FAFSA and some things to consider
Need some help paying for college? The first thing you need to do is to file your Free Application for Federal Student Aid (FAFSA). Worried that you won’t qualify for aid? Even parents and students who have some savings may still be eligible. Colleges and universities use the information from your FAFSA and federal tax return to calculate your Expected Family Contribution (EFC). However, not all funds are treated equal.
USE CAUTION when funding your 529's
- A 529 Plan can decrease the amount of financial aid you qualify for. In addition it carries a signicant amount of RISK. Would you have all of your retirement savings invested in the stock market the year before you are ready to retire? Probably not right? You should carefully weigh the merits of investing all of your savings in the (529 Plan) stock market especially a year or two before your child goes to college. One down year could wipe out 20% or more of your college savings without you having the chance to recover the money or time to do so. This plan can work but it is recommended that you know the risk and when to get them.
Don't contribute too much to your 401(k)-untitled
Funding your 401(k) can actually decrease the amount of financial aid you can qualify for if you don't know what you are doing. Do you have 403b, IRAs, SEP, SIMPLE, Keogh, profit sharing, pensions and Roth IRAs? What about balances in checking, savings, CDs, brokerage accounts, money market, investment real estate, stocks, bonds, mutual funds, ETFs, commodities and 529 college savings and prepaid plans? Knowing which ones are not included in the calculations of EFC vs which ones do not get included in the EFC formulas could mean the difference in you getting over $23,000 in FREE MONEY or nothing!
Check your equity AT THE DOOR
The equity in your house will count against your ability to receive college grants (free money) from many of the prestigious state and private colleges. Knowing which schools count it and which ones do not can help you implement the best strategy for your situation. Did you optimize your mortgage when you completed your FAFSA?
I'm divorced, so I will just list my child with my spouse who makes much less money than I do. Not So Fast. There are rules that determine who gets to claim the child and this is not solely determined by who makes the most money. If you are not careful the college may flag your child. This is called "Verification", the process required by the federal government that is intended to improve the accuracy of the information submitted on the Free Application for Federal Student Aid (FAFSA). College financial aid offices may not disburse federal student aid until the verification process is complete. If you are divorced or even separted, you may want to get professional help before you file your FAFSA.
Surprisingly, at the most expensive colleges, now charging $65,000 per year, students may qualify for a significant amount of financial aid even if their parents earn over $175,000 per year and have substantial assets. And if those assets are structured favorably, more of a college’s own institutional (not taxpayer funded) aid dollars may come your way. The professionals at College Planning Services can assist you with these and other ways to optimize your FAFSA, starting October 1, 2019.