How to Improve Your Child’s Financial Aid Situation

By Britt Erica Tunick

Depending on the institution that your child chooses, it is not uncommon for a college education to cost hundreds of thousands of dollars and, as a result, a large portion of students find themselves taking out some sort of financial aid. If the expense of college is something that you or your child are going to be facing in the next couple of years, now is the time to think about ways you can position yourself to be eligible for the most need-based financial aid possible.

Applying for financial aid requires the completion of the Free Application for Federal Student Aid (FAFSA) – the application that the government uses to determine a student’s eligibility based on the expected contribution from one’s family. Consequently, it is important to take a holistic look at your finances, and any steps you can take to make aid more likely to be available, well in advance of submitting the application. A student’s eligibility for aid is based on their family’s financial situation during the period from January 1 of their sophomore year in high school until the end of the calendar year of their junior year. On the other hand, the assets you report are based on the date you submit the FAFSA.

Following are just a few steps you can take to ensure that your child will get the most financial aid possible:

• Make sure to file as close to October 1 as possible because the earlier you do so the better chance you have of getting a larger amount. Aid is awarded on a first-come basis.
• Avoid anything that will increase your income during the filing year, such as taking a retirement distribution or exercising stock options. Every $10,000 less of income translates to roughly $3,000 less in aid.
• One way of shielding assets from inclusion in the overall number you need to report is to use any cash on hand to pay down debt you have, such as loans or credit card debt. Contributing the maximum that you are allowed to put into retirement plans is also helpful, as money put in a retirement plan before the timeframe being examined does not need to be reported. These steps should be taken prior to the time periods outlined above.
• Be sure to limit the amount of assets held in your child’s name, as every $10,000 of assets that must be reported in their name will translate to roughly $2,000 less in need-based aid on the FAFSA. And keep in mind that the money held in a trust fund is not exempt from reporting requirements.