Save in your name, not your student's
The federal financial aid formula assesses student savings at
20%, as opposed to the 5.6% assessed on parental assets (after an
allowance). If you've already saved in your child's name -- say, in
a Uniform Gifts to Minors Account (UGMA) -- you can cash out and
transfer the money to a custodial 529 savings account, which is
assessed at the parent's rate. (The sale may trigger capital-gains
tax, and the gains will be included as income in the following
year's Free Application for Federal Student Aid.) Or have your
student spend his or her own money for necessary expenses, such as
a new laptop or a car.
Financial Aid Strategies With a Catch
Pay off debt before applying for aid
The FAFSA requires that you report income from the previous year
but report assets as of the day you submit your application. Pay
any major expenses first so that you can report fewer assets.
Double-check your numbers
You're encouraged to file your FAFSA soon after January 1 (the
earliest you can apply), the better to get in on scarce grant
money. But you may not have the tax documents to report your exact
income. Go ahead and estimate, but be careful not to overstate the
amount. That's an easy mistake to make if you're relying on the
last pay stub of the previous year because you may not account for
all your reductions to taxable income. Income matters far more than
assets in the financial aid formula. Don't trip yourself up by
looking richer than you are.
Spell out special circumstances
If you recently lost your job, incurred heavy medical expenses
or suffered another major financial setback, let the college know
-- even if you've already gotten the financial aid award. "Some
families don't realize there's a little wiggle or negotiation
room," says Cara Stevens, a high school counselor and part-time
college planning consultant in Marion, Ohio.