TRUE
OR FALSE
Do you know
College Financial
FACTS?
Savings for college under
my child’s name will
increase our financial aid.
FALSE. In calculating financial aid for
a dependent student, the formula uses 20
percent of the student’s assets (after deducting allowances). The formula only uses 12
percent of a parent’s.
A student’s income is so
small that it is practically
irrelevant, while a parent’s
income is the big factor.
TRUE. (with a caveat) A student’s
income is calculated at 50 percent, while
the parents’ income is not factored, but
is reduced for the calculations based on
allowances for taxes and family size. If the
student decides to work before attending
college, it will have more of an impact.
The ages of the parents
are irrelevant in calculating
financial aid.
FALSE. Under current rules, a significant
portion of a parent’s assets is deemed “protected” from being used to pay for college.
The amount protected is based on the age of
the older parent, with the benefit increasing with age. Here’s an example of how that
works. If a two-parent family has $100,000
in assets, and the older parent is 55, $46,800
of the assets will be protected. This means
the balance of $53,200 will be used for the
calculation and factored at 12 percent (the
parents’ rate).
Higher-income families
with younger parents are
expected to pay more.
TRUE. The percentage contributions for
parents vary depending on their economic
status and age. In many cases, lower-income
families and older parents are expected to
pay less, while students from higher-income
families with younger parents are expected
to pay more out-of-pocket.
Once you have been
denied aid it is pointless to
apply again the next year.
FALSE. If your income changes, the
program changes or the number of children
you have going to school changes, the likelihood of receiving aid increases. It is recommended that you apply each year.
WAYS TO
MAXIMIZE AID
• 529 College Savings Plans are a good idea,
the FAFSA analysis formula will put less weight
on these funds. An even better idea is to have a
grandparent own the 529 plan, because it will
not be used in the FAFSA analysis formula at all.
• FAFSA is based on your prior tax year. If
you are going to make big purchases like a new
roof, do it the year before so that money is not
counted as an asset.
• When spending asset money for college,
spend your student’s assets first since it is
assessed at a higher percentage than parents.
Also keep in mind that the assets of a sibling is
not calculated in the FAFSA equation.
• Holding certain types of assets will reduce
your eligibility for aid. Non-countable assets
include : retirement plans, your personal
residence, life insurance, annuities, personal
cars and boats. Keep in mind that adding
consumer debt will not help, but increasing your
investment spending or business debt can mean
more aid.
• Remember to keep your “base” year of
adjusted gross income and total worth as low
as possible in the year prior to your application
– this will reduce your expected family
contribution and increase your financial aid
opportunities.
Be sure to consult a tax adviser before using any
of these strategies. The information contained
in this article is not given with the intent to offer
legal or tax advice since the situation of each
individual is different.
GLOSSARY
FAFSA (Free Application for Federal Student Aid): only way to apply for
ment from your FAFSA information.
federal student aid; schools listed on your
application use FAFSA information to determine your financial aid eligibility. States and
colleges also use this to provide their own
financial aid.
SAR (Student Aid Report): what
you’ll receive after submitting your FAFSA
that contains information reported on your
FAFSA and your EFC.
EFC (Expected Family Contribution): amount your family will be expected
total price of tuition, fees, room & board,
textbooks, supplies, transportation and personal expenses for one year of college.
to pay for college based upon your financial
situation; determined by the federal govern-
COA (Cost of Attendance): includes
www.potentialmagazine.com
Financial Aid Award Letter:
list of all the aid from multiple sources
that you are eligible to receive through the
prospective college, including terms and
conditions.
529 Savings Plan: a state or state
agency-sponsored tuition program created
by section 529 of the Internal Revenue Code
to provide families a tax-advantaged way to
save for college. CollegeCounts is Alabama’s
529 Fund.
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