Increase financial aid eligibility
The government determines the amount of money a family must pay toward the student's education costs. This amount, called the Expected Family Contribution, or EFC, depends on the size of the student's family, whether or not there are other family members in school, taxable and non-taxable income, access to parent's assets, and other factors.
Now is the time to assess your family finances and make adjustments to minimize your EFC and maximize your eligibility for need-based financial aid.
Minimize base year income
The most significant factor in determining financial aid eligibility is income. But, because the amount of income you report on the FAFSA must match your tax return, it’s important to consider ways to minimize your base year income before it’s too late.
Avoid capital gains – Capital gains are considered income, so consider holding on to thriving investments.
Take capital losses – Capital losses reduce income, so if you’re thinking about selling any investments at a loss, now’s the time to do it.
Delay salary increases and bonuses – At least until after the first of the year.
Spend down student assets
Since students are expected to contribute 35% of their own money toward college costs, it makes sense to spend down student assets. After all, the less money the student has, the lower your expected family contribution will be. If you’re planning any big purchases, consider using money currently held in the student’s name instead of parent savings or consumer credit.
Send more than one child to college
The federal government aid programs were designed to help families pursue their college dreams, and reward those that have more than one dependent student enrolled at the same time. In fact, your expected family contribution may drop as much as 50% if more than one family member attends college. If you or another family member has been thinking about college, now is the time to enroll.
Save money in your name, not your child’s name
While there are potential tax benefits to saving in your child’s name, there are also potential financial aid implications. Parent assets are factored into the EFC at a low rate, 5.6%, while student assets are assessed at 35% of assets and 50% of after-tax income over $1,750.
That’s why a College Savings Plan, such as NextStudent Scholar'sEdge™ 529 higher education college savings plan, makes sense. This plan allows you to contribute to a tax-deferred account established for a student, but in the parent’s name.
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