Top 5 Tips For High School Sophomore Parents Looking For College Financial Aid

Sophomore Financial Aid

These are our top 5 tips for high school sophomore parents looking for college financial aid.  If your child is a sophomore in high school, you may be able to save yourself thousands of dollars on college tuition if you take this advice before the end of this year.

We feel the sophomore year is when you should set the stage for college financial aid under changes adopted recently. If you get busy with the holidays and slide towards New Year’s Day without examining and adjusting finances, you could lose an opportunity for aid that won’t return once 2017 arrives. College could end up costing you thousands more than it would if you were alert early enough.

Most people have inaccurate assumptions about getting financial aid. They figure if they need aid they will get it if they simply fill out the financial aid forms required, which includes the Free Application for Federal Student Aid (FAFSA) and the CSS Profile. By the time they sit down to do the forms, they’ve taken actions with their money that permanently will undermine the aid they will get and they are shocked when the college sees them as a lot wealthier than they are.

By Jan 1st, much of your fate will be sealed because your tax return for the 2017 tax year will become the key factor for computing aid. And just as people try to adjust income so they get as many tax deductions as possible, financial aid takes the same diligence.

Please be aware that many of the adjustments you make to enhance financial aid are the opposite of those you use to cut your taxes. So if you go to a tax expert, make sure it’s one of the few who understand the unique financial aid formulas that leads so many families off course.

It is important to get an early preview of your 3 EFCs, Expected Family Contribution and the (Estimated Family Contributions). These 3 calculations are an estimate of what the family will be asked to pay for the year. Families should get an accurate preview from a trained expert.

Here are top 5 tips for high school sophomore parents looking for college financial aid.

  1. Shift Your Income

    If aid is likely, try to move any income you might have coming in 2017, or during the college years, into the remainder of this year. That’s easier said than done. But this is the last year you can have a sizable income and not lose financial aid. In 2017 and during the college years, you want to keep your income as low as possible not by turning down work, but by being as savvy about financial aid as you are with tax deductions.

    So if, for example, you are going to get a big bonus at work next year or get a big payment from your business, you will want to try to get that done in 2016.

  2. Plan Investments

    If you’ve planned to sell stocks, bonds, mutual funds or other investments to pay for college, this is the last year you will be able to do it without cutting into your financial aid. By the time your child is a junior in high school, capital gains from selling investments will increase your income unless you can sell other investments at a loss large enough to wipe out the gain. So consider selling investments while your child is a sophomore. However, please note there could be tax and investment consequences from this action, so get advice from an expert who understands the entire picture including financial aid. And remember, don’t start selling investments if your calculation shows you won’t get aid.

  3. Max Your 401k

    Although you cut your taxes when you put money into a 401(k), 403(b), IRA or other retirement saving account, the savings can work just the opposite for financial aid. If you stash money into retirement savings accounts during your child’s high school junior year or during the college years after that, your taxes will be low, thus making it look like you are able to pay more for college. As a result, colleges may cut back your aid.

    So for those families who aren’t going to be able to maximize their retirement savings each year and handle college costs too, they may want consider stuffing retirement savings accounts as full as possible during your child’s sophomore year rather than later. Also,

  4. Give To Charity

    Rather than giving to charity each year, give a big chunk this year, telling the institution it’s for now and the upcoming years.

  5. No Accounts In Student’s Name

    Any investments or savings in an account that belongs to your child will poison financial aid eligibility. That is why families that need financial aid shouldn’t use Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts. One can move money out of these accounts and save instead in 529 plans kept in parents’ names. Parents may be able spend down UGMAs on a high school student’s immediate needs like computers, upcoming summer camp or private high school expenses, while adding equivalent savings to 529 accounts. But please be warned, parents need to handle this cautiously since the money does belong to the child.

    Here is why UGMAs and UTMAs are not good. Under the unfair financial aid formulas, colleges except a student can use almost anything they have saved for college, so the college taps 20 percent of the student’s savings right off the bat or 25 percent at private colleges. But the identical savings in a parents’ name only would be tapped up to 5.65 percent.

The logic behind this may seem sound: Parents have many expenses to cover and not just college. Yet, students should contribute money to their education. The problem with this logic is most families don’t have nearly enough saved for college and if they’ve made the mistake of saving for college in their child’s account rather than their own, they will have to pay a lot more.

Consider parents with a $40,000 college fund saved in their own account. The college would require them to use up to $2,260 for the first year of college. But if the same account is in the child’s name, the college would require $8,000 be spent that year for college. Aid would be cut substantially because the family would appear to be able to spend $8,000 that year for college.

So a parent would have to dig more than $5,000 extra out of their pocket to pay for college that year, compared with what they would have paid if they’d saved in their own account. And $40,000 is a modest example when four years in college can easily top $100,000.

If you would like more valuable information and calculations on your family’s EFCs, please contact our office.

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