Get schooled on financial aid – at any income level
Did you know that in the 2013-2014 academic year, more than $238.3 billion in financial aid (grants, federal loans, federal work-study, and federal tax credits and deductions) was awarded to undergraduate and graduate students? And that those students came from households spanning a wide range of household incomes?
During that same academic year, the average amount of aid for a full-time college student was $14,180, including $8,080 in grants (that don’t have to be repaid) and $4,840 in federal loans.
Once you realize how many resources may be available and begin your research on financial assistance, you may be on your way toward easing some of the anxiety often associated with paying for college.
5 lessons on seeking financial help for college costs:
Start planning during the high school years. Pay particular attention to your child’s junior year of high school, and reposition assets or adjust income before that year begins. When financial aid officers review a family’s need, they analyze the family’s income in the calendar year beginning in January of the student’s junior year of high school.
Assume you’re eligible for aid … until you’re told you’re not. There are no specific guidelines or rules of thumb that can accurately predict the aid you and your child may be offered. Because each family’s circumstances are different, keep an open mind as you consider financial aid alternatives. A number of factors—such as having several children in school at the same time—may increase your eligibility for assistance.
Reassess assets held by your children. Federal guidelines expect children to contribute 20% of their savings toward their education’s costs, while parents are expected to contribute up to 5.64%. That’s why assets held in custodial accounts in your children’s names (bank accounts, trust funds, brokerage accounts) may reduce the aid for which the family qualifies.
But assets held in Coverdell Education Savings Accounts (ESAs with income limitations) and 529 plans (operated by states and educational institutions) will be factored into the parent’s formula, having less effect on the aid for which the family qualifies.
Help grandparents’ target their gifts. Grandparents’ hearts often lead them to make gifts directly to grandchildren or pay their tuition expenses. Even though payments made directly to a college avoid gift taxes, financial aid sources generally count these payments as an additional resource the family has to pay for college expenses. Distributions from grandparent-owned 529 plans are also considered as resources and assessed as your child’s income, which reduces the amount of eligible aid.
A better idea for grandparents may be to consider making a gift to a 529 plan owned by the parent or grandchild. The financial aid treatment of gifts to 529 plans is generally more favorable than for gifts made directly to the grandchild. Plus grandparents may also realize estate tax and gift benefits by using
this alternative.
Assess your family’s financial situation to determine what your children will need. Gather records and begin researching available financial aid, grants, loans and scholarships. Two forms will be key to your aid application process: the Free Application for Federal Student Aid (FAFSA) and the College Scholarship Service Financial Aid Profile (PROFILE). The FAFSA form helps you apply for federal aid, and many states also use it to determine a resident student’s eligibility for state aid. You can find forms in high-school guidance offices and college financial-aid offices or online.
*Trends in Student Aid 2013, collegeboard.org
**fafsa.gov
Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest. This article was written by Wells Fargo Advisors and provided courtesy of Whitney McDaniel, CFP®, AAMS®, Financial Advisor in Beaufort, SC at 843/524-1114. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. ©2015 Wells Fargo Advisors, LLC. All rights reserved.
