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RE: FAFSA: What a CPA is told to tell clients for financial Aid

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taxguy@ CollegeConfidential.com

Location: Rockville, Maryland



What a CPA is told to tell clients for financial Aid


I was just taking a college planning course as part of a CPA continuing education program. Here are some tips that they gave to tell clients:


I. Student’s Responsibilities

The student’s primary responsibility is to make themselves an attractive candidate to the various colleges.

S/he should have strong GPA and SAT/ACT scores.


The student should participate in extracurricular activities so s/he can show s/he is well rounded. Many colleges are interested in seeing students participate in a leadership role.


The student should consider schools where s/he is in the top 20 percent of the admitting class. Students in the top 20 percent of the admitting class tend to receive more gift aid.


The student should consider colleges that meet 75 to 100 percent of the student's financial need. Each year the average percentage of financial need met by each college is published.


It is important to start early. The earlier that the parent starts saving for college, the better it is.


The student should prepare a spreadsheet to compare various awards. This will allow the student to analyze which school will give the student more free college scholarship and less college student loans, which will help reduce the cost of attendance. Several college planning Web sites have calculators to compare financial aid award packages.


II. Summary of Strategies for Maximizing Financial Aid


Appreciated assets that will be liquidated to pay for college expenses should be liquidated prior to December 31 of the student’s junior year in high school. If this is not done, the gain on the liquidation of the assets will be assessed as income in the EFC computation and the investment will be considered as an asset.


It is important to first spend the student’s investments. The student’s assets are assessed at a 35 percent rate per year, while the parent’s assets are assessed at a maximum rate of 5.64 percent. If the student’s assets are spent on college costs during the early college years, that could lead to increased financial aid in the later college years.



Assets in the grandparent's name are not clasified as assets for financial aid even if they are going to be used for the grandchild's education.


It is important to spend the parents’ investments for college expenses before borrowing money. If the parents’ assets are used to pay college costs in the early college years, it could lead to a greater availability of financial aid in the later college years.


Paying all outstanding bills and making necessary big-ticket purchases before the FAFSA is signed will reduce the amount of cash reported. Remember that a principal residence isn't counted as an asset. Thus, taking money out of your savings or checking account to pay off debt on your residence reduces the assets that are counted for financial aid.


Use cash and savings to pay off personal debt, such as credit cards, car loans, etc., which are not considered in the EFC computation.


Divorced parents should give careful consideration as to who should be the “custodial†parent during the college years. If the custodial parent is the one with the lower income, the student will qualify for more financial aid.


Parents should reposition their assets so the majority of their assets are not considered in the EFC computation. Principal residences and cash value in life insurance are not considered assets no matter how much they may be.


Parents having a business with a net worth of less than $490,000 should consider using some of their assets to make a capital investment in the business.


Consider using a flexible spending arrangement to pay for dependent care or medical expenses because these benefits are not added back for the EFC computation.


Before taking an extra part-time or summer job, students should consider if it is more beneficial to work or to qualify for more financial aid.


Don't put money in the kid’s name (Unless it is in exempt assets such as life insurance products). Kids are heavily penalized in that 35% of their assets are considered available for educational expenses each year while only 5.64% of the parents’ assets are deemed available.


Even better: take the money out of any kid's name and put it in an educational savings plan such as a section 529 tuition plan.

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So if I am understanding this, it says that you will spend less money overall on college if you spend all your children's college money on the first child and then just hope that financial aid is available for the last child?


I don't think that it's saying that so much as it is saying to spend the student's assets down before tapping into the parents' or taking out a loan because the financial aid calculations consider a higher percentage of the student's money to be available for college.


This is actually the reason why why have save a lot but kept most of it in our names rather than our kids' names. Not that we expect to see much other than possible merit aid. But I resent the idea that a student is expected to spend most of their savings on college rather than be saving for other long range goals like a house or property.


I wonder how student owned property is treated for financial aid.

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