And in this corner, striking terror, hope, and confusion in parents’ hearts for years: College financial aid!
Have you been diligent in saving for your child’s college education? Does it matter? I’m guessing that very few of us will have saved up 100% of our child’s college’s sticker price. Enter financial aid. Part 1 teaches you how financial aid works enough so you can understand the whys of the strategies and tactics I’ll explain in Part 2.
To apply for financial aid of pretty much any sort (but certainly federal financial aid), you need to fill out the Free Application for Federal Student Aid ( FAFSA ). The information on that form is used to calculate your “Expected Family Contribution” (EFC), which is the amount of money the federal government thinks you should be able to put towards your child’s college expenses for that year. The less that the government or your kid’s school thinks you can afford to spend on college, the more money they might give you.
You re-apply for need-based aid every year, so you’ll have to pay attention to your income and assets for four years (or more! if you have more than one kid).
The EFC formula assumes that you and your child will be able to use the following resources to pay for college (source: savingforcollege.com ):
Assets include 529s, investments, certain business interests, and real estate. Note that retirement accounts, cash-value life insurance policies, and tax-deferred annuities are not included. Also note that this is why I don’t generally recommend UGMA/UTMA accounts for college savings; the money is in the child’s name and therefore is counted more in the EFC calculation.
The primary strategy, then, is to reduce income, and then assets, especially your child’s.
Many colleges use FAFSA in their financial aid calculations. Some also use the College Board’s CSS/Financial Aid Profile , which collects even more information than the FAFSA does. The CSS Profile is used by almost 300 colleges and scholarship programs to award financial aid from sources outside of the federal government. After you fill out the application, the College Board sends it to the colleges and scholarship programs you have chosen.
The big difference, especially for people in areas with expensive housing, is that the CSS Profile includes home equity. It also isn’t as helpful to divorced parents.
When you fill out FAFSA, you have to use data from a particular tax year. Starting this October, FAFSA is changing the rules about which year’s financial data you use. You will now use the “prior-prior” year’s tax-return data. For example, if your child plans to attend college in Fall 2018, you will use your 2016 tax return to fill out FAFSA.
Because the academic year the financial aid applies to and the tax year aren’t the same, coordinating the two can make your head hurt. Hopefully this graphic will be a useful reference for figuring out which tax year impacts your chances of financial aid for a particular college year.
I am a fan of involving children in age-appropriate ways in all your major financial decisions. Teachable moments and all that rot. This is a perfect opportunity to involve your child: it’s a significant financial decision that directly involves them. Involving them might even save you some work. Your children can:
And, of course, encourage your child to perform well academically throughout her entire highschool career to maximize chances of merit aid. Many elite private schools don’t award any merit aid, but state universities and not-quite-as-swish private schools might.
I saw a presentation by Paula Bishop , a Financial Aid for College Advisor, at a conference in February. She was entertaining and knowledgeable. At that time, she was charging $500 for help with financial aid applications. Imagine the possible return on THAT investment! (I have no financial affiliation with her and have not used her services.)
I’ve also used this website a lot as a resource. I am not familiar with it as a client, but it’d be worth checking out
Read the next post in this series.
Do you want someone to guide you through the financial implications of your child’s college choice? Let’s figure it out. Reach out to me at email@example.com or schedule a free 30-minute consultation .
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