Today I read an article entitled “Your Income May Disqualify Your Child for College Aid Regardless of Your Assets” on Forbes.com about income disqualifying families for college aid. In the article we learn how a common college planning tip (moving money out of a custodial account) may not benefit a family with financial aid at all, and in fact it could hurt the family in the long run.
Well, I was a little perturbed by the article. It was short and gave general advice on a topic that cannot be made so general. Every family has a very unique financial situation, and more care should be given when recommending ways to secure financial aid and fund college.
For example, the author of the article left out how much more aid you can get from private schools. His examples focus solely on need-based aid at colleges within the $19,000 to $30,000 per year range. Assets can have an effect on a family’s EFC (even a higher income family) because college costs vastly vary. For instance if a family has an EFC of $55,000 and they move funds from a UGMA account to an annuity to reduce their EFC from $55,000 to $50,000, then they just made themselves eligible for aid from a private school costing $55,000-$60,000 per year. This is aid they would not have been able to get before. Private schools are also generally more generous with need-based aid because they have more money to spend. The “no guarantee on what you will get at most colleges” portion is true, but that is why you research colleges before applying and going through the financial planning portion of higher education. If you’re a higher income family who has college affordability in mind, the moves you make financially must align with the colleges to which your student is applying. It’s a comprehensive plan and moving money from a custodial account can be extremely beneficial.
The author also left out reasons you’d actually want to take out federal loans. In the piece he mentions you may qualify for more need-based aid by sheltering assets, but that “the college may merely ‘fill’ that additional $4,000 of financial need with a Stafford loan that has to be repaid.” This could HELP you. Colleges have a transaction history report, so if you don’t take the loans and cut a check to the school, then the following year they will see that you can afford to pay more for college than they originally thought. With the assumption that you have more money to spend on college than your EFC indicated they may take away the Stafford loan option and may even eliminate scholarships and grants too. It’s okay to take the loan. You can repay it as soon as you wish, and you’re showing the school that you need the assistance.
How about this: he also left out that there are 1-10 year annuities based on a family’s situation. The author mentions “you may have to pay penalties to get out of [an] annuity,” which is true, but why would anyone in their right mind take out a 10 year annuity for college planning? If you stick to a shorter term then you have aligned the plan to your child’s college goals and timeframe, you don’t have to worry about penalties for withdrawal, and you create eligibility for need-based aid.
A side note to consider about this article. The author sells insurance and annuities himself. Might he be creating a problem by claiming annuities don’t work to have people seek out his advice? Instead of writing about what doesn’t work, why doesn’t he write about what does work? He wants you to come to him to get help. That’s why.
My advice is to take what you read online with a grain of salt. Know that even authors on Forbes.com have their own motives for writing. If you really want advice for college planning than you’re going to have to talk to someone about your specific situation. Do your research and talk to different planners. We know you’ll find the one that’s right for you. The right one can assist you with college admissions, essays, interviews, financial aid plans, FAFSA submission, CSS Profile questions, applications, appeals, etc. Hopefully, you choose us… but if not, make sure that the person or firm has a history of excellence, has a brick & mortar office, and has testimonials to share.
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