Financial Aid Tips

A recent article in the Wall Street Journal, How Not to Blow it with Financial Aid  by John Kuczala gives some great advice for parents and students looking for help with college costs.

First, get acquainted with two forms: The Free Application for Federal Student Aid determines your eligibility for federal help and aid from many schools. Additionally, about 250 mostly private colleges also require a form called the CSS/Financial Aid PROFILE. That form governs the awarding of institutional funds.

Kuczala points out that you’ll complete these forms based on your family’s tax return for the year before your child enrolls in college. So, if you have a junior in high school who plans to start college in the fall of 2014, this year, 2013, becomes your base income year. Therefore, if you expect to qualify for financial aid, don’t register large capital gains or sell investment properties. Also, if you own a business, you may want to defer compensation or take a lower annual salary.

According to the federal formula, every $10,000 reduction in income improves your aid eligibility by about $3,000 if you have one child in college.

The article also notes how a child’s assets and income count heavily against potential aid. Every dollar a child has in assets—including bank accounts or trust funds—cuts their possible award by 20 cents. Every dollar a child earns in income above $6,130 (the limit for 2013-14 aid) cuts their possible award by 50 cents.

With college costs increasing faster than inflation, and financial aid decisions that don’t come until acceptance time, it makes sense to make sure your student applies to a “financial-aid safety school,”  such as a state university that you’ll be able to afford without aid.

Finally, some interesting facts from a recent Sallie Mae survey: Nearly 30% of high-income families didn’t fill out the FAFSA last academic year. And, the typical family earning more than $100,000 received $5,451 in grants and scholarship.

Importantly, not filling out the FAFSA can disqualify your student from merit-based aid, awards that have nothing to do with your finances and are often offered by mid-tier schools to top students.

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