When it comes time to fill out those lengthy forms for college financial aid, higher-income families may be tempted to skip the arduous process entirely. While it’s true that getting financial help for college is more difficult for those in the top income tax brackets, you shouldn’t write off the process entirely. Even children from families with six-figure incomes may get some aid, and you’ll never know if you don’t apply.
Tip #1: Fill Out the FAFSA and the PROFILE
FAFSA, or the Free Application for Federal Student Aid, is the form you’ll need to complete to receive any federal student aid (including federal work study and subsidized student loans). Many schools also require the FAFSA in order to be considered for institutional aid (support the school provides itself). In addition, your student’s school may require you fill out another form, the CSS/Financial Aid PROFILE, to be considered for aid they provide.
Filling out these forms takes some time, but they are the gateway to virtually all aid programs. And because aid programs are so diverse and vary so much from school to school, it’s almost always worth it to complete the application.
Tip #2: Know What Counts – and What Doesn’t
Financial aid formulas are complicated, which can lead to misconceptions about what factors affect a student’s aid eligibility. The general rule is that your income, total assets, family size, number of children you have attending college, and the costs of the school the student is attending all play a role in determining your expected family contribution (EFC), or the amount you are expected to be able to pay for a child’s college expenses.
The FAFSA doesn’t look at the equity in your primary residence, money in your 401(k) or IRA, the cash value of life insurance policies, or the value of a business you own that has fewer than 100 employees. Assets that are considered are any real estate you own other than your primary home, nonretirement investments, and money in your savings and checking accounts. Institutional aid formulas may differ from federal formulas.
Tip #3: Control Your Income during College Years to Increase Aid Eligibility
Obviously, you shouldn’t try to take advantage of the financial aid system. But being smart about your finances while your children are in college can mean they’ll receive more financial aid. Remember, as your income rises, your financial aid eligibility declines – for every $10,000 increase in income, aid decreases by roughly $3,000. That means you might want to avoid selling highly appreciated investments when your child is in school. Stock options that vest or big payouts from your company at retirement can also throw off financial aid expectations.
Tip #4: Be Smart about How You Save for College
Just because you’re saving for your child’s college education doesn’t mean that you should save that money in their name. That’s because colleges will view 20% of students’ assets as available to pay for college. In contrast, only 5.6% of parents’ assets can be tapped to pay for college. Also look for tax-advantaged ways to save for college.
Tip #5: Focus on Net Price, Not Sticker Price
It’s easy to take a quick look at sky-high tuition prices at many colleges and assume that they’re completely out of reach. It’s better to focus on the net price, or what you’ll actually pay if your child enrolls. Federal law requires that most colleges include net price calculators on their websites. Depending on how much you earn and other factors, the net price may be far lower than the sticker price.
Tip #6: Don’t Forget to Negotiate
Financial aid offers aren’t set in stone. While you can’t haggle with a financial aid officer the way you would with a car salesman, you can appeal if you think your financial aid offer isn’t what it should be. If one school offers a great aid package and another a lackluster one, you may be able to leverage the first school’s offer to receive more aid from the second school. Another time to ask for a second look at your financial aid application is if your financial situation changes or you made a mistake on the aid application.
Need help figuring out how to manage college costs in your family? Please call if you’d like to discuss this topic in more detail.
Copyright © Integrated Concepts 2015. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.