Answer: They can all impact whether and how much your child could receive in financial aid grants and/or scholarship dollars.
For the past 8 years, I have been guiding students through the college admissions process and their parents around the nuances of the college funding process. I have prepared hundreds of financial aid applications, maybe thousands (I’ve prepared 58 in just this past week). I’ve overseen perhaps 100 successful financial aid appeals, and I have sought out and worked with administrators at colleges across the country.
In the time that I have been doing this, I have witnessed more than one ill-timed bad month wipe out 10 years of stock market gains – and with it, most of a family’s entire 529 plan just as the tuition bill becomes due. I have watched colleges raise tuition by double digits while middle class incomes have shrunk by just as much (or more). I have seen families withdraw money from their IRAs to pay for un-met educational expenses (which you can do without penalty) only to realize that as a result, they had lost their financial aid award and were thus left paying the full college bill AND having less money available for retirement. I’ve seen qualified students – with prepaid tuition plans – fail to gain admittance to a single, in-state university. And I have watched students lose (at least a portion) their merit-based Bright Futures Scholarships for failing to meet the increasingly rigorous requirements, or simply by neglecting to apply by the deadline (which is high school graduation).
And yet during the same time, I have seen the discount rate (the average amount by which colleges reduce the published price with financial aid grants and endowment based merit/talent scholarships) reach an all time high of 44% (was in the single digits just a decade ago). And I have watched the number of first-year, full time college students who are receiving this type of ‘discount’ change from more than 88% a few years back to a more modest, but still impressive 65% for the Class of 2019.
Through it all, I have realized that while there is no sure thing, the best way to make sure that your children have college options that are academically suitable, aspirationally appropriate, socially palatable AND affordable is to educate yourself about how college works today. The earlier in the process that you recognize and act upon the new(ish) realities, the greater the opportunity. Unfortunately, some people remain resistant to new ideas and thus stuck with a mindset and approach to college (admissions and funding) that may have been appropriate in 1987 (when I was a college applicant) but are completely wrong for today’s realities. It makes me crazy (as in sad/frustrated) when I get after-the-fact calls (as late as today) from parents who have been long-time and active subscribers, but for one reason or another did not to seek or act upon advice and are now faced with few(er) options – most of which are distasteful.
When it comes to financial aid, just one seemingly small mistake can lead to an inaccurate portrayal of a family’s finances — one that does not fairly reflect its needs — and results in thousands of scholarship dollars lost. A few examples:
-Money saved in your child’s name (potentially an efficient tax strategy) will be penalized much more heavily (47% penalty) in the financial aid formulas than money saved in your name
-Your child’s 529 plan is NOT considered to be money saved in your child’s name (he’s the beneficiary), but if a grandparent sets up and uses a 529 then it can be treated as student income. The Wall Street Journal put it this way: “Grandma giving YOUR child $5,000 from her 529 plan could mean as much as $2,500 less aid…”
– If you are separated or divorced do you know who’s information should get reported? The Dept. of Ed. guidelines require that the applicant report the household dynamics (step-parent too, if applicable) of the legal parent who provides more support, which is interpreted as the household where the student lives the majority of the time. Two notes: 1) the other parent’s household is largely ignored on the FAFSA, but WILL LIKELY be counted in the CSS Profile formula which is used by many private universities
– Did you/should you consider the oft-misunderstood Small Business Loophole? For most business owners I see in my practice, the proper value of their business is “zero.” Why? The rationale buried in the directions has to do with the number of employees your business has and the percentage ownership. Those with fewer than 100 employee shoud be exempt, but I’ve seen people make this mistake and lose tens of thousands of potential financial aid.
– And yes, in most cases, retirement assets are exempt! You don’t report them or use them in your calculation of your net worth on the FAFSA. But you might have to disclose retirement values to some universities… Shouldn’t you know which ones before your student applies?
There is no singular correct approach to saving, choosing and ultimately paying (hopefully a discounted rate) for college. No ‘fixadent and forget it’ Wall-Street hawked one size fits all plan. Every family – indeed, every child in every family – is different. Bottom line, if you have college-bound students, regardless of whether you think or have been told that ‘you won’t qualify for aid’, you owe it to yourself to learn the nuances of the Title IV financial aid regulations BEFORE you file any financial aid application… and I believe before your child even finalizes her college list.
I will be teaching a class for parents at the Pinecrest Community Center on Thursday, Jan 8 and at The Sagemont School in Weston on Jan 14. Both classes are free, open to the public, and full of this type of information, including a thorough review of the common mistakes and myths that trip up parents and students when seeking help with college guidance and college costs. Oh, and I get right to the point – you’ll be out of there in about an hour. If you have college-bound children, I hope to see you there. If you don’t (have any college-bound children), please send this on to someone who does — they’ll thank you for it. Click here to register.