10/09/2015
Federal College Aid: Strategies and Tactics to Plan for Your Educational Future

Federal College Aid: Strategies and Tactics to Plan for Your Educational Future

Everyone has personal and professional goals, and in today’s world, more people than ever are finding higher education an absolute requirement. Whether you’re looking to pay for a bachelor’s degree or an MD, the rising cost of education is probably a point of concern.

As the price of education rises, so does the number of young people in debt. Fortunately, a little savvy financial planning — and insight from the team at OptiFour — can make a major difference in the world of paying for higher education.

The Family Factor

A major component of financial aid eligibility is the EFC, Expected Family Contribution. This figure is based on a variety of factors including a family’s income and assets, plus the student’s status as a dependent. The EFC is subtracted from the cost of tuition to assess the students’ need.

The good news is that parents’ assets are not weighted as heavily as their children’s, even when the student is claimed as a dependent. Less than 6% of a family’s assets contribute to the EFC, compared to up to 20% of the students’.

While college savings accounts like 529 plans are also factored in, they are not considered (if not owned directly by the student or their parents). In comparison, the more exhaustive CSS (College Scholarship Service) profile, only required by 300 or so schools in the country, uses the information on all available accounts to determine financial aid.

Student Income & Eligibility

Unsurprisingly, the student’s earning power is the most significant factor in determining federal student aid. A whopping 50% of the applicant’s declared income is taken into account when determining financial assistance. If you’re collecting disbursements from a Roth IRA, be careful. While the capital on the account (owned by the student or their parents) is not considered an asset, any passive monies received from it are technically income and must be folded into the “wages” section on the FAFSA. (Consult with an OptiFour planner to make sure you’re getting the most out of your IRA.)

Planning Considerations: Tactics That Work

With all these factors in play, what’s an aspiring college student to do? Never fear: you’re in the right place. OptiFour prides itself on managing, growing and maintaining wealth — which includes educational capital. These common tactics have served our clientele well:

• A 529 plan or Coverdell Educational Savings account can be transferred to the parents’ control well before the completion of any aid applications. It can still be counted as an overall family asset in the EFC, but cannot affect the student’s reported income level.

• Liquidating assets through tactics like property sales or mutual fund dissolutions may seem tempting, but the infusion of ready cash can throw off the student’s AGI (Adjusted Gross Income) and have a negative effect on their calculated financial aid need.

• Backlogged tax bills left over from a recent conversion? Consider paying it down within the same year as your aid application.

Families working together to help the next generation achieve their educational goals: what could be more important? OptiFour is here to help families manage the process from start to finish. We’ll help you develop a sound financial plan and submit your FAFSA or CSS. Visit our blog today to get more wisdom on managing your wealth, or visit our homepage to find out more about what our planners can do for your financial future.

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