College Financial Aid

Maybe you`ve been saving diligently for jr`s college expenses, or maybe you haven`t. But if you have a child heading off to college this fall, you need to start planning now. The deadline to fill out the Free Application for Federal Student Aid (FAFSA) is June 30. But some schools ask for it earlier than that, and you`ll want time to get your finances in order. 1) Save in your name, not the child`s. Any accounts titled in the child`s name - bank savings accounts, UTMA/UGMA accounts and the like - will be assessed a higher percentage versus parent`s assets. College aid officials assess 35% of the child`s assets against financial aid vs. 5.64% of the parents assets. If you do have funds saved in the child`s name, use these assets first - while still in high school, or during the first year of college. This will lower those assets for future years financial aid. Funds held in Coverdell IRA`s or 529 plans, and owned by the parent are considered the parent`s assets, even though you may have the child listed as a beneficiary. 2) Maximize retirement savings -Money saved in IRA`s or 401k plans are not counted against financial aid. -By making those extra contributions, you can lower your AGI, which may increase your aid eligibility. -In a squeeze, you could withdraw $$ out of a retirement plan for qualified higher education expenses without penalty. 3) Pay off your debt A couple with $20,000 in a savings account, and $10,000 in credit card debt will be expected to pay more for school than a couple with $10,000 in savings and no debt - even though their net worth is the same. This works well with a Home Equity Line of Credit as home equity is usually not considered an asset for aid. If you have equity debt outstanding, pay it off with available savings, and then use the line of credit later, if needed. It lowers your available assets 4) Wait on those gifts. If you`re fortunate enough to have a relative (grandparents, aunts/uncles) that wants to help pay for college, have them wait to make the gift. A cash gift to a child could be used in next year`s aid request. Instead, save those gifts until after the child graduates, and then spring to pay off any student loan debt.