4 Financial Considerations That Can Increase Student Aid Opportunities
A great deal of college financial assistance is needs based. This fact leads many parents to assume that their child will fall outside the qualifying range for receiving aid.
That is not necessarily the case. Even students from families with high parental salaries and substantial assets still might qualify for college aid. The issue often is not having too much in assets, but rather how those assets are structured.
By strategically positioning assets, you can increase the possibility that some financial assistance comes your way.
Here are four things to consider when filling out the Free Application for Federal Student Aid (FAFSA).
1. Asset ownership. College funding can be a great financial management tool to teach kids about saving. However, having cash titled in your child’s name can be detrimental in the aid process. This includes checking, savings, UTMA/UGMA accounts or even 529 plans owned by the student rather than the parent. When accounts are titled directly in the student’s name, aid eligibility is reduced at a higher rate than if those same dollars were titled in the parents’ names.
2. Cash on hand. Liquid and accessible assets, such as checking, savings and taxable brokerage accounts, have a large impact on aid eligibility. Using excess cash to pay down existing debts, such as your mortgage or car loans, or accelerating a major purchase before filing the FAFSA can be a good strategy to help lower reportable assets. With that said, be sure to not fully drain your cash reserves. It is still important to maintain a healthy emergency fund for any unanticipated expenses.
3. Retirement accounts. A few accounts generally are not assessed in calculating a student's financial need. IRAs, 401(k)s and pensions typically fall into this category since they are earmarked for retirement. This is true both for parental and student assets, so housing dollars in those types of accounts can help shelter a significant portion of assets.
This makes a Roth IRA particularly attractive. Unlike traditional IRAs, which are pre-tax and have stipulations on when any withdrawals can occur, contributions to a Roth are made on an after-tax basis. This provides the ability to take penalty-free distributions up to the amount you’ve contributed at any time and still keep those dollars off the FAFSA.
4. Scholarships. Explore merit-based opportunities. Many scholarships are based not on financial need, but the student's interests and accomplishments. Keep a file of noteworthy academic endeavors and community service projects and share them with admission directors, financial aid officers and your academic advisor. They can help you hone in on potential scholarship or grant opportunities.
Remember, too, that some of these opportunities are not limited to freshman. Many colleges allot a large amount of merit-based aid specifically to upperclassmen. Searching and applying throughout a college career can result in thousands of additional educational aid dollars.
Your wealth manager can help you understand how your student's financial need is calculated, what it includes, and how you can proactively structure assets to increase your child's potential of receiving maximum educational aid.