Over a year ago Hillary Chura wrote Cracking the Books for Financial Aid to College in the New York Times. In the article she quoted Bari Norman, the director of an on-line Admissions Advisory Service. Collegebasics paraphrases: Don’t learn the tricks of applying for financial aid in the first inning; prepare yourself in the preseason, the 9th, 10th, and 11th grades.
College costs include tuition, room and board, supplies, books, fees, and other costs like transportation, recreation, and clothing. They mount up to on average or than $40, 000 annually. Based on 5% inflation, that cost could be over $90,000 in 15 or 16 years.
Chura recommends 529s, which you can read about at Collegebasics. She also gives caution against selling investments or shifting stocks to life insurance annuities in the year you apply for financial aid. She discourages saving money in your child’s name. Such custodial accounts will actually yield less financial aid because children are considered to have less financial burden, such as house or insurance payments, than parents, so financial aid will expect a higher contribution from children’s savings. A child with $150,000 will be expected to contribute 20%, but parents with $150,000 will only be expected to contribute 5.6%.
The article outlines three major mistakes in applying for financial aid: Do not make the mistake of not applying, don’t ignore 529s, and never miss application deadlines!
Some tips from the article are worth considering.
1. Pay into retirement accounts, as they are not counted as assets for federal aid.
2. Pay down mortgage and credit card debt so funds for expected contribution will be available.
3. Prepay 529s five years ahead of the first college year to allow interest to compound.
4. If you plan to sell off investments, do it by early in your child’s junior year of high school to avoid increasing the amount of your income.
5. Don’t be afraid to save because financial aid will only take 5.6% of your savings as expected contribution but will expect almost 50% of your income to be contributed.
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