Find out the best ways to save for college and shelter your money so you maximize your eligibility for student financial aid. Get the Money Girl book at http://MoneyGirlBook.com
Money Girl
222 MG 8 Strategies to Get More Student Financial Aid
Hey, Fidelity, what's it cost to invest with the Fidelity app? Start with as little as one dollar with no account fees or trade commissions on US stocks and ETFs. Hmm, that's music to my ears. I can only talk. Investing involves risk, including risk of loss. Zero account fees apply to retail brokerage accounts only. Sell or assessment fee not included. A limited number of ETFs are subject to a transaction-based service via $100. See full list at fidelity.com/commissions. Fidelity brokerage services LLC member NYSE SIPC. Hi friends, you're listening to the Money Girl podcast. I'm Laura Adams. At the end of the show, I'm going to tell you how to win 10 great new personal finance books that I'm giving away to promote financial freedom this July 4th. So be sure to stay tuned for that information. Hanging for college and graduate school is a huge financial challenge. And the cost of higher education is likely to continue rising year after year. So whether you're a parent who wants to pay for a child's education or whether you're thinking about heading back to school yourself, it's smart to start a college savings plan as soon as possible. Before you get started, you should know the best ways to save for college that will also maximize your eligibility for financial aid. I'm going to give you eight strategies to follow. So you qualify for as much federal student aid as possible and have more flexibility to pay those hefty college bills. The reason you need to be strategic about how you save for college is that having certain kinds of financial assets will count against you and reduce your eligibility for financial aid. Knowing the rules for how financial aid is awarded will help you structure your finances. So more of your assets are not included in the formula for calculating your financial need. Now, here are eight legitimate strategies to maximize your eligibility for federal student aid. Strategy number one, don't save cash in the student's name. To qualify for financial aid for college, you have to complete a lengthy form called the free application for federal student aid or FAFSA. The information you submit on the FAFSA is used to calculate how much aid you can receive. And it generally assumes that a student would contribute a higher proportion of their own income and savings than their parents. So having financial assets in a student's name reduces aid eligibility. When grandparents want to give money to a student, encourage them to give it to the parents instead. So it's calculated that the parents need rate instead of the students. Or ask the grandparents to pay it directly to the college if that's allowed. Also, consider spending a student's assets and income instead of your own before submitting the FAFSA form. Strategy number two, use education savings accounts, cover-dell education savings accounts, and 529 savings plans are tax-advantaged savings vehicles that also get special treatment when it comes to qualifying for federal student aid. So be sure to use them. They're treated like an asset owned by the parents, even if they're in the student's name, which increases aid eligibility as I mentioned in the previous strategy. Additionally, having money in a cover-dell or a 529 plan has minimal impact on the amount of financial aid you can receive. Strategy number three, save to retirement accounts. In general, pensions and retirement accounts, like 401ks and IRAs, are not considered financial assets for the purposes of financial aid, whether they're owned by the student or a parent. Since retirement accounts are sheltered from needs analysis, contributing more to them can increase financial aid eligibility. However, any pre-tax contributions you make to a retirement account in the tax year before you receive financial aid, that's called the base year, by the way, are included as untaxed income. Additionally, any money you withdraw from a retirement account to pay for school before submitting the FAFSA would count as taxable income and reduce eligibility for the following school year. So you don't want to make any large contributions or withdrawals from retirement accounts in any base year. Strategy number four, use cash to pay down debt. Having debt like credit cards, a car loan or a mortgage doesn't reduce your eligibility for financial aid, but having cash does. So using a reasonable amount of cash savings to pay down debt or accelerating necessary purchases is a smart move to make before you submit the FAFSA. However, be sure you don't drain all your cash reserves because you still want to keep enough cash on hand to maintain a healthy emergency fund. Strategy number five, consider the custodial parent's situation. If you're divorced, the custodial parent of your college-bound child will be responsible for completing the FAFSA. If he or she is the parent with the least amount of assets and income, that will increase eligibility for financial aid. Strategy number six, increase the number of household students. Having multiple children in college at the same time allows you to qualify for more aid. If your kid's birthdays aren't less than four years apart, for instance, consider whether the oldest child could take a year or two off to work before going to college or consider whether it's a good time for you to go back to school and finish a degree or earn an extra one. When one or both parents return to school at the same time as their children, aid eligibility increases for both the student and the parents. Strategy number seven, pay with a HELOC instead of an equity loan. If you don't qualify for enough financial aid to cover all your college expenses and you have home equity, consider using a home equity line of credit or HELOC. A HELOC is a good financing option for school because the interest you pay can be tax deductible and you only tap the amount you need. That's better than taking out a home equity loan because if you don't spend all the money you borrow, it's considered an asset that will reduce your aid eligibility for the following academic year. Strategy number eight, meet with financial aid administrators. Schools have their own financial aid funds and set their own rules for doling it out. So don't overlook any strategies that can help you maximize aid that's available from your institution. Also, remember that aid eligibility is always based on the prior tax year. So if your household or income situation changes, you should make an appointment to meet with the financial aid administrator at your school. They can review your case and may be able to increase your aid package through a process known as professional judgment. These eight strategies aren't the only ways to maximize your eligibility for financial aid. For more information, be sure to check out finaid.org and savingforcollege.com, which are two excellent resources for student financial aid information advice and tools. To learn more about the different ways to pay for education, check out chapter nine of my award-winning book Money Girls Smart Moves to Grow Rich. It's available at your favorite bookstore in print or is an ebook for your Kindle, Nook, iPad, PC, Mac or smartphone. You can download two free chapters at smartmoves2growrich.com. Remember to discover how easy investing can be. Don't miss out on your chance to receive a $25 account bonus when you open an investment account at betterment.com/moneygirl. As always, you'll find links to everything I've mentioned in the podcast on the Money Girl section at quickanddirtytips.com. While you're there, connect with me on Facebook and Twitter, and you'll automatically be entered in the drawing for the 10 personal finance books that I'm giving away. Several of the prizes will be signed copies of my book, and the rest will be great books from other personal finance authors. Five winners will come from the Facebook community, and five will come from Twitter. So increase your chances to win by following me on both networking sites. If you just do a search for Money Girl, you'll find me on Facebook, and on Twitter, I'm under username @laraadams. I'm glad you're listening to Ching. That's all for now. Courtesy of Money Girl, your guide to a richer life. [BLANK_AUDIO]