Get schooled on financial aid – whatever your income level

Did you know that during the 2013-2014 aca­demic year more than $238.3 billion in financial aid (grants, federal loans, federal work-study, and federal tax credits and deductions) was awarded to undergraduate and graduate students? Did you realize that the recipients of all this financial aid came from households spanning a wide range of household incomes? During that same academic year, the average amount of aid for a full-time college student was $14,180, including $8,080 in grants (money that does not have to be repaid) and $4,840 in federal loans.

 

 

Get schooled on financial aid – whatever your income level

Did you know that during the 2013-2014 aca­demic year more than $238.3 billion in financial aid (grants, federal loans, federal work-study, and federal tax credits and deductions) was awarded to undergraduate and graduate students? Did you realize that the recipients of all this financial aid came from households spanning a wide range of household incomes? During that same academic year, the average amount of aid for a full-time college student was $14,180, including $8,080 in grants (money that does not have to be repaid) and $4,840 in federal loans.

Once you realize how many resources may be available and begin your research on financial assistance, you may be on your way toward easing some of the anxiety often associated with paying for college.

Set forth below are 5 lessons on seeking financial help for college costs:

1. Start planning how your family will pay for college while your child is finishing up middle school or just starting high school. Pay particular attention to your child’s junior year of high school, and reposition assets or adjust income before that year begins. When financial aid officers review a family’s need, they analyze the family’s income in the calen­dar year beginning in January of the student’s junior year of high school.

 

2. Always assume you are eligible for financial aid… until you are officially told that you are not. There are no specific guidelines or rules of thumb that can accurately predict the aid you and your child may be offered. Because each family’s circumstances are different, keep an open mind as you consider financial aid alternatives. A number of factors — such as having several children in school at the same time — may increase your eligibility for assis­tance. Also, schools have different approaches to financial aid. As a result, you should not automatically assume that a more expensive private school will actually be more expensive to attend than a less expensive state school. Indeed, it is not uncommon for the more expensive schools to offer more generous financial aid packages that effectively reduce and even eliminate the cost of attendance differential with the state schools.

 

3. Reassess and evaluate any assets held by your children. Federal guidelines expect chil­dren to contribute up to 20% of their savings toward the cost of their higher education. Parents, on the other hand, are expected to contribute a much lower percentage — up to 5.64% of their unprotected assets. This is why assets held in custodial accounts in your children’s names (bank accounts, trust funds, brokerage accounts) may reduce the amount of aid for which your family qualifies. If your child has significant assets in their name, you may want to transfer these assets elsewhere — into a 529 plan account for example. Assets held in Coverdell Education Savings Accounts (ESAs with income limita­tions) and 529 plans (operated by states and educational institutions) will be factored into the parent’s formula, and, thus, have a smaller effect on the aid for which the family qualifies. It is important to keep in mind that any such transfers should occur at least two years or more before the child will start college. Also, there are rules and restrictions governing if and how a child’s assets may be transferred. You should review these rules before pro­ceeding with any asset transfer.

 

4. Help grandparents target their gifts. Grand­parents’ hearts often lead them to make gifts directly to grandchildren or pay their tuition expenses. Even though payments made directly to a college avoid gift taxes, financial aid sources generally count these payments as an additional resource the family has to pay for college expenses. Distributions from grandparent-owned 529* plans are also considered as resources and assessed as your child’s income, which ultimately reduces the amount of eligible aid. A better idea for grandparents may be to consider making a gift to a 529 plan owned by the parent or grandchild. The financial aid treatment of gifts to 529 plans is generally more favorable than for gifts made directly to the grandchild. Plus, grandparents may also realize estate tax and gift benefits by using this alternative.

 

5. Assess your family’s financial situation to determine what your children will need. Gather  records and begin researching available financial aid, grants, loans and scholarships. Two forms will be key to your financial aid application process: the Free Application for Federal Student Aid (FAFSA) and the Col­lege Scholarship Service Financial Aid Profile (PROFILE). The FAFSA form helps you apply for federal aid, and many states also use it to determine a resident student’s eligibility for state aid. You can find these forms in high school guidance offices and college financial aid offices or online. Some colleges prefer that you use the PROFILE form to apply for financial aid. The College Board will charge you a fee to process your PROFILE form, thus, you should only submit this form if it is required by one of the schools you hope to attend.

Please note that you should never pay a fee to file the Free Application for Federal Student Aid (FAFSA) or pay to have someone fill out the FAFSA for you. You can easily find accu­rate and free assistance with this form from the College Board. Do not ever pay any fee for help in completing this form! Also, there are some unscrupulous operators that prey on prospective college students and their parents. Stay away from any individual or business that promises to help you obtain financial aid or scholarships so long as you pay them a generous fee.

In addition to these 5 financial aid tips, your investment advisor here at Burke Lawton Brewer & Burke can help you and your family plan for upcoming higher education expenses. Please do not hesitate to reach out to us for some assistance with this type of financial planning!

 

* Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan.