Save by Maximizing Aid Eligibility.
Financial aid awards can make a difference of thousands of dollars. Grants and scholarships don’t leave the student with a heavy burden after graduation. Knowing how financial need is calculated in the Free Application for Federal Student Aid (FAFSA), you can take steps to prepare and maximize your eligibility for financial help. In short, anything you can do to reduce liquid assets before filing the FAFSA without losing value benefits both parent and student. Some tips:
Save money in a parent’s name, not the child’s: A college’s formula for calculating financial need considers about five percent of parental assets and twenty percent of the child’s assets. The lower tax bracket is incentive to save in the child’s name early in life, but once the child nears college age those funds work against them in terms of financial aid. Now is also the time to pay necessary expenses for the future: you’ll probably spend on a laptop for college, car repairs and dorm furniture anyway, so paying for it now reduces the student’s available resources from the financial aid viewpoint.
Maximize retirement fund contributions: Retirement funds are excluded from parental asset calculation, so saving for your future helps your student save for theirs. Many parents think that paying for their child’s education is their responsibility. However, students get financial aid to pay for college, and they have a career ahead of them to pay off debts. Parents don’t get help paying for their retirement, and they don’t have years ahead of them to rebuild savings once they’ve drained their accounts into tuition payments. Borrowing from a 401(k) is one of the worst mistakes parents can make because it incurs early withdrawal penalties and erases years of savings.
Pay off consumer debt: The FAFSA does not consider parental consumer debt in the need-based financial aid calculations. For example, the child of a parent with a high income and credit card debt will receive less aid than the child of a parent with a lower income and no debt. Paying off debt reduces the assets measured by the FAFSA, and repaying the debt sooner benefits you by saving money in interest. You have to repay the debt at some point, and before filing the FAFSA is the time to do it.
Save by Taking a (Tax) Break.
The federal tax code encourages college attendance by giving tax credits for tuition costs. If your adjusted gross income is less than $80,000 if you are single or less than $160,000 filing jointly with your spouse, you qualify for two important federal tax credits. The American Opportunity Tax Credit lets you claim all of the first $2,000 plus one-fourth of the next $2,000 in tuition and required fees for enrollment. You can claim it during the first four years of an eligible degree-granting program. The Lifetime Learning Credit can be worth up to $2,000 per year, but there is no limit on the number of years it can be claimed. It also includes courses that are not part of a degree program, so workers who take occasional courses to improve job skills are also eligible. You may only claim one of the credits for one child in a given year. Find more information on IRS.gov, which publishes FAQs on a range of tax topics in language anyone can understand.
Know why you’re going to college.
This could be the most important step in saving money when starting college. If you know why you are at your chosen college in your chosen field, you are less likely to change majors or transfer, which can lengthen your time in college if credits don’t count for your new major or don’t transfer to your new school.
Choose your studies carefully. Career tests, personality assessments, job shadowing and volunteer work can help you learn your strengths, weaknesses and preference. If you research careers and know your personality and preference, you will likely pick a path that suits you and leads you to a rewarding future in the workplace.
Choose your school wisely. Research your top choices. Don’t just take the tour, participate in it. Talk to your tour guide to get behind the script and ask as many questions as you need. Talking with students or taking time to just explore the area can give you a feel for the campus and decide if it fits you.
Start somewhere else. If your dream school is so expensive you can only dream of affording it, consider taking prerequisites at a more affordable school. First, become familiar with school policies on transfer credits. You may be able to take college-level courses during your senior year of high school. Scoring well on Advanced Placement (AP) tests or the College Level Examination Program (CLEP) can count for college credit and allow students to skip introductory level courses in their first year of college. Most curriculums have a core of basic requirements that are similar across colleges. You could take the same courses at a local community college for much less money, perhaps even living at home and commuting for additional savings. Consider also location, since in-state tuition is usually half or less of out-of-state tuition. If you want to go out-of-state, move to that state and work for the minimum number of months required to be a legal resident before enrolling.
Know your learning style. Knowing how you learn before you get to college will help you make the most of your class’s right from the start. If you learn by doing, sign up for a learning lab or form a study group with friends. If you need time alone to absorb information, find a quiet, comfortable study spot where you can do just that. Your grades will be better, making you eligible for more scholarships in the future and helping you retain what you learn, which is really why you’re there in the first place.