Scrounging for college cash? Let Uncle Sam foot the bill.
Paying for college
If your college savings aren’t as flush as you’d like, check out these tips to get your slice of the free money.
20 ways to get federal money
- Assess your assets.
- Apply, no matter what.
- Meet the deadlines.
- Save in parents’ names.
- Ditch your debt.
- Count your babies.
- Coordinate your college students.
- Serve your country.
- Maximize IRAs, 401(k)s.
- Buy a house.
- Spend, spend, spend.
- Get personal in financial-aid office.
- Keep up the course load.
- Work it.
- Reduce capital gains.
- Test yourself.
- Perk up.
- Report the support.
- Use the grandparents.
- Be honest.
1. Assess your assets. Knowing is half the battle. FinAid.org offers free online financial aid calculators that can help you determine what sort of award your family might qualify for, how much you’ll need and, most importantly, what fiscal assets could potentially reduce your aid package. Having a clearer picture of your financial prospects will help you maximize your child’s aid eligibility.
2. Apply, no matter what. According to the American Council on Education, every year, millions of students who qualify for Pell Grants miss out on the free government cash simply because they don’t fill out the Free Application for Federal Student Aid, or FAFSA, paperwork. In fact, regardless of assets or household income, all dependent students qualify for Stafford loans. But you can only get them if you file your FAFSA.
3. Meet the deadlines. Turning in your FAFSA late can significantly decrease your chance of banking big. Keep in mind your state’s deadline, too. “We encourage students to complete the FAFSA as early as possible and in advance of state deadlines so that they can get all of the free money that they are entitled to,” says Martha Holler, vice president of corporate communications at Sallie Mae. Cathy Thomas, former director of financial aid for the University of Southern California, reports that missed deadlines are the No. 1 mistake students make when applying for federal aid. “If they don’t miss them the first year, they miss them the second or the third or the fourth,” she says. To make sure your student qualifies for all first-come, first-serve aid, estimate your annual income and turn in your FAFSA as early in the year as possible.
4. Save in parents’ names. No mortgage payment, no electric bill, no insurance premium — the life of a student is fiscally sweet. But the government does expect students to contribute financially to their own education. Dependent students are expected to apply up to 20 percent of assets toward college, while parents contribute up to 5.64 percent of their assets. Instead of stockpiling money in your child’s account, keep it in your own or stick it in a 529 plan.
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5. Ditch your debt. While aid officers will consider what you’ve got, they won’t consider what you owe. Consider liquidating funds that could count against you by paying off loans or credit card debt. Beyond simply increasing your child’s eligibility for federal grants and scholarships, eliminating debt will also help your family qualify for larger, lower-interest loans.
6. Count your babies. The amount Uncle Sam expects you to contribute to your child’s education partly depends on your family size. Put simply, larger families are expected to contribute a smaller percentage of their income per college-bound child than smaller families. Most parents don’t realize that unborn children count as family members, too. Pregnant mothers should count each expected child in the case of twins, triplets, etc., but be sure to get written confirmation from a doctor.
7. Coordinate your college siblings. Looking to double the size of that aid package? Try doubling the number of kids you have in college. “Financial aid formulas are very heavily weighted toward yearly income, and just because you have more children in school at the same time doesn’t mean that you have more income,” says Mark Kantrowitz, founder of financial-aid website FinAid.org. “Holding back a child or trying to maximize the overlap between the children in school — that can have a big financial impact.”
8. Serve your country. For students looking for a constructive way to spend a gap year (possibly to help coordinate the number of siblings simultaneously in school), Americorps offers yearlong service programs that are guaranteed to never lower your financial aid eligibility. Besides giving a small stipend and an educational award upon completion, the program offers invaluable training, the opportunity to make a difference and great experience to note on a college application.
9. Maximize IRAs, 401(k)s. Two assets that won’t be considered on the FAFSA form are funds invested in your family’s primary home and accounts set aside for retirement. Investing more money in your future now could result in the government investing more in your child’s future. If you have liquid funds just waiting to find their way into your retirement account, invest no later than two years before applying for federal aid because the prior year’s contributions to a retirement plan could count as income on the FAFSA.
10. Buy a house. If you’re thinking about moving on up, consider your timing. Funds tied up in the purchase of a family’s primary home are not considered available assets. Instead of having that equity subtracted from your child’s aid package, use it to your mutual advantage by investing in something your entire family can enjoy.
11. Spend, spend, spend. Spend your child’s money, that is. Because Junior is expected to pony up a higher percentage of income toward higher education, it’s not unwise to blow student funds first on pre-college needs (such as dorm supplies, a computer if needed and books) before you apply for aid. To avoid gripes and groans from the peanut gallery, set aside an equal amount in one of your accounts and agree to reimburse your child at a later time.
12. Get personal in the financial aid office. Thomas from the University of Southern California warns parents to never underestimate the power of human resources. “Financial aid offices really do want to know if there’s something different about the family,” she says. “For example, there’s no place on the FAFSA for high medical expenses, and usually that’s not something families can control.” For extenuating circumstances such as health emergencies, unemployment, divorce or loss of a home, aid officers can negotiate with the government on your behalf, potentially winning you a sweeter award.
13. Keep up the course load. Maximizing aid eligibility means not only scoring an award, but maintaining it. Federal programs such as the Pell Grant are tied to your child’s student status, meaning that if he or she drops a class, it could wind up costing more than a blemished GPA. To keep the money coming in year after year, read the fine print and make sure that you and your child understand the course load and grade requirements.
14. Work it. In work-study programs, student earnings are exempt from the watchful eye of financial aid officers. By landing a work-study job, your child will not only be able to earn money throughout the school year, he’ll also be gaining professional training, networking contacts and something to put on the resume besides “member of break-dancing club.”
15. Reduce capital gains. Capital gains from stocks, bonds and mutual funds count as income and could stand between your child and a fat aid check. If you’re thinking about selling your securities and redeploying that cash into your retirement fund, a new home or paying off debt, Kantrowitz recommends doing so no later than your child’s sophomore year in high school. “Sell two years prior to going to college so that it occurs not in the base year, but the year before,” he says. “Two years before won’t count against you.”
16. Test yourself. Parents whose combined gross income is at or near the $50,000 level, listen up: You could get free dough by proving it. Designed to benefit middle-income households and those with special circumstances, the simplified needs test ignores assets, as well as savings, when determining financial aid eligibility. To qualify for the test, combined wages reported on the W-2 must be less than $50,000, and every family member must be eligible to file a 1040A or 1040EZ form with the IRS. To get your hands on a copy of the test, consult your accountant or financial aid adviser.
17. Perk up. The higher the family income, the lower the financial aid eligibility, but nobody ever said anything about perks. Instead of a raise or bonus this year, try negotiating more flexible hours, subsidized meals, extra vacation time, gym memberships, loan forgiveness, tuition reimbursement or a better insurance package. Gifts that don’t show up as income on your W-2 could wind up saving you and your boss cash in the end.
18. Report the support. One of the few items parents can deduct is child support; that is, if they remember to do so. “People tend to not read the (FAFSA) work sheets and omit things like child support that reduces their income,” says Kantrowitz. “That can impact your financial aid.” Child-support payments made for any student outside of the household are considered asset deductions and can be subtracted directly from a parent’s total income. Likewise, any support received on behalf of the child must also be reported and counted as additional income.
19. Use the grandparents. Mom and dad are fair game for federal scrutiny, but Grandma and Gramps are a different story. Grandparents who hold 529 plans are not included when assessing a family’s expected college contribution. But before you encourage them to contribute to a 529, make sure you understand that distributions from such an account will be considered a gift to the student and could impact financial aid eligibility.
20. Be honest. The fastest way to lose out on an aid package is by being deceitful. “The formula is so heavily based on income, it’s really hard to think about ways to get around that,” says Thomas. “You can really get in trouble if you try to manipulate the formula by hiding things.” According to FinAid.org, schools are required to verify 30 percent of FAFSA applications, and many choose to verify all. Hiding assets or falsifying information can result in financial penalties, loss of aid and, in some cases, jail time.