college

Financial aid for mom now and her baby later

Don TaylorDear Dr. Don,
I'm 21 and looking to start a savings account for my not-quite 1-year-old son, and I'm trying to figure out my best route. I currently attend school and am working toward my bachelor's in science next fall. My financial aid goes through the Free Application for Federal Student Aid, and I will need to take out student loans for nursing school.

What is my best option to not mess up my son -- or myself -- for financial aid and loans toward schooling?

Thanks,
-- Caitlin Collegial

Dear Caitlin,
Your income and your assets influence how much financial aid you qualify for in any year's Free Application for Federal Student Aid, or FAFSA. Whether or not you're considered independent from your parents also has an impact. The FAFSA website has a 13-question checklist to tell you whether you will need your parents' information in completing the FAFSA.

If you answer yes to any of the questions, then you are considered an independent student, and your parents' information is not required. One exception is for health profession students. Participating schools of nursing have special student loan programs for nursing students. These student loan programs require you to demonstrate financial need and to provide financial information about your parents.

As for the money you invest for your son's education influencing his ability to qualify for financial aid down the road, it will depend on who controls the money and the type of account where the investments are held. In general, it doesn't make sense to hold the money in his name because it will be considered his asset when he applies for financial aid, and the expected contribution rate toward college expenses from student-held assets is higher than the contribution rate from assets held by the parent.

One exception to this is a Section 529 college savings plan. Under current law, it doesn't make a difference for financial aid calculations whether the parent or the child is named as the account holder. In either case, the FAFSA considers the balance to be a parental asset. Note, however, that colleges don't have to follow how FAFSA considers assets in determining the grants or aid they will offer the student.

I'd suggest looking into 529 plans for your son. Start with those in your home state because you may receive important tax benefits on the contributions you make into the account. If your state offers a prepaid tuition plan, this type of 529 plan may make more sense than one that is just an investment account. Get professional advice if you can't make up your mind in terms of what plan is best.

Focusing on your education and getting your career launched over the next few years is every bit as important for your son's future as setting aside some money for his education at an early age.

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