College Financing: Do’s and Dont’s for Maximizing Student Financial Aid (Part II)

Is a college education still the American Dream?  And if so, how much does it cost to pursue that dream?

In part II of this blog post, Rick Shaffer--our resident financial guru and guest blogger–offers some ways to avoid missteps that might hamper your efforts to obtain college financing.  

The College Board estimates that during the 2013–14 academic year, the average cost of tuition, room and board at a private nonprofit four-year college was $40,917, up 1.7 percent from the previous year. At a public four-year college, the average cost to attend was $18,391, up 1.2 percent. If college costs increase at a rate of just 2 percent per year, in 25 years parents of incoming college freshmen might expect to spend as much as $68,471 in today’s dollars for that first year — or a total of nearly $300,000 on a four-year program.

It’s pretty clear that most of us cannot meet these costs without some sort of financial aid. There is money to be had; in the first half of this post, I reviewed some steps you should take to avail yourself of these funds. But it’s equally important to recognize three common missteps that can actually sabotage your own best efforts!

  • Don’t make any drastic changes to your retirement plan or accrue additional debt with a second mortgage or line of credit on your home. Aside from increasing your overall debt, you’re less likely to qualify for scholarships or grants and more likely to qualify for higher-cost loans.
  • Don’t invest college savings in or switch college savings into your child’s name. In most cases, the tax benefit is very small while the damage to your family’s ability to acquire financial aid can be very large. The two exceptions here are the 529 Plan and the Coverdell Plan, both of which automatically invest money in your child’s name.
  • Don’t pay anyone to help you search for financial aid or to fill out the financial aid forms for you.  All of this information is available free of charge from college financial aid departments, federal and state financial aid authorities, and online.  For starters, try the US Department of Education and the Federal Direct Student Loan Program.

And just a quick word about the Financial Aid Form itself (FAFSA).

  • Don’t procrastinate –complete the online FAFSA as soon as possible after January 1. Many colleges have early deadlines for consideration of scholarships, grants and other forms of financial aid; check your college’s Web site for specific deadlines.
  • Don’t assume you don’t qualify for financial aid. At least 1.7 million students nationwide don’t complete a FAFSA because they think they are ineligible. About one-third of these students would have qualified for a Pell Grant; about one-sixth would have qualified for a full Pell Grant, worth $5,645. Many scholarships and grants are based on merit and other factors, but still require a FAFSA for consideration.
  • Don’t use decimal points when completing financial sections. Decimals are not recognized during processing, so $500.00 will be misread as $50,000.
  • Don’t forget to sign the form. When filing online, make sure to use the correct federal PIN.

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