If you have college-bound children or grandchildren, your financial planning should probably include an evaluation of the amount of aid they may qualify for before determining which avenues for funding the rest best fit your family’s situation.
To begin, it’s helpful to know what assets impact a student’s eligibility for financial aid. Under the Free Application for Federal Student Aid (FAFSA) guidelines, the following parental assets don’t affect these calculations: equity in a primary home, qualified retirement accounts, qualified and nonqualified annuities, pension plans and cash value in life insurance.
Parental assets that will count include: stocks, mutual funds and certificates of deposit not in a qualified retirement account; savings accounts; property equity that is not a primary residence; 529 college plans and Coverdell Education Savings Accounts. Custodial trusts in the child’s name, such as UGMA or UTMA accounts, are considered the child’s assets.
This is important because the FAFSA weights the student’s own financial resources heavier than their parents’ wealth. The federal formula currently assesses relevant parental capital at a maximum of 5.64 percent and the child’s assets at 20 percent. This means the amount of need-based aid drops by the combined percentages of the parents’ and child’s financial worth.
Two-hundred-and-sixty private colleges and universities, including highly selective Ivy League schools, require an additional financial aid application, the CSS/Financial Aid PROFILE®. The PROFILE involves a deeper survey of family finances, uses a different formula for determining eligibility and assesses parental assets at 5 percent and children’s assets at 25 percent. Supplemental questions and the exact formula used may vary from school to school. For example, some schools ignore the family home’s equity, while others include its full value. Since this could significantly affect aid eligibility, it may be wise to ask potential schools how they handle home equity.
College planning can be daunting and complicated. We can help you look for practical tactics for sending your student to college while avoiding burdensome loans or lost retirement funds.
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