Tips on Applying for Financial Aid
Is there any way to “beat the system” when applying for financial aid? Can families rearrange their finances so that they can receive more financial assistance? There are two things to remember before these questions can be answered.
First, you should always be honest and accurate when applying for financial aid. There are severe penalties if dishonesty is discovered.
What’s Financial Aid All About?
Second, the federal government often changes the rules and regulations that deter mine how financial aid is awarded. Today’s savvy financial aid strategy may be obsolete next year.
Don’t be dishonest or manipulate your income and assets in an attempt to secure more money. Instead, structure your entire college financial planning process to maximize your resources, keep debt levels manageable, and meet college expenses in a rational and comprehensive way.
Before you apply for financial aid, however, there are certain peculiarities of the cur rent formula for financial aid and need analysis that you should understand. The tips in the following sections will help you get your fair share of the action.
The Federal Formula
The current federal formula expects students to contribute 35 percent of their assets each year to meet their college costs. That same formula requires that parents contribute only 5.6 percent of their assets to meet their kids’ college expenses. For example, if your family has assets of $10,000, it’s better to have them in the parents’ names rather than in the kids’. As parents, you would have to contribute 5.6 percent, or $560, under the current need-analysis formula. Your student would be expected to contribute $3,500, or 35 percent, toward meeting school bills.
Consider Using Your Home
Home equity loans allow parents to borrow against the value of their house to pay for their kids’ college education. Parents can take out a second mortgage and establish a line of credit based on the equity they’ve built up in their house. Unlike the interest on other consumer loans, the interest on home equity loans is tax-deductible.
Although financing college costs with home equity loans would not work for every one, it’s an effective college-financing plan for homeowners.
Some parents use the funds from a home equity loan to prepay four years of college costs to save on tuition increases.
Watch Your Assets
Investigate ways of reducing your income and assets, including investing in retirement accounts and life insurance policies.
Delay taking any profits from investments or real estate holdings; that way, they won’t be included as part of the family’s income for the year preceding college enrollment.
Timing is important. Because financial aid awards are based on the previous tax year—in other words, the year before the college year—make sure that you shift any income and assets in advance of the college year.
Your Expected Contribution
A family’s contribution is reduced by the number of family members in college at the same time. If two kids are simultaneously enrolled, the expected family contribution is reduced by almost 50 percent for each one. The same is true if two parents are simultaneously enrolled in higher education courses.
Watch for Fraud
When school is about to start, advertised offers for “guaranteed” scholarships, grants, and loans may look very attractive to college-bound students who didn’t apply or qualify for financial aid. However, many civic organizations—for example, the Better Business Bureau (BBB)—warns students to be cautious of unethical scholarship companies.
Some scholarship companies promise a “guaranteed match” of students to sources of funding, regardless of the students’ academic qualifications, scholastic credentials, or family economic status. Their advertisements and sales pitches assert that there are millions of dollars in unclaimed scholarship money waiting to be tapped. However, in the BBB’s experience, many of these promises prove empty, and few if any students receive funds. In exchange for an upfront fee, which can range from $50 to several hundred dollars, these scholarship companies only supply lists of possible scholarship sources.
Here are some points to keep in mind if you’re considering getting help from a scholarship company:
Even though the company making the offer may claim that scholarships are “guaranteed,” only the sources actually granting the funds can guarantee approval.
Unethical scholarship companies do not assist students in obtaining loans and do not screen applicants. After buying the lists from the firm, the student is responsible for researching and contacting each organization listed as a possible funding source.
Many ads by these companies offer a “money back guarantee” to students who do not receive any scholarship funds. Students who are unsuccessful in obtaining funds may find that refunds are difficult, if not impossible, to obtain. In many cases, companies require that students prove through documentation that they were turned down by every source on the list.
If students do decide to seek the help of a scholarship service company, the Better Business Bureau recommends that they first check the service’s references. Reference checks can be made through high school guidance offices, reference sections of libraries, or the financial aid office of the college the student is planning to attend.
Financial aid is available to millions of American families. Don’t make the mistake of assuming you don’t qualify. You won’t know until you apply!
There are literally thousands of financial aid sources out there for the people who are willing to search for them. You may even find a pot of gold at the end of the rainbow!
If you research financial aid possibilities and do some advance planning, you won’t have to overburden yourself with debt to send your kids to college. u Beware of scholarship service companies that guarantee scholarship funds.
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