Online Guide to
College Financial Aid Strategies

STRATEGIES THAT WILL LOWER YOUR FAMILY CONTRIBUTION AND INCREASE YOUR ELIGIBILITY FOR "NEED-BASED"
COLLEGE FINANCIAL AID

The Federal Methodology assesses a student's and parents income at different rates depending on whether the student is considered dependent, independent, or independent with dependents. Independent students must meet at least one of the following criteria to be considered independent: 1) Student is at least 24 years of age or older by Dec. 31st of the academic year in which he/she is applying for college financial aid. 2) Student has dependents (children) other than spouse. 3) Student's parents are deceased or student is a ward of the court. 4) Student is a veteran of the armed forces. 5) Student is married. 6) Student is a professional or graduate student. 7) Student is judged to be independent by the financial aid officer (based on professional judgment).

The student's and family's income assessment for independent or dependent students are as follows: 1) Dependent Students: student's income is assessed at 50% of his or her total income, above and beyond an income protection allowance, and a deduction for federal, state, and income taxes are paid. The parents are assessed at between 22%-47% of their total income, depending on their level of income. 2) Independent Students: student's income is assessed at 50% after an income protection allowance if only one student is enrolled at least half-time. If the student is married, and both students are enrolled in college, each student receives a set allowance. 3) Independent Students With Dependents: student's income is assessed between 22-47% of their total income, depending on their level of income.

"Income Planning" Strategies To Boost Eligibility For "Need-Based" College Financial Aid: Unfortunately, there are much fewer income planning strategies than asset planning strategies. Income is assessed as of the base year (which is the year ending prior to the academic year the student is applying for college financial aid). Therefore, the overall goal of income planning is to lower the total income for both the student and parents during the base year. Here are some of the most common income planning strategies:

1) Keep income out of the student's name - tell student to think about taking a low-paying, career oriented job, or make sure that the student does not earn well in excess of the base amount over the course of the base year. Remember, 1/2 of every dollar the student earns above and beyond the base amount is assessed by the formula, which, in turn, ends up increasing the overall family contribution. Therefore, it is best for students NOT to take high-paying jobs unless they will not be eligible for "need-based" aid.

2) Have the parent's consider an employer's deferred compensation plan. Some companies will allow employees to reduce their salary in return for larger payments after the student graduates. By doing this, the family will successfully lower their overall income, which will reduce their family contribution while their child is in school.

3) If the family plans to sell investments to pay for college, have them sell as many "losers" as possible - by taking a capital loss in the base year, it will help the family to reduce their adjusted gross income which will increase their eligibility for college financial aid. If the family must sell investments where they will incur a capital gain, it is imperative that they do so 2 years before the student enters college, or postpone the sale until after the student graduates from college.

4) If the family owns a business or commercial farm - they can postpone an increase in income or bonuses, make an advance payment on capital purchases, take a loan from the company instead of income, or take a reduction in wages while the student is in college. If the company is a corporation, they can leave income in retained earnings until the student graduates. All of these options allow the family to reduce their total income during the base year.

5) Parents should NOT make payments to IRAs, Keoghs, or a retirement plan until the student graduates from college - since contributions in the base year are added back to the Adjusted Gross Income, it may be better for the family to stop contributing until the child graduates so they can have extra cash-flow to pay for college expenses.

6) If your family's AGI is $50,000 or less, file a 1040EZ or 1040A tax return - if the family makes $50,000 or less and files a 1040EZ or 1040A they qualify to have their family contribution calculated using the "Simplified Needs Test" which excludes all of their assets.

THINK ABOUT THIS: if your income on paper is $48,000, and you have $500,000 in assets, you can file a 1040EZ or 1040A and your assets will be excluded from the Federal Methodology making you eligible for "need-based" aid you would otherwise have never received.

How To Use "Asset Planning Strategies" To Be Eligible For "Need-Based" Financial Aid That You Would Not Otherwise Receive

The primary objective of asset planning strategies is to reduce the overall value of the assets, or better yet, to remove most or all of the "included" assets from the view of the formulas. The Federal Methodology assesses 35% of the student's assets with no protection allowance and approximately 5.6% of the parents' assets that are above and beyond their "asset protection allowance" which is based on the age of the oldest parent. The older the parent, the greater the "asset protection allowance."

Important Note: Although income is assessed as of the base year (the year preceding the academic year the student starts college), assets are assessed as of the date the student files his/her financial aid form.

The following are some of the most common asset planning strategies:

1) Keep all assets outside of the student's name - since assets in the student's name are assessed at 35% as opposed to 5.6% for parents, consider transferring assets in the student's name into another family member's name (i.e. a younger or older sibling who is not in college, or a grandparent).

2) Distribute the student's assets as gifts - the IRS allows anyone to gift up to $10,000 per year without incurring a gift tax. Therefore, a student can literally gift up to $20,000 ($10,000 in December, and $10,000 in January of the new year), without incurring a gift tax which will significantly reduce family contribution. Parents can also gift assets in their names that are above and beyond their "asset protection allowance" to other family members or relatives who are outside of the view of the formula.

3) Transfer investment securities into other family member's names - stocks, CD's, mutual funds, etc. can be transferred to another family member outside of the view of the formula, without selling the asset which in many cases would cause a capital gains which is considered income and, therefore, heavily weighted in the formula. You are usually best served by transferring securities rather than selling and incurring a capital gains (unless it is done prior to the base year).

4) Borrow against your investment securities if you plan to make a large purchase. This will work to lower the value of the investment.

5) Transfer all or part of your family's liquid assets into insurance products - universal life insurance, single premium policies, and annuities are currently EXEMPT from the Federal Methodology. Therefore, putting most or all of the liquid assets into one or more of these products may reduce the family contribution substantially. (Important Note: Although the Federal Methodology does not include these investments, some private colleges and universities will still ask about these investments when awarding their own college funding.)

6) Convert some of the personal assets or home equity into a small business - if you have thought about starting a business, converting part of your personal assets or home equity into start-up capital for a small business will greatly reduce your family contribution since business assets are assessed at a much lower rate than personal assets.

7) Use the "Housing Index Multiplier" to accurately value the family's home - most family's end up over-valuing their homes on the financial aid forms. Although home equity is not included in the Federal Methodology, many private colleges and universities still assess the value of a family's home when awarding their own financial aid.

8) Try to qualify "additional" properties as business properties rather than personal properties - if a family owns a rental property, the property should be listed under "business" assets rather than under "other real estate & investments" which will shield a large portion of the investment from the view of the formula.

9) If parents are divorced or separated, try to have the student live with the parent with lower income & assets - since the Federal Methodology assesses only the income & assets of the parent with whom the student lived for the greater part of the year, it is best to have the student live with the lowest wage earner of the two parents. Also, remember that if a parent remarries, the step-parent's income & assets are also included as if they were the student's biological parents. Therefore, be aware of this before suggesting that the student live with a remarried parent.

10) Add a parent to college as a part time student. The Federal Methodology divides the parent's total contribution by the number of family members (including parents) enrolled in college at least part- time (which is approximately 6 credit hours per semester.) Therefore, you can literally cut the Federal calculation of the family contribution in half by adding a parent to college part-time. Since the parent does not have to enroll in college until the beginning of the school year, they will receive their child's award letter long before they have to make their final decision. If this strategy works, they can enroll, if it doesn't, they can withdraw from the idea.

THE SECRET TO NEGOTIATING A BETTER
COLLEGE FINANCIAL AID PACKAGE

Many times, colleges and universities will leave students short by thousands of dollars in financial aid, and give them less college financial aid than they are entitled to. Most families assume that they can not negotiate with the colleges for a better student financial aid package, and end up settling for whatever is offered. Well, you CAN and SHOULD negotiate for more aid. You can negotiate for a better college financial aid package from each school. By reviewing your college financial aid report, you can see what you were supposed to get from each school, then write the following negotiating letter to make sure that each gives your child what they are supposed to receive:

Any University
12 Sample Street
Anytown, NY 11000

Dear Mr. Sample:

I just received your financial aid offer for the 200x/x school year. In reviewing your financial aid package, I noticed the following: 1. The estimated cost of attendance at your school is approximately $18,000. My family contribution according to the U.S. Dept. of Education is $8000. Therefore, my need at your school is approximately $10,000. 2. The package you offered me contains only loan aid totaling $2,625. Therefore, I was left short by approximately $7,375 at your school, and your school has offered me absolutely no funds of its own. Based on the current package that we have been offered at your school, it will be extremely difficult for us to afford your school. Based on the above circumstances, I would greatly appreciate it if you would reevaluate my current financial aid offer to more fully meet my financial need at your school.

Thank you, in advance, for your time and prompt consideration of this matter.

Sincerely,
Mr. John Jones
SSN: 144-70-5445
Tel.:516-776-8877