Put away your calculators and, possibly, slide rules. Even seemingly smart financial calculations may not add up once financial aid rules are factored in. Whether they're a product of myth or simply common pitfalls, the following mistakes succeed at one thing: They will cost you money.
||13 funding flubs
Follow these moves if you're looking to burn through college savings or incinerate any chances you have of becoming an attractive aid candidate. While the 13 strategies listed below fail to make the grade, read our experts' explanations for the smart strategies.
1. Don't save -- it will just bite into aid.
There are at least two reasons this is an example of faulty thinking: the insane cost of borrowing and how favorably savings are weighted on aid forms.
Any time you can pay cash instead of
borrowing, you're in a winning position. Though people
often look at projected college costs and give up
hopes of saving the full amount, think about it this
way: Any money you have stashed away will make you
better off. Besides, if you can't afford to set aside
$200 per month now, how will you afford $400 per month
down the road?
Mark Kantrowitz, publisher of Finaid.org,
says, "Saving $200 a month for 10 years at 7
percent interest would yield $34,818.89. Borrowing
the same amount at 6.8 percent interest with a 10-year
term would require payments of $400.70 a month."
And as for being penalized for saving,
while the federal need analysis methodology counts
a portion of the family's assets in need determinations,
it does not count all of the assets, just
a fraction, according to Kantrowitz.
"The 'just a fraction' depends
on whether it is student or parent assets. Student
assets are assessed at 20 percent. A portion of parent
assets are sheltered (primary residence, retirement
funds, small businesses owned and controlled by the
family, an asset protection allowance of roughly $40,000
to $50,000 (for median age 48) based on the age of
the older parent) and any excess assets assessed on
a bracketed scale with a maximum rate of 5.64 percent,"
|-- Posted: Sept. 17, 2007