9 New Ways To Beat The High Cost Of College
Parents…
If you’re wondering how you’re going to pay for your children’s college education amidst this financial crisis, you’re not alone…
In fact, estimates point to as many as 13 million parents of college-bound children struggling right now to send their kids off to school.
Many uninformed parents are likely to end up mortgaging their house to the hilt, or spending their entire life’s savings to muster up enough money to send their child to college. Or, if they don’t have enough home equity or money in the bank, they’ll end up sending their child to the least expensive school rather than the best college they can get into… or, worst case, no school at all.
Fortunately, there are 9 little-known strategies that can help parents and students avoid the “college struggle”…
The 9-Step Blueprint for Beating the Rising Costs of College
College Funding Strategy #1: Maximizing the Financial Aid Process
When parents hear the term “financial aid,” many wrongly assume they make too much money to qualify for anything.
You see, financial aid is based on a number of factors beyond strictly income. Number of children in college, parents’ age, divorce or separation agreements, and the cost of the college or university are just a few of the additional factors that go into the financial aid formula.
Truth is, families with combined incomes as high as $180,000 per year have qualified for aid. Don’t rule yourself out for assistance until you’ve learned how the financial aid system works.
This is a system that is responsible for over $183 billion dollars in college assistance last year alone.
And we expect that $183 billion figure to continue to rise–perhaps at an even higher rate—under the new Obama administration. In fact, he has pledged to push for significant increases in federal spending on college financial aid.
Moreover, your family’s ability to qualify for aid depends on one number, which brings us to….
College Funding Strategy #2: Knowing Your “College Number”… and What To Do about It…
All successful college plans start with finding out what your family’s Expected Family Contribution (EFC) number is.
This “college number” is what the Department of Education uses to determine how much your family can afford to pay for college each year. Your EFC is based on a number of things including income, assets, ages of the parents, and number of kids in college.
Once your family knows its EFC number, it can quickly determine whether need-based financial aid will be a factor or not.
Here is the formula:
COA – EFC = Family Need
In this case COA stands for Cost of Attendance at the college and EFC stands for Expected Family Contribution. If your EFC is less than the COA, then there is a chance for need-based financial aid.
Bottom line: Your family needs to do everything it possibly can to legally lower the EFC number in order to obtain as much aid as possible.
Which leads us to…
College Funding Strategy #3: How To “Lower Your EFC” And Get The Maximum Amount of Money From Each School
Just like proper tax planning can minimize your tax liability, it is possible to set up your financial situation in the most favorable terms legally allowable in order to lower your family’s EFC.
Certain assets are counted much more heavily in the financial aid formulas than others. In fact, where you keep your money could mean the difference between getting $10,000 in financial aid or getting nothing. If you don’t know how to legally and ethically position your money properly for purposes of financial aid, you could end up losing thousands in financial aid.
Here’s one example…
Let’s say you have $20,000 in a college investment account for one of your children.
The Department of Education is going to take 20% of that account ($4,000) and add it onto your family’s EFC… essentially causing your family to lose $4,000 of aid.
Fortunately, a workaround exists. You see, there are certain accounts that the EFC formula does not take into consideration. Moving a child’s college fund into one of these “sheltered” accounts is perfectly legal, and a great planning strategy.
A few of these “sheltered” accounts include IRA’s, annuities, and cash value life insurance. Each of these, if set up properly, can be accessed for college expenses nearly penalty and tax free.
College Funding Strategy #4: Where To Get The Absolute Best Rate On A College Loan
Over 250 different types of college loans are available in the U.S. marketplace right now. Which is the best one for your family? And how do you know if you are getting the best rate and terms?
This used to be a tricky question for families. But not anymore.
There are several companies that compile all the information regarding rates and terms of every type of college loan on the marketplace… and put them into one easy to research tool.
But there is a catch. Every one of these “college loan comparison” web sites give preferential treatment to the loan companies who pay them for placement. In other words, they make it seem as if certain loan companies are the best deal… even if that is not truly the case.
However, one nonprofit organization does not accept paid placement money in listing available private loans. That company can be found here:
http://www.finaid.org/loans/privatestudentloans.phtml
Visit this site when you are ready to get the absolute best deal on a private college loan for your child.
College Funding Strategy #5: Private Colleges vs. State Universities: Getting the Best Deal on Both
Some schools are heavily endowed and have the ability to award a lot of money to students. Other schools have very little money to give away.
It’s important for you to know this information before you ever apply to a school.
By knowing, in advance, which schools give the best financial aid packages, you can have your child pick schools in which they have the best shot of getting money from.
This way, you don’t waste time and money applying to and visiting schools you will never be able to afford.
When researching a school’s ability to award money, you want to look for 3 key figures:
- Percentage of need met
- Percentage of gift aid
- Percentage of self help
A school that is high in percentage of need met has the ability to award maximum dollars for your child’s education. Even better still is a school that awards a high percentage of aid as gifts. Simply put, this is free money. In comparison, some schools will provide a high percentage of self-help monies, which are essentially favorable loans and work-study programs.
College Funding Strategy #6: FAFSA Forms: The Key to Unlocking $183 Billion Dollars
There is no doubt that filling out government forms can be a challenge. The Free Application for Federal Student Aid or FAFSA is no exception.
But why fill out a FAFSA form in the first place?
Simply put, last year 183 billion dollars in financial aid was given out to college students. More than 50% of that money was given out because of information supplied on the FAFSA form. This form, you see, is the gatekeeper for all that money. If you don’t fill it out or you fill it out incorrectly, you have lost your opportunity for your family’s share of the 183 billion dollar financial aid pie.
Now that we know why we are filling out the FAFSA form, here are 3 costly mistakes to avoid when completing it:
#1 Missing priority filling dates. Financial aid is given out on a first-come, first-serve basis. Those who submit the FAFSA form on time and correctly are placed in the front of the line for any eligible aid. Priority filing dates vary by state but typically fall around February 15th of the year your student will be filing for aid.
#2 Overstating assets. The FAFSA form will ask for a number of things that your family owns. But not everything. In fact, you are able to legally exclude any “qualified retirement assets.” This includes your 401k and any IRAs you own. On top of this you are also able to leave off equity you have in your home. Those are typically the two biggest assets that families own. Don’t include them on your FAFSA. They are not required.
(Note: This is NOT true for private colleges and universities that require the Profile Form. If your child is applying to one of these schools, be prepared to provide information on your home value, and other assets that are not required on the FAFSA form).
#3 Waiting to get your taxes done. The FAFSA form and web site clearly state that you can estimate your income and tax information from the previous year. But for whatever reason a lot of parents wait until their taxes are done to fill out the FAFSA form. This can cause you to miss priority filing dates. Our advice: Provide estimated tax and income information in the base year and then update your information later on the SAR once your taxes are done. If you wait to get your taxes done and miss a priority filing date, you can lose aid.
College Funding Strategy #7: Knowing the Truth About Private Scholarships
I regularly speak in front of families with college-bound kids, and one of the questions I ask at the beginning of the talk is, “By a show of hands, how many in here are interested in private scholarships?”
Nearly 100% of the people in attendance raise their hand.
After all, who doesn’t want free money?
But the truth is, private scholarships are a tiny percentage of the $183 billion dollars in aid given away each year. In fact, less than 2% of this enormous figure is for these types of scholarships.
It is not in your best interest to spend tons of time chasing and applying for these types of scholarships.
But don’t ignore them, either.
In fact, here is a great and free resource you can use to search for and apply to private scholarships.
It can be found at: www.fastweb.com
This is a free resource. It only takes a few minutes to plug in your child’s information and submit. Once in the system, fastweb.com will alert you to any private scholarships available for application.
My advice is to pick 5 of the scholarships that have the most promise of getting accepted and apply to those. This should only take a few hours total.
Remember, this is a small percentage of the available $183 billion. Focus your attention elsewhere.
College Funding Strategy #8: “College Cash flow:” What It is and How To Make It Work For Your Family
A major mistake that families make is assuming there are no extra dollars that can be allocated for college costs coming from their household income. While every family’s situation is different, there are an overwhelming number of families who can free up $100, $200, $500 or even $1,000 or more per month to put towards their kids’ college education without changing their lifestyle whatsoever.
A good cash flow analysis will uncover what strategies can be used by each family… strategies that could include debt management/consolidation, budgeting, and tax reduction.
Here are three great “cash flow” strategies to get you started:
- Consider switching from a 15 year mortgage to a 30 year mortgage. On a $250,000 mortgage this is a difference of 597/month (assuming a 6.5% rate mortgage)
- Consider switching to a high deductible car insurance policy. By switching one car, a family can save as much as $60/mo. Switch two cars and save up to $120/mo. Three cars = $180/mo.
- Consider paying off high interest credit card debt with equity in the house. The average family in the U.S. carries $8,000 in credit card debt at an average of 13%, which comes out to a payment of $182/mo. By rolling this into a new mortgage an additional $132/mo is freed up for college expenses. (In this example, I assumed a 6.5% new mortgage over 30 years)
Combine all three of these strategies for an additional $909 /mo of college savings. That monthly savings can pay for a lot of college bills. Plus once college is paid for, it can go towards supplementing your retirement fund.
Make sure and give yourself a solid cash flow analysis. It will not only ease the burden of funding college but will also make a major impact on your family’s long term financial health.
College Funding Strategy #9: Finding the Right Help
At this point you should have the makings for a solid plan on how your family will fund college for all your children.
But, the job of paying for college is far from over. In fact, the report you now have in your possession is just a starting point.
The next step is to put this knowledge to use. That said, if you are like most families, this is your first time going through the “college process.”
There is a lot to learn and act upon to make this process work. More than likely you are going to have questions. There are a couple things families in this situation can do. Let’s take a look at each, along with the pros and cons.
#1 Continue researching and learning how to maximize this process. Otherwise known as the “do it yourself method.”
Pros: There is little to no cost to search the internet, attend seminars, or check out books from your local library on the topic.
Cons: This is time consuming, and you may end up second guessing each decision you make.
#2 Hire a company or college consultant to help your family with the college funding process.
Pros: You get to draw upon an experts experience and track record of helping families pay as little out of pocket as possible for college. Saves time.
Cons: Requires an investment of money.
If you enjoy doing things on your own and have the time, then #1 is a good option. If however you are uncomfortable with figuring everything out on your own, then perhaps a combination of self-education and hiring experts for help might be the answer.
Either way you choose, good luck.
Sincerely,
Neil Kaplan
KIS Financial
