Just because you and your spouse (or ex-spouse) make more than $100,000 together, doesn’t mean you want or can pay cash for a decent college education for your child. And you probably aren’t too keen on taking out a loan, either.
So can you get financial aid for your child, including grants and scholarships, if you’re a high-income parent? “Absolutely, and you can get a lot,” says Damian Rothermel, a CFP from Oregon specializing in college financial aid.
Here’s what you need to know.
1. Always File the FAFSA (Free Application for Federal Student Aid)
“I often hear from families who apply for financial aid the first year when their eldest child goes to college. They don’t get anything other than low-cost loans, and the second year they say, ‘Why bother?’ ” says Mark Kantrowitz, senior vice president publisher of edvisors.com, and author of the book Filing the FAFSA. “But the financial aid formulas are very complicated, and there are very subtle things that can change from one year to the next that can have an impact on their aid eligibility.”
That includes the number of children in college — the more children in college, the more your eligibility for need-based aid increases. If your family income dropped just a little bit, it might put you below an income threshold that increases your aid eligibility. Maybe the calculations that include the percentage of your assets that are sheltered, like how much money is in your retirement account, have changed. Or maybe, your child is applying to a more expensive college, which increases your demonstrated financial need.
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The point is, the calculations to determine your financial aid are complex. You have a much better chance to win financial aid than you do the lottery, so you should absolutely give it a shot. You have nothing to lose.
2. Work with a Financial Aid Expert.
If you’re an upper-middle class or high-net-worth family, it’s important that you set up your finances to maximize your financial aid by moving assets around. Financial planners call that sheltering your money.
“Such a big part of [financial aid] is based on the assets,” Rothermel says. “There are certain types of accounts that are not favorably looked at for calculations, because the school knows it’s there and they expect you to use the money for school. Whereas, if it’s a retirement account, that’s not the case.”
This is where having a financial advisor, one who specializes in financial aid, comes in. “It’s very customized and very specific advice, because everybody is different,” Rothermel says.
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Surprisingly, “an education account may not be the best place to do it,” he continues. “It’s not like retirement planning, where you focus on growth, growth, growth.” The goal is to shelter enough money so that you maximize your financial aid without locking it up where you can’t get to it to actually write the tuition check.
To find a financial advisor who can maximize your financial aid, ask them if they’ve ever filled out a FAFSA form. “That’s the first indicator that they have any clue,” Rothermel says.
The good news is, “most specialists like myself, we do complimentary consultations,” he tells us.
3. Get Organized 1 to 2 Years Before Applying.
“The main thing with college planning that I can’t stress enough is the planning. If somebody is coming to me and their kid is a sophomore, I can do a ton to really help them,” Rothermel commented.
One big reason is that the simplest way to backup your claims on the FAFSA is through your latest tax return. So that means if you are filling out the FAFSA in January of 2015, your finances should have been in order by the end of 2013. It’s not a disaster if you make large changes in 2014, but it will make the application process more complicated.
And once your child is in school, there’s not much you can do to improve the numbers and your eligibility for financial aid. So get started early.
4. Make Colleges Compete for Your Child.
“Remember that these are businesses; colleges are looking for the best students that will not only excel, but also help build its reputation and potentially even be a donor back to the school,” Rothermel says. To that end, they’ll give money to attractive students, even if they don’t necessarily need the money.
To get a better “offer” for your child, that is, a better financial aid package, have your child apply to several schools and have the FAFSA sent to several, even if their heart is set on your alma mater. “The college sees this and knows they are in competition for the student,” Rothermel says.
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Oh, and make sure to file the FAFSA on the first day possible, typically on Jan. 2 or 3. It may seem arbitrary, but being at the front of the line when colleges decide to dole out money makes a difference. “If you’re not in the front of the line, you have to be a better prospective student to get the same amount of money,” Rothermel notes.
So paying for college doesn’t have to be so stressful. With some smart planning and a little luck, your child will get into the college of his or her dreams, and you’ll be able to finance it without taking out a second mortgage.
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