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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