to the back of the line when it comes time to hand out aid awards. One easy mistake is leaving blank fields that don’t apply to you. Always be sure to write an “0” instead in such instances. The online version the application will help alert you when you’ve improperly left fields open.

4.  Move Money Out of Children’s Bank and Brokerage Accounts

The FAFSA formulas assume that students should be able to spend 20% of their assets on college. For parents, the rate maxes out at 5.64% of assets. (Rates for income are higher for both groups.) Moving this money over to a 529 account in a child’s name shields it from consideration as a child asset in FAFSA calculations. A 529 that parents control will also be evaluated at the lower 5.64% rate, just like any parental asset.

Alternatively, families can use a student’s savings to pay tuition during freshman year so that the money won’t continue to limit aid awards in subsequent years.

For families with younger children, the simplest solution to avoiding the higher rates is to consistently save for college in parental accounts instead of setting up child-owned college savings accounts.

5. Use a Supplementary Letter to Explain Extenuating Circumstances

Though the FAFSA asks more than 100 questions, there’s no opportunity on the form to explain specific family circumstances, like a recent job loss or high medical bills. If there are more facts you think financial aid officers need to know, you can send in a supplementary letter explaining the situation that might necessitate more aid. For instance, if you recently lost your job, provide the layoff notice from your former company and documentation from the unemployment office outlining your unemployment benefits.

6. Spending Down Savings Can Help If You’re Dealing with a Large Sum 

If you have a lot of savings, you can explore options for spending some of that money before filing your FASFA. Doing things like paying off credit card debt, prepaying your mortgage, or making a big household purchase at the start of the year will leave you with a lower asset base to be assessed on the FAFSA (value of assets is considered based on the date you file). But before you go burning through all your cash, remember that the FAFSA formula actually shelters around $50,000 worth of assets from being considered in the expected family contribution toward education, with the exact amount depending on the age of the parents. In other words, the “spending down” strategy is only effective for big savers and big spenders.

7. Appeal a Disappointing Aid Package

After a college has sent you a financial aid package, there’s still an opportunity to negotiate a better aid award with the school. If there has been a substantial change to your financial situation, or schools have given you wildly different aid packages, it might be worth making a call to the financial aid office.

8. Be Prepared for Different Aid Packages

Though dozens of elite universities claim to meet 100% of accepted students’ financial need and many more accept students on a “need-blind” basis, financial aid awards can vary greatly, even at schools of similar academic quality. Only a handful of the country’s most elite college offer all financial aid in the form of grants that don’t have to be paid back. Most financial aid packages include a mixture of grants, low-interest loans, and work-study opportunities. Make sure you know how much you’re receiving as a gift and how much you’re borrowing when comparing aid packages.

9. Beware Capital Gains, But Not Retirement Accounts

When it comes to investments, realized capital gains are treated as income, so it’s best to cash in on securities before the spring of a child’s junior year in high school. However, investments sitting in IRAs or 401(k)s are not considered on the FAFSA, so a large nest egg won’t affect your aid package. In fact, socking extra money away in your retirement accounts while your child is in high school is actually an effective way to lower the asset base that the FAFSA considers.

10. Don’t Game the System

Lying about your income or assets on the FAFSA is a form of fraud punishable by a fine up to $20,000, forfeiture of financial aid awards, and potential prison time. With more collaboration between individual colleges, the Department of Education and the IRS, schools have become more savvy in sniffing out fraudulent applications.   If you would be embarrassed or uncomfortable saying you were doing something to a financial administrator, that’s a sign that you shouldn’t be doing it.

http://business.time.com/2013/01/25/10-tips-for-getting-the-most-out-of-college-financial-aid/

Your comments and questions are always welcome.
We look forward to hearing from you.  mail@kyleshill.com


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- John Davidson, CFP
  • Home
  • Background
    • About Us
    • Q&A
    • Disclosures
    • Privacy Policy
  • Services
    • Planning Process
  • Clients
    • Business Owners
    • Individual Professionals, Families, Retirees
  • Contact Us
    • Newsletter Sign-Up
    • Useful Websites & Quick Hits
  • Account Access
  • News
    • 2021 News Articles >
      • What is it about September?
      • Will Tax Law Changes Increase Your Taxes?
      • Tax Watch: SECURE Act 2.0?
      • The unstoppable bull market?
      • Stocks Cruise at a High Altitude
      • Tax law changes on the horizon – 5 things to consider
      • Not Your Fathers Economic Recovery
      • Are HSAs the New IRAs?
      • REVENGE OF THE NERDS - Internet forums vs. the professionals
      • Protect Your Financial Information
      • 2021 January Market update - A rollercoaster year ends on a high note
      • Avoiding 7 Retirement Traps
    • 2020 News Articles >
      • December Client Letter - Cruising at 30,000 Feet
      • 9 Tax Facts & Tips to Save You Money
      • 9 Smart Planning Moves to Consider
      • November Client Letter - Election 2020
      • 7 Financial Planning Steps for Year End 2020
      • 6 Tips on Filing the FAFSA
      • Circling Back to the SECURE Act!
      • A September Pothole
      • 6 Steps That Put You on the Path to a Successful Retirement
      • Consumer Scams Part 2
      • September 2020 Client Letter
      • Consumer Scams
      • May Client Letter-- Worst-Ever Economy Yet Stocks Show Best Monthly Gain Since '87
      • Why Waiting For A Market Rebound Could Cost You
      • How The Greatest Generation Approached September 11th
      • Laid Off And Near Retirement - What Now?
      • The SECURE Act
      • Market update: When favorable fundamentals collide with uncertainty
    • News - Archives >
      • 2015 - To be happy, be grateful. - It's science!!
      • 2015 - Market Volatility - So Now What?
      • 2015 - Retirement planning: Start early or start late – just start
      • 2015 - Financial Planning Checklist
      • 2014 In Review - A bullish mood and risks that dot the landscape.
      • 2015 - A sneak peek at 2015 – What to keep an eye on
      • 2015 - Getting The Most Out of Financial Aid for College
      • 2014 - Cheaper by the Dozen: 12 smart year end planning moves
      • 2014 - How safe is your personal information?
      • 2014 - Hey, what’s your number?
      • 2014 - What did we do before GPS?
      • 2014 - Changing Jobs Checklist
      • 2013 - US Government Shutdown - What it means
      • 2013 - Investing in College
      • 2012 - Getting (back) on track - The best part of my job…
      • 2011 - The Henny Penny School of Investment Wisdom
      • 2011 - 8 Ways to Help Couples Overcome Money Conflicts
      • 2011 - Intelligent Computer Shopping
      • 2011 - 7 things you and your student should discuss before they head off to college
      • 2011 - 7 mistakes to avoid when exiting your business
      • 2011 - Why you need an Estate Plan even if you don’t live in a mansion
      • 2011 - Celebrating Irish Heritage
      • 2010 - Priorities: Retirement Planning Vs College Savings for Children
      • 2010 - in review, and a look toward 2011
      • 2010 - New Years Resolutions - 2011
      • 2010 - Business Owners – a special case for diversification
      • 2010 - Year End Planning 2010
      • 2010 - Paying for college - Applying for student aid, determining your Expected Family Contribution
      • 2010 - Paying Taxes
      • 2010 - Job-Loss
      • 2010 - Habits
      • 2009 - Shopping
      • 2009 - Gift-Idea
      • 2009 - Thanksgiving
      • 2009 - Q3
      • 2009 - Recovery
      • 2009 - Results
      • 2009 - Digging
      • 2009 - Time
      • 2009 - Considering
      • 2008 - Planning
      • 2008 - Resolutions
    • Life Transitions >
      • Get A Job/Leave Job >
        • 9 Questions to ask your CPA at tax time
        • Getting (back) on track - the best part of my job
        • Changing Jobs Checklist
        • Job Loss
        • Taxes - 7 ideas to ease the burden - 2018
        • Year End Planning Checklist: 12 smart planning moves to consider
      • Marriage/Divorce/Re-Married >
        • 8 Ways to Help Couples Overcome Cash Conflicts
      • Kids (Birth/College/Marriage) >
        • 7 Things you and your student should discuss before they head off the college
        • Getting The Most Out of Financial Aid For College
        • Investing In College
        • Budgeting For Students
        • Save on Textbooks
        • Subsidized vs unsubsidized loans – what’s the difference?
        • 7 Tips for Your College Bound Student
        • “What I did on my Summer Vacation – 2019”
        • Budgeting for College Students - 2018
        • Most Significant FAFSA Changes in over 20 Years!!
        • Direct 529 Plan Changes To Be Implemented
      • Birth/Death >
        • Is a cash windfall in your future?
        • Planning for People with Special Needs
    • Client Letters >
      • 2019 - July Client Letter: Records Are Made To Be Broken
      • 2018 - Summer's Hot Issues
      • 2018 - November Market Update:
      • 2016 - January Client Letter - A volatile year ends with a whimper
      • 2016 - September Letter to Clients: The Ides of September?
      • 2016 - November Letter to Clients: The Final Countdown?
      • 2016 - December Letter to Clients: Near Term Impact of Trump's Victory
      • 2015 - September Client-letter: Looking past scary headlines
      • 2015 - November Client Letter: The Clouds Part
      • 2015 - December Client Letter, A Baker's Dozen: 13 Smart Planning Moves