With the economy’s slump, employment opportunities down, and the rising cost of college education, it seems nothing is working in favor of parents as their students rise to the challenge of going to college in today’s world. On the contrary, now is the time when knowledge is power. The more parents know about the financial aid system and how to put it to work for them to get their students through college in a comfortable manner, the sooner they can provide endless opportunities for their students. Most parents make costly mistakes when it comes to funding college tuition bills for their students. Here are three strategies parents should implement to ensure they do not overpay for college.
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1. File the FAFSA form. The Federal Application for Student Aid (FAFSA) is the starting place for any student to receive any type of aid for college. The FAFSA determines the Expected Family Contribution (EFC), which is the benchmark every college uses to determine a student’s financial aid package. Without filing this form, many students will not be eligible for federal, state, or college grants and scholarships, as many of the programs use the FAFSA as a guide for who is eligible for what types of aid.
A common costly misunderstanding is that parents make too much money to qualify for any need based aid, so they don’t fill out the FAFSA. According to Sallie Mae, a family earning more than $100,000 received $5,451 in grants and scholarships last academic year. Without filling out the FAFSA, even a high-income family would lose out on $5,451 or more in aid! Do not fall for this common financial aid misunderstanding. If you don’t file the FAFSA, you are guaranteed to overpay for college.
Also, fill out the FAFSA as soon as possible after January 1st of your students’ senior year of high school to be at the front of the line when financial aid starts to get awarded. Financial aid, especially on the state level, is offered on a first come first served basis, many with cut offs of February 15. Even though most Americans do not have their taxes filed on January 1st, you are able to file your FAFSA with estimated financial numbers and then later update your FAFSA with true numbers after your taxes are filed. Furthermore, if you typically file for extensions on your tax return, you will need to ensure to file your taxes by April 15th every year you have students in college as many colleges require copies of your tax returns to be sent to the school before a final financial aid award is presented to your family (i.e. no more extensions!). By filing your FAFSA early, your son or daughter will be at the beginning of the line and qualify for the maximum amount of financial aid.
2. Educate yourself. Many people spend more time researching their next car purchase then they do researching all their financial options for their student’s education. The bottom line is most parents are looking at contributing over $20,000 per year for their student’s college degree (this is like buying a new car every year for 4-5 years!). The key to financial aid is finding out what your family is expected to contribute to college and ensure this figure is a low as possible. Your Expected Family Contribution (EFC) is based on both the parents’ and student’s income and assets. The student’s earned income directly reduces financial aid if he/she earns more than $6,130 in 2012. Also, for every dollar your student has in their name, their financial aid award is directly reduced by 20 cents. This makes it imperative to ensure your assets are placed in the proper vehicles so as not to accidently increase your Expected Family Contribution and thus, reduce the amount of financial aid offered. Also, certain assets count more against you than others, reducing aid. It is important to do your research and talk to a College Funding Specialist to make sure you don’t overpay for college.
Many times, unless you are a business owner, there is little you can do to lower your income; however, if you are buying or selling property, have capital gains, or are expecting a large bonus, these will all have a big impact on your Expected Family Contribution, especially in your base year. You will want to properly plan for these events as soon as possible. Remember, the FAFSA is not the place to be bragging about how rich and successful you are, it is the time to illustrate how smart you are by planning ahead and showing your family’s financial situation in the “humblest” light.
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3. Plan ahead. The key to not overpaying for a child’s education is to have a plan together as early as possible. Saving a little bit today will go a long way in the future. Knowing where to save and getting the right advice from competent professional advisors is important. Some parents could save money their whole lives for their children’s education which can end up working against them when it comes to the financial aid formula, resulting in the parent overpaying for college. If a college degree for your student is important to you, then a proper plan should be your #1 priority to ensure you maximize the amount of financial aid you receive and avoid making costly mistakes.
Today it is more important than ever to ensure that your student gets a college education while making certain you are getting all the help you can along the way to finance this dream in a comfortable manner. Remember the three keys discussed above when your students are preparing for college and execute them as soon as possible so you don’t overpay for college.
The featured author is a 41-year veteran of the financial services strategies. Corwin S. Freeman Jr. LUTCF, CSA, RFC of Valley Estate Planners, Ltd. is a 31-year Qualifying & Life Member of the Million Dollar Round Table and has 8 Court of the Table qualifications. Corwin has dedicated his life to insuring his clients’ financial goals are met through creative financial solutions. He serves on several community boards including the Senior Services Association and the Board of Trustees of the Fraternal Order of the Eagles #1047 in Gilberts, IL.