Last week I had a very interesting conversation with a father of a junior in high school. He was convinced he should not complete the FAFSA because he thought if he revealed his financial information to colleges then they wouldn’t give his student scholarships and grants. He said he made too much money. He thought just selecting an interest in financial aid on the college application and submitting his student’s stellar SAT scores and awesome G.P.A. was enough. He said he could get merit aid, but not anything related to income.
Let me tell you, there are many ways to qualify for the “free” money in financial aid, and step one is submitting a FAFSA. It indicates to the school that you are looking for aid. If you don’t submit it and they don’t have your detailed information… you’re up a creek when it comes to aid. Even merit aid consideration (you know the aid given for test scores and grades) most often needs a FAFSA.
After this conversation, I got to thinking. I need to give YOU all the info when it comes to aid, so listen up! I am about to give you a few key pieces of knowledge to decode the “secret formula” financial aid departments use when awarding aid.
The Formula:
Financial aid awards are based on a federal formula that most families don’t understand. This formula is used by the colleges to determine exactly how many scholarships, grants, and loans your student will qualify for before they even look at your student.
Here’s the formula:
COA – EFC = Need
(Cost of Attendance) – (Expected Family Contribution) = Need
So… Step 1.) Make sure you understand the formula. Step 2.) Make sure you know how to lower your EFC. The lower your EFC, the higher your need, and the more likely you are to receive aid. Step 3.) If you have a “Need” then you can qualify for financial aid from the school.
If you’re wondering how to lower your EFC, consider this…
The top 6 factors affecting your EFC:
1) Parents Income (5-20% of your income goes to your EFC)
2) Parent’s Assets (10% of your assets goes to your EFC)
3) Student’s Income (20-50% of your student incomes goes to your EFC)
4) Student’s Assets (50% of your student assets goes to your EFC)
5) Number of Students in College
6) Number of members living in the house hold
If you’re curious what you can do to lower your EFC, look no further! College Planning Experts can help!
Insider Strategy #1- Shelter your home equity from the financial aid system
On the federal financial aid form (FAFSA) you do not have to include your primary home equity in the definition of personal net worth. As a result, make sure you exclude your home equity when the FAFSA asks for net worth, so your EFC does not get unfairly raised.
Insider Strategy #2- Don’t save money under the student’s name
Many of the families I speak with at our workshops have a significant amount of the money saved for their children under a “529 Plan” or another similar college savings account. This is an awful mistake when you understand how the financial aid system really operates. Assets under the students name are assessed up to 50 cents on the dollar, and as a result will translate into a higher EFC for the family. Should you save? Absolutely. Just don’t do it in the student’s name.
Insider Strategy #3- Significant assets, savings, and rental properties can all be sheltered from the financial aid system
One of the top reasons why any family can qualify for financial aid is because assets can be legally and ethically sheltered from the financial aid system (as long as you know what you’re doing). That’s what College Planning Experts helps our families to do! For example, if you have four rental properties, which collectively have over $1,000,000 of equity, you can open up a Limited Liability Corporation and shelter all the home equity under the new business. As long as you have less than 100 employees within the business, the business net worth (equity) can be listed as zero on the financial aid forms, and your assets in the form of rental properties are saved. This strategy could qualify for you for massive amounts of financial aid without having to tap into your retirement or change your current lifestyle.
Now, I just gave you three HUGE tips in the financial aid process, but there are over 163 ways to lower your EFC in the financial aid formula, and there are different strategies for different families. If you want to know what would work best for you, call us 661-295-9946! We would love to schedule a one-on-one appointment to see how we can effectively manage your financial aid award. The father of the junior I mentioned earlier? He’ll be in next Tuesday.
