Savvy tactics can score more financial aid for college

March 07, 2010|By Gail MarksJarvis

Q I am a single parent on a teacher's salary, and my son has received so little college financial aid, he has had to take out $20,900 in loans for two years of college. Though my taxable income is $32,000, the FAFSA form I filled out to get aid said I can afford to pay $13,500. This FAFSA is not a representation of how much one can afford. I have no retirement savings and a modest savings account in case I lose my job. I'm struggling to pay my mortgage and might sell my house. How do people like me send their children to college?

Christine, Orlando, Fla.

A At this stage your options are limited, but so many experience your disappointment after applying for aid, allow me to use your question to help people get better results on their FAFSAs.

Many people think they will get aid if they need it. But it's not that easy. To do better on FAFSA, know its ins and outs. Kalman Chany, a New York financial aid consultant, says he's seen people with millions in assets get Pell grants (free government money for low-income people) while teachers such as you have struggled. It's because financial aid is calculated based on a quirky formula that's as complex as the tax code and little understood by pros.

Yet, much as clever accountants can legally slash taxes for rich people, parents who understand the FAFSA formula can increase their aid. That's why parents should study Chany's book, "Paying for College Without Going Broke" by the time their child finishes his sophomore year in high school. It suggests financial alterations that can greatly enhance aid.

Here are a few of the reasons your aid might have been low.

•You said your taxable income is $32,000, but financial aid doesn't revolve around that number. Some of the items you use to reduce your taxable income on your tax return are added back once the FAFSA is processed. Those items tell colleges you have more income than you feel like you have. Examples: Contributions to 401(k), 403(b) or other retirement plans at work, IRAs or expenses you've claimed as a teacher. Clearly, that money isn't available for college, but the formula suggests it is. If you pay higher taxes, that can increase aid.

•Also, parents who sell stocks, bonds or mutual funds to pay for college must report the gains on their tax return and that hurts aid. Though the money is gone, the FAFSA computers see it and reduce your financial aid. So most modest-income people shouldn't sell investments once their child has finished the winter break of his junior year in high school or until he is out of college.

•Don't keep a chunk of money in a savings account. If you had been saving it in a Roth IRA or a retirement plan at work, it would have hurt less. Retirement savings are for your future; savings account money can go for plasma TVs now. Before recording savings on the FAFSA, pay expenses such as mortgages or taxes. Also, beware of selling a home and parking thousands in savings.

•Further, if you pushed your son to work a lot, his earnings might have cut your aid significantly. That's because student money is supposed to go for college. Parents can end up digging deeper into their own pockets for college money if students earn more than $4,500 a year.

•Also, if there is a trust, or maybe an account set up for your child under the Uniform Gifts to Minors Act, this will poison chances for financial aid. Child support is interfering too.

Though your options are limited now, one thing could save you thousands: Your son could transfer to another college with better aid — maybe a private college out-of-state where he would provide geographic diversity.

Harriet Gershman, of Academic Counseling Services in Evanston, Ill., helps students get merit grants by steering them toward certain colleges. She targets colleges that are trying to improve their rankings on lists such as U.S. News and World Report's. Colleges can move from average places to top spots if they recruit students with higher SAT scores than the norm. So some offer thousands of dollars to high-scoring students, she said.