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Consider that over half of all college students receive some form of financial aid.  Here are some tips to maximize the financial aid you and your student receive:

  1. Try to avoid putting assets in your child’s name

  2. Reduce your income

  3. Detail any financial hardships

  4. Have your child become independent

As a general rule, education funds should be kept in the parents’ names, since investments in a child’s name can impact negatively on aid eligibility. For example, the rules for determining financial aid decrease the amount of aid for which a child is eligible by 35% of assets the child owns and by 50% of the child’s income.  As an example, if your child owns $2,000 worth of stock, the amount of aid for which he or she is eligible for is reduced by $700. On the other hand, the amount of aid is reduced by (effectively) only 5.6% of your assets and from 22 to 47% of your income.

Income for financial aid purposes is generally determined based upon your previous year’s income tax situation. Therefore, in the years immediately prior to and during college, try to reduce your taxable income. Some ways to do this include:

  • Defer capital gains.

  • Sell losing investments.

  • Reduce the income from your business. If you are the owner of your own business, you may be able to reduce your taxable income by taking a lower salary, deferring bonuses, etc.

  • Defer bonuses or other lump sum payments.. If you're expecting a bonus or other lump sum payment, see if you can change the date you will receive it, so you will get the money before January of your child's junior year in high school, or after his or her junior year in college, to keep the money from being reflected in your financial aid form. 

  • Avoid distributions from retirement plans or IRAs in these years.

  • Pay your federal and state taxes during the year in the form of estimated payments rather than waiting until April 15 of the following year.

  • Pay down debt.  Since a portion of discretionary assets is included in the family’s expected contribution, reduce discretionary assets by paying off credit cards and other consumer loans. Consider a home equity loan to pay off consumer loans, such as car loans, credit cards and other obligations, since these loans reduce your assets, which is important in maximizing aid.

  • Get your children to reduce their cash.  Students are expected to contribute up to 35% of their assets toward college, so if your child has substantial savings, consider spending some on things they can use in college, such as a new computer or transportation.

  • Take advantage of vehicles which defer income, such as 401(k) plans, other retirement plans or annuities.  Consider that retirement accounts and your personal residence don't count against you in determining financial aid, so maximize your retirement contributions or make extra payments on your mortgage.

  • Consider your assets' value carefully.  Do not overvalue real estate that you own or other property when completing the financial aid forms.

If you have any financial hardships, let the deciding authorities know (via the statement of financial need or FAFSA) exactly what they are, if they are not clear from the application. The financial aid officer may be able to assist you in explaining hardships.

If your child is independent, your income and assets are not considered when determining the amount of financial aid available.  Students are considered independent if they meet any of the following criteria:

  • Are at least 24 years old by the end of the year for which they are applying for aid,

  • Are Veterans,

  • Have dependents other than their spouse,

  • Are wards of the court or both parents are deceased,

  • Are married and are not claimed as dependents on their parents’ returns.