SIX NO-NO’S THAT COULD IMPACT FINANCIAL AID NEGATIVELY

August 28, 2016

Gaining knowledge about the financial aid process could potentially save you money.

Here are six No-No’s that could impact Financial Aid negatively:

Wait too long to plan for college through Financial Planning, saving, and knowing where funds will come from for College. There is nothing wrong with shifting assets, deferring income or other strategies. However, always do things within the framework of acceptable options. Do not hide assets or do anything else that is not above board. Do not be dishonest. Financial Forms are audited at a fairly high rate at Universities and Colleges. The later you do some of these things, the more suspicious it becomes, leading to an audit, even if there is nothing wrong. There is nothing wrong with taking advantage of loopholes if they are done correctly

Fail to file Financial Aid Forms, assuming there is no chance for aid. High salaries and assets does not automatically disqualify you from Financial Aid, as Colleges may attempt to lure students they want with aid packages. Never assume you have no chance for aid, so why do it? This is the only way to receive Federal and Institutional Aid or receive favorable Federal Loans.

File your financial forms too late. They are now both available on October 1, and the aim should be to file as close to that date as possible, once you have your list of schools. Institutional funds do dry up and the later you file, the less chance you have for a good package. Also, the later you file, the more harried Financial Aid offices are. Here is news about the FAFSA process: https://college-connections.com/blog/the-fafsa-is-available-3-reasons-to-get-it-done-early/

Putting assets in the child’s name or making irrevocable gifts, which is the case if you decide to open a UTMA account. Your intentions may be wonderful, but the results can hurt you. This is also a major issue for Grandparents attempting to be helpful. Child assets count against you far more than parent assets. As long as funds are not being transferred from a UTMA, 529 plans will always be counted as parent assets. After the final financial form is completed for the child’s senior year, you may pay for college in any fashion you desire without tax consequences. There is no gift tax limit if the funds are going for education. So you can gift your child his entire senior year bill or pay directly, without it showing up as child income the next year. If the child does have assets that are irrevocable, spend those assets for any necessary expenses and pay off the child’s debt. Just attempt to get rid of assets in the child’s name.

Do not increase your salary during this period. In fact, if parents can defer some salary or any bonus or sale of investments that would cause capital gain income until after college, it would obviously result in more Financial Aid.

Do not invest in 529 plans, if you do not have a long enough time span to avoid having a disastrous year and not having enough time to recover. Make sure 529 assets are in cash or cash like investments in the final two years. Consider setting up a Roth IRA foe your child at a very young age. Roth IRA withdrawals are not considered child income the following year, while 529 withdrawals are.