Bear Mountain Capital Inc.

College Planning and Financial Aid

| December 17, 2015

Budgeting | Planning Perspectives


College Savings

If you have children nearing high school, you may feel anxious as you prepare to help pay for college expenses. Some mitigate this feeling by starting the planning process early by opening and funding college savings accounts (529 savings plans). Those who get a jump start, carve out a piece of their monthly cash flow, put it aside and allow it grow as their child gets closer and closer to leaving the house.

However, many others, for various reasons, do not get an early jump on saving for college. For people who do not have money put aside or a generous family member ready to step-in and help out with college expenses, the stress associated with paying these costs can become overwhelming. Many parents are left scrambling.

In the latter case, many parents turn their attention to the financial aid process. Financial aid can be a bridge for parents to use to help cover college expenses they otherwise cannot afford. They’ll seek aid provided by either the federal government, a particular state or directly by the colleges or universities where a student intends to go to school.

Not surprisingly, a lot of confusion can exist regarding this topic. Many parents are concerned if they save money for college, it may make them ineligible for financial aid. The reality is financial aid is provided to those who are most in need. If you have the means to save, but do not put money aside in hopes of getting financial aid, you are most likely shooting yourself in the foot. It is best to plan ahead and put aside what you can, rather then pin your hopes solely on financial aid.

In addition to confusion about how much to save or what the financial threshold is to be eligible, many find the application process itself quite cryptic. A recent article put out by highlights a number of items to consider when preparing and submitting applications for financial aid. We summarize below.

What is FAFSA vs CSS/Financial Aid PROFILE?

Most individuals, nearly 20 million in fact, file the FAFSA or Free Application for Federal Student Aid each year. This is the primary application used to determine eligibility for federal and state grants or government loans. However, there is a separate application used specifically by the colleges to determine if you are eligible for financial aid from the higher education institutions, themselves. The CSS/Financial Aid PROFILE application is used by almost 230 schools across the country to determine if students qualify to receive direct grants from the schools.

It is important to complete BOTH applications. The FAFSA and CSS/Financial Aid PROFILE application are not inter-changeable.  In addition, the PROFILE schools request a lot more information on the application, to help them make their decisions. But, they also require the FAFSA application to be filed.

Who Should Complete the Forms?

If you are divorced or separated, it matters who completes the FAFSA application. It does not matter who claims the child as a dependent on their tax return. The parent with whom the child lives with for the majority of the year prior to filing the application is the person who MUST submit the application. This means it will be that parent’s finances that are taken into consideration as part of the application process.

When Should You Apply?

The deadlines for filing for financial aid vary by state and school. However, many states offer money on a first-come, first-serve basis. So filing as soon as possible is very important. Many applications can be submitted as early as the fall before your child graduates from high school. This means you’ll be submitting financial information well before the year-end and before you have filed taxes. You’ll be using prior year tax data, supplemented with year-to-date information to complete the necessary forms. It is critical to learn when the application period opens and ends. If you are eligible and you submit your forms early, you will have a better chance at actually receiving aid.

How Firm are the Final Offers?

Remember, many schools are competing for the right candidates. If you have multiple offers of financial aid from different schools, you can use this information to request an increase in aid from your preferred institution. If you are going to appeal for a higher award, be specific in the request and be prepared to show additional documentation.

Applying for financial aid may sound like more work then its worth. However, given the sky-rocketing costs of college and the expectations of increased tuition in the future, it may well be worth it. If you are eligible, the payoff for a well-planned application process can be in the thousands, if not tens of thousands of dollars.