Did you realize that, according to the College Board, more than $240 billion in grants from all sources (federal loans, federal work-study, and federal tax credits and deductions) was awarded to undergraduate and graduate students in the 2015-2016 academic year?
And that those students came from households spanning a wide range of household incomes?
During that academic year, the average aid for a full-time college student amounted to $14,460, including $8,390 in grants (that don’t have to be repaid) and $4,720 in federal loans.
Once you realize how many resources may be available and begin your research on financial assistance, you could be on your way toward easing some of the anxiety often associated with paying for college.
Following are five lessons for seeking 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 it 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.
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 percent of certain assets toward their education’s costs, while parents are expected to contribute up to 5.64 percent.
That’s why assets held in custodial accounts (bank accounts, trust funds, brokerage accounts) in your children’s names may reduce the aid for which the family qualifies. But assets held in Coverdell Education Savings Accounts and 529 plans are 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 to 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 can reduce eligible aid.
A better idea for grandparents may be to make a gift to a 529 plan that is 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 using this alternative may also realize estate tax and gift tax benefits.
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 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, college financial-aid offices or online.
Many schools use the PROFILE to collect additional information before awarding their own funds, i.e., institutional student aid.
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/for Wells Fargo Advisors and provided courtesy of Katie C. Phifer, certified financial planner and financial advisor in Beaufort at 843-982-1506. Any third-party posts, reviews or comments associated with this listing are not endorsed by Wells Fargo Advisors and do not necessarily represent the views of Phifer or Wells Fargo Advisors and have not been reviewed by the firm for completeness or accuracy.
