Financial Aid Forms – Best Way to Increase College Aid for Free?

by Neal Frankle, CFP ®

You can take steps now so that when you complete the college financial aid forms, you’ll get more money.

 financial aid forms

I read an article in Investor’s Business Daily over the weekend that explained a neat little trick that will help that was far more powerful than using college tuition tax credits. I’m going to explain it in just a second…and then I’m going to explain how the paper completely missed a much more important step that will save you a heck of a lot more money.

First some background to help you understand the slick trick on those financial aid forms.

If you want tuition assistance, the most important financial aid form you’ll complete is the FAFSA form. In it, you’ll tell Big Brother how much you (the parents) earn and have saved and how much the student earns and has saved. Money you and your student have reduces the aid you’ll get for college. However, only 5.64% of the parents’ assets are counted, versus 20% of the student’s assets. That being said, it may make sense to move assets from the student to the parent.

One way the paper suggests people do this is by moving any money in custodial accounts (which are counted as assets of the student) to 529 plans (which are counted as assets of the parents). 529s are among the best college savings plans because of the tax benefits and for the help they provide in qualifying for aid. Of course if you do this, you have to think about capital gains on any positions you sell, and you should consult your tax adviser before doing anything.

But all things considered, it was a pretty nifty idea and one you may want to use. (You should consider this especially if your children are young and you are just starting to build up a college fund for them.)

Now…here’s where the article completely blew it.

While they rightfully extolled the benefits of obtaining an expensive college degree, they failed to point out the benefits of getting the degree as cheaply as possible.

At first, I was hopeful they would. Early in the article, they even pointed out that the average private college will cost you at least $35,000 while the average state school is $15,000. I thought they’d focus on that…but alas, they didn’t.

It doesn’t take an Ivy League journalist genius to do the math. State school can save you $20,000 a year. Sweet.

You’d have to convert a heck of a lot of money from a custodian account to a 529 before you’d get anywhere near the savings that you could get by getting your undergraduate degree from a state school.

I’ve written about this many times before and I’m going to keep writing about it every chance I get.

I’ve seen so many people mortgage (and forfeit) their future to send their kids to the “best schools.” When those kids get into the workplace, they end up working right beside the kids that went to state schools. The only difference is the kids who went to state colleges don’t have the $100,000 loans that their private school compadres have. Rather than go for snob appeal, they should have been looking for ways to cut educational expenses and debt.

There has never been any conclusive study that justifies the astronomical cost of private school for undergraduate work. In fact, the studies I’ve seen support just the opposite conclusion.

Today is President’s Day. Nine U.S. presidents didn’t even go to college – including George Washington and Abraham Lincoln. I’m not saying that college is a waste of time and money. I am strongly suggesting that you remain aware of the tactics that will save you nickels and dimes…but stay alert and focus on the strategies that will give your kids a great career path, a fine education and as little debt as possible for them and you.

 

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{ 10 comments… read them below or add one }

The Saved Quarter February 25, 2010 at 10:11 PM

I’m a returning student and learning the ins and outs of getting a college education on the cheap! I definitely second the community college recommendation for the motivated student. They can get those first 2 years done for significantly less than even public colleges. I’ll have my first 2 years done by the end of 2010 at community colleges and then will transfer to a local state college, saving thousands of dollars.

Another thing to look into is Individual Development Accounts. I posted about it on my blog back in January:
http://thesavedquarter.wordpress.com/2010/01/08/i-love-ida/

For low-income college students like myself, it’s a wonderful resource! Mine is giving me $2 in matched funds for every $1 I save toward college. When I’ve saved $2,000, they’ll give me an additional $4,000, so that I have $6,000 that I can use for my tuition, books, and a laptop. Between that and the Pell Grant, I will have most of my college expenses covered without needing loans. I’m also seeking out grants for moms returning to school.

I wouldn’t recommend students take the time off like I have, since returning as an adult with kids and family obligations is much harder, but there are financial options available now that I didn’t have when I was under my parents’ income.

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business mentoring February 21, 2010 at 6:44 AM

There is obviously a lot to know about this. I think you made some good points in it.

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Financial Samurai February 16, 2010 at 10:18 PM

If Harvard raised their tuition from $42,000/yr to $100,000/yr I bet the demand would decrease only slightly compared to the 120% increase in tuition!

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Sandy L February 16, 2010 at 8:17 AM

My #1 biggest college mistake is going to a small highly ranked engineering school. In the end, I realized networking is far more important. People are far more likely to hire a fellow alum than someone from another school. If I were to do it again, I’d go to a big school that had a lot of successful alums that came out of it.

Financial aid is great. Lesson #2 which I learned from an older ex in school. No matter what they give you, go to the financial aid office at school in person and ask for more. I got additional aid 4 years in a row. Every little bit counts.

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Neal@Wealth Pilgrim February 16, 2010 at 8:39 AM

Nice tip Sandy!

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Erik February 15, 2010 at 2:01 PM

Excellent post! College costs are one of the highest inflation items for families. I think last I read it was around 7 – 8% per year. The rule of 72 tells us that means that for a parent whose child is born in 2010, by the year 2028 it will cost almost three times as much to send Jr to get his degree.
In-state schools are good, but where another overlooked bargain exists is in 2-year associates degree programs offered by many community colleges. Combining the two year community college and transferring to an in-state school offers a chance for further cost savings. In my town, you can get a 2-year degree through the community college, and almost all of the credits will transfer to the local university. The community college tuition is about ½ the state university cost, so you pocket even more savings. Also, the atmosphere of the community college is strictly about education: no fraternity or party life to distract. Not downing those social aspects of life, but they do add to the costs! Also, the student body at a community college often draws in older, non-traditional students who bring valuable, real-world experience to the discussions and lectures. Another bonus is the instructors are typically locally employed or own small businesses, which means they spend a lot of time in the job market the students wish to enter. Some of the good students even get hired on by their teacher’s or their teacher’s companies. The “ivory tower of academia” is fine for some majors, but a lot of students get more practical knowledge and experience from these instructors who earn their daily bread doing the career work they are teaching to their students.

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Neal Frankle February 15, 2010 at 4:20 PM

Right on Erik. There is nothing wrong with the community college track. If a student is motivated, she’ll do fine regardless of where she attends undergrad school.

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Dana February 15, 2010 at 10:56 AM

I am not really in favor of private education in general. However, things are always changing. One consideration is that public schools are now enduring huge funding cuts, to the point where students can’t get the classes they need to graduate and take longer than the standard four years to receive their degree. Financial aid for state institutions is also becoming scarcer. Another factor to consider is what the parental and student obligation will be after financial aid is awarded. It might come out about the same in the end. Conclusion: the decision may not be as easy as just “public vs. private.”

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Neal@WealthPilgrim February 15, 2010 at 11:15 AM

Dana ….you are right. I do remember that even in the ancient times when I was in college, it was tough to get classes and they were cutting the budget. None the less, I got out and did fine.

I do think it’s important to be really mindful of this issue rather than assume that if the kid gets into the school, it is our obligation as parents to finance it.

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Evan February 15, 2010 at 9:14 AM

The whole private vs public college seems like an argument that will continue to go on! Almost like college vs no college was 25 years ago.

I went to a private college, but it wasn’t a high ranking one, so I really doubt it was worth the cost (I wasn’t one of those cool guys who made “connections” lol).

But, I did meet The Wife there so it was worth it!

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