THE HIGH SCHOOL BLOG

How To Pay For College Without Going Broke

Contrary to popular belief, much of that anticipated debt can be eliminated, and before it’s too late.  While so many families stress out over the prospect of how much they and their student(s) will incur during the college years, there are a number of strategies, all legal, to make any college affordable

Sadly, most families are not aware of the fact that in the financial aid formulas, students have no asset protection allowance. For college year 2010-2011, they will lose 20% of every dollar they have in: cash, savings accounts, stocks, bonds, savings bonds, mutual funds, UGMA, UTMA accounts, a farm, a business, mortgages held and the net value of any real estate owned!

Parent assets are subject to a different formula, and it also depends on which school the student will attend.  For eligibility purposes, there are 2 categories of schools.

Category 1 includes a few select state colleges plus approximately 220 elite private schools. In addition to the FAFSA (Free Application for Federal Student Aid), they also require the CSS Financial Aid Profile (CSS). If you thought the FAFSA was difficult, this form is a nightmare, and pity the poor family who’s divorced, separated, owns a business or a farm. They’re required to complete an additional form, The Business/Farm Supplement (you’ll need your accountant), and/or The Noncustodial Parent’s Statement (be nice to your ex).   These colleges take into account all of the above plus home equity, Coverdell Education Savings Accounts, the refund value of 529 Prepaid Tuition Plans and 529 Savings Plans.

Category 2 schools (all the rest) only require the FAFSA and exclude the value of the primary residence or a farm, if the family lives on it. When is comes to asset assessments, parents are more fortunate; they only lose 5.64% per year over their allowance, which increases with age. The asset protection allowance for a 2 parent family, older parent 48 is $46,700; a single parent age 45 has only $17,900.

All that may appear depressing, but here’s the good news: with proper planning students and/or parents can legally become penniless in the blink of an eye, by repositioning their money into financial vehicles that are not included in the financial aid calculations.

Families are then able to re-file the financial aid forms, and those with students about to enter or already attending often receive more money for the 2nd semester, but if that tactic fails, then surely for the sophomore and ensuing years.  What a relief to know that! Income planning is a horse of a different color.

In the financial aid formulas, students have a $4,500 income protection allowance, but for every dollar earned over that they lose 50 cents in financial aid.

Example: $5,500 earned, 4,500 exempt; 1,000 @50% = $500 lost in financial aid.  There are also tax consequences to consider: $5,500 @7.65% social security and Medicare = $421; not much, but it gets worse.   If the student has much larger earnings, it looks like this.

Example: $8,000 earned, 4,500 exempt; $3,500 @50% = $1,750 lost in financial aid.  Tax consequences: $8,000 earned, 4,500 exempt; $3,500 @50% = $1,750 in lost financial aid. Tax consequences: $8,000 earned, $5,350 exempt; $2,650 @10% federal and $8,000 @7.65% social security and Medicare = 265+612 = 877 in taxes. Since students have no asset protection allowance, for every dollar they have it will cost them 20 cents per year in financial aid.

Let’s assume the student banked $5,000 and listed it when they completed the FAFSA and/or CSS. They would lose an additional 20% or $1,000 just for having it!  Of the $8,000 earned, the total amount of financial aid lost in taxes and assessments = $4,412 or 55%!

Another disturbing but vital piece of information families must be aware of is the following: even if the student has no earnings, but will attend one of the CSS schools, there is an automatic income assessment of $1,000, since they assume the student will have summer earnings.

This penalty can easily be avoided, if you know how. In order to receive maximum financial aid without the slightest hesitation on the part of a financial aid officer from a school that requires the CSS, income planning and asset repositioning must be completed no later than Dec. 31st of the 10th grade.

If there is any uncertainty whatsoever when the forms are reviewed, and the school asks for tax returns or financial statements from the 11th grade, there will be no hint of what had occurred in the prior year. For FAFSA schools, asset repositioning must be completed by Dec. 31st of the 11th grade. Numerous other strategies exist which have literally saved families millions of dollars over the years, and they include:

· The ambiguous non-custodial parent strategy©, which has reduced the cost of college in some cases by as much as 90%,

· The winter clothing allowance for students from the South attending college in the frigid North netted one student an additional $2,600,

· The “no work” work-study award has been worth as much as $8,000 by graduation,

· Appealing an unappealing financial aid offer and negotiating for the best possible “deal” has produced incredible results. It‘s just like buying a new car - you don’t have to pay the sticker price.

· Professional Judgment is another strategy few families are aware of and comes into play when there has been a significant change in family income, assets, marital status or health. In order to win the college funding game, which repeats itself every year, a family must have the most up to date information, precise timing, and persistency.  But remember, all the financial aid in the world is useless without that coveted admission ticket!