How Not to Blow It With Financial Aid

Paul FennerEducation Planning

College planning process

For those soon to be college student parents out there, this is a very important post specifically for you.  Compliments of Rachel Ensign of the WSJ, Ms. Engisn has put together this excellent piece regarding the ins and out of the financial aid process.  If you currently have a junior level high school child this is especially important as there are things that you can do yet this year to improve your financial standpoint.

Full article here, highlighted bullets below

  • The Free Application for Federal Student Aid, which determines your eligibility for federal help and aid from many schools, is based on your family’s tax return for the year before the child enrolls in college. In other words, if your child plans to start college in fall 2013, schools will look at your return for 2012—the base income year.
    • take any big windfalls, such as capital gains or the sale of a property,before the Jan. 1 when your child is a high-school junior, says Mark Kantrowitz, publisher of financial-aid website If you own a business, you may want to defer compensation or take a lower annual salary.
  • A child’s income and assets count heavily against their potential aid. Every dollar a child has in assets—that includes bank accounts or trust funds—cuts their possible award by 20 cents. Every dollar a child makes in income above $6,130 (the limit for 2013-14 aid) cuts their possible award by 50 cents.
  • Money held in a 529 belonging to a student or custodial parent reduces the student’s eligibility for financial aid only up to 5.64%—meaning an account with $10,000 could knock off a maximum of $564 in aid.
  • When figuring out where your child will apply, don’t just guess what schools might offer in aid. Colleges make it easy to figure out how much they’re likely to give, with net-price calculators on their websites.
  • Colleges can figure out when top-flight students are using them as safety schools; these kids’ grades and SAT scores will be significantly better than those of the average student who enrolls. With less scholarship aid available at most places, some midtier schools are less willing to offer high-performing students merit money if they think it’s unlikely they’ll enroll, says Alex Bickford, senior manager of college finance at College Coach and a former financial-aid officer at Southern New Hampshire University.
  • In the heat of the application process, some affluent families don’t apply for aid because they assume they’re not eligible. Nearly 30% of high-income families didn’t fill out the FAFSA last academic year, according to a recent Sallie Mae survey.  That’s usually a big mistake since affluent families may qualify for at least some aid.
  • Most schools have their own format for these offers, but one constant is the expected family contribution—a gauge of how much your family can expect to pay each year out of pocket. The catch, which often isn’t immediately obvious, is that the expected contribution often isn’t all you’re paying.
  • If you do plan to take out loans, be wary of ones from private lenders that boast good-looking interest rates.
  • In many cases, colleges will increase your aid package if you appeal it. But you’ll have to know what information to put forward to convince them.
  • Once your child’s freshman aid package is set, remember that you’ll have to go through the process again with a new FAFSA each subsequent year, and that the results may well be different, even if your financial picture doesn’t change in your new base income year.
  • One more thing to bear in mind: Even if your child didn’t receive any aid in the first year of college, keep applying in subsequent years. If you have a change in your family situation—say, another child goes off to college or your family income goes down—you could become eligible for aid.