Don’t Blow It
Posted October 2012
I don’t have kids in college anymore, so the First National Bank of Dad has been shut down for a few years. For those of you looking forward to the trials and tribulations of financing college, the September 10th edition of the Wall Street Journal had a special section that discussed common mistakes made when seeking help with college costs. I will try to hit some of the highlights.
If you wait until late in the junior year or early senior year of high school to start serious planning for financial aid, you may have missed your best chance to position you or your child for the most aid. Your “base income year” for purposes of the “Free Application for Federal Student Aid” is based on your family’s tax return for the year before the child enrolls in college. If your child is enrolling in college in fall, 2013, schools look at your 2012 tax return. If you aren’t aware of this, any chance of delaying income to keep earnings as low as possible for financial aid purposes is gone. For example, taking a bonus in January of 2013 instead of December, 2012 could result in more aid. According to the article, every $10,000 reduction in income will improve your aid eligibility by about $3,000. Another point to consider is that not all family members’ assets are considered equal by colleges in the standard federal aid formula. A child’s income and assets count heavily against potential aid. Every dollar a child has in assets, including bank accounts and trust funds, will cut their possible awards by 20 cents. Every dollar a child makes in income above $6,130 cuts their possible award by 50 cents. Before the base income year begins, consider transferring the child’s assets into a 529 plan, because money held in a 529 plan belonging to a student or custodial parent will reduce the student’s eligibility for aid by a max of 5.64%. But, note this twist: If relatives other than the custodial parent set up 529 plans for kids, every dollar the student gets from these plans is considered income and reduces aid by 50 cents. A $10,000 distribution would reduce aid eligibility by $5,000. Another suggestion was that you should not make assumptions about what schools will offer in aid. Most colleges have net-price calculators on their websites. Calculations made online may show that some generous “blue chip” colleges may cost less than an in-state public university. Don’t assume that your “fall-back” choice is going to offer you scholarships because of good grades. Because aid is tightening up, if a school is not confident that you are going to attend, they may not offer you any awards at all.
When you finally get your child’s acceptance letters, don’t think that your work is done. The offer will include the “expected family contribution”. Be careful. The expected family contribution may not be all that you are paying. Some schools make up the gap between the award, the family contribution and the actual cost of attendance with grants or scholarships; some expect you to take out a loan to fill the gap. If you do take out a loan, do your homework. There will be privately offered loans as well as federally subsidized loans available. Variable rate loans could rise above the federally fixed rates in the payback period. Also, private loans are less flexible than federal loans if you find yourself in tough financial situations down the road. If you want to appeal the aid package, document why you need additional help. There could be family health care expenses or weather related disaster expense that may not show up in the normal process. Also, if you have letters from other institutions offering more aid, let your first choice know about it. Finally, don’t assume that your aid package is constant for all four years. You have to go through the application process each and every year. Good luck and best wishes for a successful hunt.
October is Halloween month. Maybe in your youth, you were afraid to go out on the streets to “Trick or Treat” and a friend, brother or sister took you by the hand and escorted you safely around the neighborhood. Your fear disappeared and a scary trip became peaceful. My wife, Beverly, said something the other day that has stayed with me. She asked me, if I died first, to come back for her when she was on her death bed, take her hand and guide her to Heaven. She would do the same for me if she went first. Wouldn’t that remove any fear and make death a more peaceful departure? Maybe that is how it is now. Maybe our family in heaven is watching for the opportunity to take our hand and lead us to our place in heaven. My God is a loving and gentle God. I think He would be pleased to send someone I knew and loved to raise me up so that I could be with the God who loves me so much. From the BCP, “for if we have life, we are alive in the Lord, and if we die, we die in the Lord. So, then, if we live or die, we are the Lord’s possession.”
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