Not necessarily. College tuition is sort of like the sticker price on a car. If you know what you are doing, you are not going to pay the sticker price. When all is said and done, a private college may be able to offer an aid package that makes it comparable to or in some cases less expensive than a state school. The best strategy is to look at schools across all price levels and wait until the schools make their financial aid offers before finally selecting a school.
Income is only one factor in the financial aid formulas. There are a number of other factors weighing into the equation. The biggest reason families don’t get aid is that they don’t bother to apply. Only 42% of families with incomes over $100K applied for aid, yet 82% of those families who did apply received some financial aid. You have to apply in order to get it.
The financial aid formulas look at two things: income (what you earn) and assets (what you own) for both the student and the parents to determine a dollar amount that your family should be able to put towards a college education. This is known as your Expected Family Contribution or EFC. Colleges use that figure to determine how much financial aid you may receive.
Yes, there is. By understanding, or working with someone who understands, how the financial aid formulas work, you may be able to reposition your income and/or assets in such a way as to reduce your Expected Family Contribution, thereby making you eligible for more financial aid.
To answer that you need to first look at where not to put money. If a family has any hope of qualifying for financial aid, the biggest mistake parents can make is to have money in the student’s name. The aid formulas require a greater percentage of the student’s assets to go towards college costs. Custodial accounts and trust funds, for example, are considered student assets by the aid formulas. To maximize financial aid eligibility, you want to have money put aside in assets that are sheltered from the financial aid formulas. A Roth IRA, for example, is not included as an asset in the federal formulas. It allows for penalty-free withdrawal of your principal for education without affecting your aid eligibility.
The government has established a number of tax credits for education that reduce your tax bill on a dollar-for-dollar basis. Families with college age children may use these “tax scholarships” to significantly reduce the overall cost of college.
You really should incorporate planning for financial aid as soon as your child is born. When applying for financial aid something that at the time seemed trivial can have a significant impact. The name on a savings bond or which tax form you use file your taxes are some easy examples.
Sophomore year of high school is when you need to finalize planning for financial aid. What families don’t realize is that even though they fill out the financial aid applications during senior year, they are actually using tax information going back to the student’s sophomore year. So if your child is a junior in high school, the financial aid process has already begun. When your child is a sophomore you still have time to change some of the variables that impact the financial aid formulas.
No, you have to resubmit the financial aid forms and reapply for aid every year. This gives you an opportunity to re-examine your financial situation, and makes changes to it, in order to improve your eligibility for financial aid. Just because you did not get financial aid initially does not mean that you might not qualify in future years.
Financial advisers and accountants are skilled in helping you create wealth. They do so by legally sheltering wealth from the tax code. In many instances the methods used to reduce your tax bill might cost you dearly in college aid dollars, because the financial aid formulas look at wealth differently than the IRS.
A college planning consultant is an expert in the exact methods necessary to reduce your college costs, while showing you how you can keep much more of your savings. Often our work necessitates coordinating with your existing advisors.
At College Aid Planners we help families reduce the overall cost of college so that they ultimately have more money at retirement. As college planners, we first look to develop strategies to enable your family to qualify for more financial aid, both need-based and merit-based. Another important aspect of college planning on which we advise families is maximizing the use of pre-tax dollars and education tax credits to further reduce the overall cost of a college education.
Each family’s situation is unique. In some cases our services can save quite a lot of money, while in other cases the savings are more limited. What we do provide to all clients is peace of mind throughout the college planning process with the knowledge that you are paying for college in a cost efficient manner.
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