How are you planning on paying for college? For a majority of students, Federal Fiancial Aid is the solution. 

With the high cost of college, American families are always looking for ways to get some help.  According to College Board, average college costs per year (including room and board) are $18,943 for in-state, $32,762 for out-of-state, and $42,419 for a private institution. Multiply by 4 years of education and you end up with a very steep bill to pay.  Unfortunately, debt has been the go-to solution to this problem and is creating a larger problem. According to The Federal Reserve, the overall student debt is $1.3 trillion and is increasing by $2,726.03 per second. 

In the quest to find ways to relieve the financial burden of college, many students opt for Federal Student Aid. Federal Student Aid is a part of the U.S. Department of Education that provides grants, loans and work-study funds for college. The process begins with the student filing a FAFSA (Free Application for Federal Student Aid) where the student’s and family’s assets and income are reported. They use a formula called the Federal Methodology Need Analysis System to determine the financial aid the student is eligible for.  Sound complicated? It is. The information needed to complete it is more detailed than the federal income tax form, and since they work on a first come first serve basis it is super important to complete it accurately and on time.

Here are some tips that will help improve your chances of success.

    1. Savings account assets: The Department of Education’s formula takes only 5% of the parents’ savings account assets into consideration, but take over 35% of the student’s.  This is why you may want to have all the college savingsaccount in the parents’ names and not the student’s. By repositioning this savings you can increase your Gift-aid.


    1. Tax-deferred retirement funds: The formula only takes into account the parents’ assets that are invested in an IRA or tax-deferred retirement fund in the calendar year before applying for collage. In other words, all retirement savings accumulated BEFORE January of their junior year gets ignored. You should put as much as you can before this date to maximize help.


    1. Selling investments: If your plan is to sell any kind of investment to pay for college, it is important to do it BEFORE January of their junior year. Any capital gains between the date and December of their senior year will count as income, reducing your financial help.


    1. Medical and dental expenses: Expenses not covered by insurance are deducted from the income when making the financial aid analysis.  It would be beneficial to pay all the medical bills by December of your senior year.


  1. Home equity: This is an asset that the government does not include in the calculation of financial aid need. The more you add to your home equity, the less you pay for college. 

Before submitting a FAFSA run the numbers and try repositioning assets to get the maximum help. There are tools like FAFSA4caster and FinAid to help you see what the result may be before you make any changes. Take your time in completing the FAFSA, this is your kick start for college aid. Regardless of your income you should apply for it. You might be amazed with the results.

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