True or False: Savings for college under my child’s name will increase our financial aid
FALSE: In calculating financial aid for a dependent student, the formula uses 20 percent of the student’s assets (after deducting allowances). The formula only uses 12 percent of a parent’s.
True or False: The ages of the parents are irrelevant in calculating financial aid.
FALSE: Under current rules, a significant portion of a parent's assets is deemed "protected" from being used to pay for college. The amount protected is based on the age of the older parent, with the benefit increasing with age. Here's an example of how that works. If a two-parent family has $100,000 in assets and the older parent is 55, $46,800 of the assets will be protected. This means the balance of $53,200 will be used for the calculation and factored at 12 percent (the parents rate).
True or False: A student’s income is so small that it is practically irrelevant in calculating financial aid while a parent’s income is the big factor.
TRUE with a CAVEAT: A student’s income is calculated at 50 percent, while the parents income is not factored, but is reduced for the calculations based on allowances for taxes and family size. If the student decides to work before attending college, it will have more of an impact.
True or False: Lower-income families and older parents are expected to pay less; higher-income families with younger parents are expected to pay more.
TRUE: The percentage contributions for parents vary depending on their economic status and age.
True or False: Once you’ve been denied aid it is pointless to fill it out the next year.
FALSE: If your income changes, the program changes or the number of children you have going to school changes, the likelihood of receiving aid increases. It is recommended that you apply each year.
Maximize Your Aid:
529 College Savings Plans are a good idea, the FAFSA analysis formula will put less weight on these funds. An even better idea is to have a grandparent own the 529 plan, because it will not be used in the FAFSA analysis formula at all.
FAFSA is based on your prior tax year. If you are going to make big purchases like a new roof, do it the year before so that money is not counted as an asset.
When spending asset money for college, spend your student’s assets first since it is assessed at a higher percentage than parents. Also keep in mind that the assets of a sibling are not calculated in the FAFSA equation.
Holding certain types of assets will reduce your eligibility for aid. Non-countable assets include: retirement plans, your personal residence, life insurance, annuities, personal cars and boats. Keep in mind that adding consumer debt will not help, but increasing your investment spending or business debt can mean more aid.
Remember to keep your “base” year of adjusted gross income and total worth as low as possible in the year prior to your application – this will reduce your expected family contribution and increase your financial aid opportunities.
Be sure to consult a tax adviser before using any of these strategies. The information contained in this article is not given with the intent to offer legal or tax advice since the situation of each individual is different.