Applying for Financial Aid? Some Tips & Suggestions


June 21, 2018

aid represents money distributed primarily by the government and colleges in
the form of loans, grants, scholarships, or work-study jobs. A student can
receive aid from federal and/or college sources. Ideally, a financial aid
package will include more dollars in the form of grants and scholarships (which
do not have to be repaid) and less via loans.

If you
think you will need financial aid,
to file a Free Application
for Student Aid (FAFSA) for each academic year. This period begins nine months
before the academic year starts on October 1, and ends at the same time as the
academic year (June 30). For example, the 2018-19 academic year runs from July
1, 2018 to June 30, 2019. The FAFSA can be filed any time between October 1,
2017 and June 30, 2019. (See this
provides for some
tips on navigating the FAFSA process.) While some schools will wait a certain
amount of time before they start to review aid applications, schools generally
have more aid to give away at the start of the financial aid application
season. Do your best to be at the front of the line.

There are
two types of financial aid: need-based and merit-based. Need-based aid is dependent
on a student’s financial needs. Merit-based aid is primarily awarded due to a
child’s academic, artistic, athletic, or musical talent. While the federal
government and colleges provide need-based aid in the form of loans and grants,
colleges are the main source of merit aid. Colleges use merit aid to help
attract the best and brightest students to their campuses. Generally, colleges
that provide competitive merit scholarships award them to students in the top
25% of their applicant pool.

It is also
important to note that there is something akin to a gaming aspect related to
tuition costs and merit aid. For the 2016-17 school year, the 411 private
nonprofit schools that the National Association of College and University
Business Officers surveyed reported an

is a government-sponsored program. Most public institutions follow a specific
formula to determine whether an individual is eligible for need-based financial
aid. The same formula is used by private institutions, too. However, they may
make some modifications to the calculations based on additional information
obtained through the

Types of Financial Aid

In a
previous blog, we provided more information about completing the
. The FAFSA relies
on tax information from two years prior. After the FAFSA is submitted, your
child will receive a Student Aid Report highlighting your expected family
contribution (EFC). The colleges you list on your FAFSA will also receive a
copy of the report. When a college offers your child admission, the college’s
financial aid department will design an aid package to help meet your child’s
financial needs. This is done using a combination of the following (typically
in this order):

(for students with
exceptional financial need)


(subsidized* for students with financial need)


(unsubsidized* for all other students)

(the federal
government allocates funds for these programs to colleges for distribution to
students; eligibility depends on application timing, financial need, and
availability of funds)

College grant, scholarship, or tuition discount (at the college’s

* The
federal government pays the interest for Direct Subsidized Loans while the
student is in college or while the loan is in deferment. Interest begins
accruing for Direct Unsubsidized Loans as soon as the money is borrowed. In
other words, subsidized loans have slightly better terms to assist students
with greater perceived financial need.

colleges are not required to meet your child’s financial need. Oftentimes, they
will meet only a portion of your need, which is also referred to as getting
“gapped.” If this occurs, you will have to fund the shortfall as well as make
your expected family contribution (EFC). It is also important to note that if a
college says it is meeting “100% of your demonstrated need,” the college is
determining your need, not you. You must also still pay your EFC.

The Expected Family
Contribution (EFC)

determining your EFC, the federal financial aid formula uses the following
general rules (See this
for guidance on
which account types are considered a child’s asset, and which are considered a
parent’s asset.):


20% of the assets
held in a child’s name are typically considered to be available for education


Only a maximum of
5.64% of a parent’s assets are generally viewed as available to cover college costs
after the asset protection allowance (APA).


Student income is
counted at 50% over a certain amount – the income protection allowance (IPA).
Currently, the IPA for dependent students is $


In general, parental
income is counted on a sliding scale from 22% to 47% of discretionary income (income
equals adjusted gross income (AGI) plus untaxed income/benefits less certain
deductions). The IPA depends on the number of people in the household and the
number of college students. For 2018-19, the IPA for a married couple with two
children in college is $

What Is Counted as
an Asset

following assets are counted for financial aid purposes:

Savings and checking accounts


Net worth of a business with more than 100 full-time employees

A farm that is not a family’s primary residence

Investment accounts

Non-retirement tax-deferred savings plans such as 529 accounts

Tax-exempt interest income

Tax credits

Investment property

Other asset types

Some Excluded

There are
parental assets sheltered on the FAFSA:

Money in qualified retirement plans

Life insurance policies

The net worth of the principal place of residence


Any small businesses owned and controlled by the family

Assets held by others

Personal possessions such as clothing, furniture, books, cars, boats,
computer, and collectibles.

There is
also an age-based asset protection allowance based on the age of the older
parent which typically shelters an additional $40,000 to – $50,000 or so in
assets. Note that the CSS Profile also subtracts an allowance for emergency
reserves from assets.

Financial Aid Eligibility

You can get
a ballpark estimate of how much financial aid your child might be eligible for
ahead of time. There are two ways you can accomplish this:

The federal government provides an online tool – the “
” – which can be
used to estimate your expected family contribution (EFC).

Every college offers a “net price calculator” tool on its website that
you can use to get an estimate of how much financial aid your child might
qualify for at a particular institution based on your family’s financial and
personal profile.

If your child is not yet old enough to apply for college, there are tools to help you determine how much college might cost by the time your child enrolls.

Ownership of
College Savings Accounts and Financial Aid

529 accounts
held in a parent’s name and Coverdell Education Savings Accounts (ESA) are
treated as parental assets. However, a school may use slightly different
formulas to determine financial aid eligibility, which could cause accounts
listed under a grandparent’s or non-relative’s name to be reported, depending
on the school.

If another
family member (like a grandparent) or non-relative owns the 529 plan, the
account’s assets are disregarded for federal financial aid purposes. However,
withdrawals in support of your student will factor into the determination of
his or her financial aid two years after the distribution is made. As a result,
distributions made in a grandchild’s freshman and/or sophomore year of college,
could limit his or her financial aid award during his or her junior and/or
senior year, respectively.

As a
result, waiting to take distributions from a grandparent-owned 529 account
until the last two years of college could prove beneficial. Under the current rules,
this approach would ensure the distributions do not impact a grandchild’s
financial aid eligibility. If such amounts are used earlier, they can increase
the amount the family is expected to pay for college (and reduce aid awards two
years hence) by about 50%.

It is even
more complicated if a child’s parents are divorced. Only the custodial parent’s
income and assets are reported on the FAFSA for a dependent student.
Withdrawals from a 529 plan held by the non-custodial parent will be treated as
income against financial aid, just like those held by grandparents.

the above rules are only for federal purposes. Hundreds of universities make
their financial aid awards based on the College Board’s CSS Profile form. More
detailed information is required than for the FAFSA. Each school can set its
own rules on how it determines need-based aid, so the reduction for assets in a
529 plan and/or ESA varies. However, it could be as much as 25% of the asset’s value.
A grandparent-owned 529 plan may be included in the CSS Profile as well.

On the
other hand, custodial accounts can have a more material impact on financial
aid. Since the money in the custodial account is your child’s asset and not
yours, federal financial aid formulas consider 20% of the money to be available
to pay for college.

There can
be a benefit to rolling over money from a custodial account into a 529 account.
Doing so can result in only 5.64% of the account value being considered for
financial aid purposes However, this cannot be done without tax consequences. You
can only transfer cash into a 529 account. As a result, taxes will be due on
any gains realized when selling assets held in the custodial account.

Note that
not all 529 plans automatically allow you to transfer funds from an UGMA/UTMA
account. You must check to see if your 529 plan allows custodial account funds
to be transferred. Also, if you roll custodial funds into a 529 plan, such
amounts can still only be used for the original account beneficiary. You cannot
rename the beneficiary and use the assets for another person. If money is
transferred from an UGMA/UTMA account to a section 529 plan, the section 529
plan should be titled the same as the UGMA/UTMA account. The money still belongs
to the minor, but it remains under the custodian’s control until the minor
reaches the
. The custodian has the fiduciary responsibility to manage the money
in a prudent manner for the minor’s benefit.

Some Strategies
That Can Enhance Financial Aid Eligibility

You can
implement strategies to try and enhance the size of your child’s financial aid
award. These tools take advantage of the federal rules about the ways in which
family income and assets are counted when the family’s expected family
contribution (EFC) is determined.


Time the receipt of discretionary income to avoid the base year –
based on current rules for filing the FASFA, the base year is two years prior.

Pay all federal and state income taxes due during the base year. This
will reduce assessable cash and increase your tax deduction on the FAFSA.

Have your child limit his or her income for the base year to the
amount of the student income protection allowance (Currently, $6,570).


Use cash (an assessable asset) to pay down consumer debt, which is not
counted under the federal methodology.

Use cash to make large planned purchases the year before your child
starts college.

Use counted assets to pay down your mortgage, which increases your
home equity (an excludable asset).

Shift counted assets above your asset protection allowance (a sum
automatically excluded from consideration) to assets excluded by the federal
methodology (
home equity,
retirement plans, cash value life insurance).

Shift the child’s money into the parent’s name. Note that you may want
to consult with a CPA or financial planner about the proper way to shift money.

Use your child’s assets to pay for the first year of college, which
reduces (for subsequent years) the student asset contribution factored into
your EFC.

You Can Ask for

Need-Based Aid

You can
lobby a school for more aid but tread carefully. A polite letter to your
financial aid contact followed by a phone call is appropriate. Your chances to
receive more aid increase if you can document a change in circumstances that
affects your ability to pay. For example, a recent job loss, unusually high
medical bills, or some other event that impacts your finances. Do not feel
embarrassed about discussing your problems. There may be many others in the
same situation. When you talk to the school, be realistic about what you – and
the college – can contribute. Make the college understand you recognize paying for
your child to attend that school is a partnership that you want to be part of;
you just need a little more help.

The letter
should be addressed to the financial aid director at the college your child
wants to attend. You want to ask for a “professional judgement” review – the
technical rule under federal law for such appeals. Sometimes having your child
show a willingness to be part of the process can help. If sending an appeal to
your child’s first-choice school, make sure that point – as well as how much
you really want to make this work – is communicated.

In your
letter, you can also ask for an appointment with a financial aid officer so you
can discuss the appeal in person. If an in-person meeting is not possible, ask for
one over the phone. In addition, ask the school if there is anything else your
child can do to get more aid in the current or subsequent years.

Merit-Based Aid

If you are
seeking more merit aid, you can attempt to use a better award offer from
another school as leverage. Include copies of award letters received from other
schools in any such request. Do not be afraid to ask one college if they will
match a favorable aid offer from another college. While this strategy is less
reliable, it can work, particularly if the schools are direct competitors.
Before you take this approach do some research. Check the college’s website to better
understand its financial aid policies. This approach will help you know what to
– and what not to – ask for.

One other
suggestion. If asking for more merit-based aid, even if you draft the letter,
have your child submit the request. It will show that your child is vested in
the process as well as their interest in attending that school. Be careful
about asking for too much. If a little more aid will make a difference, make it
clear that is what you are seeking. Thank the school for the package they
already offered, tell them you are willing to assume your responsibility, based
on what you have in savings and can take in loans. A relatively small request
is also more likely to be successful than one asking for the moon.

If you do
get an additional award, find out if it is just for the current year, or if it
will be provided in the future.

Comparing Awards

If your
child gets aid awards from more than one school, it may be difficult to compare
them. To make that process easier, the College Board provides a
. You can enter information on aid awards for as many as four schools
at one time.


You can find
opportunities for available scholarships online: For example,
. You can also use
a free scholarship matching service such as
or earn points to
enter random drawings for scholarships at

Some Closing

The reality
is that you should not rely too heavily on financial aid. While financial aid
can certainly help cover the cost of your child’s education, the biggest piece
of the typical aid package is student loans not grants and scholarships.

There are
several resources that provide financial aid information. These include the
. At the
same time, it is also recommended that you check with your financial advisor
and a qualified tax advisor to determine which approach to education savings
may be best for you and your family.

This post wraps up a three-part discussion of the
main issues around the financial aspects of applying for college. Earlier we
discussed the

. If you would like to talk to us about paying for your child’s post-secondary
education, please fill out our 
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