College application season launched on August 1; next comes maximizing financial aid eligibility. Are you a parent going through this process with your incoming Senior? While it’s too late for me to help you with income-related planning opportunities, it’s not too late for me to help you with asset-related optimization and then savvy college shopping. Here’s what that entails and how, as a financial planner with college planning expertise, I could add big value.
Too Late for Income Planning, Not Too Late for Asset Planning
FAFSA and schools look to prior-prior year income. For currently applying high school Seniors, that will be the 2022 tax year. So it’s too late to plan around income (though it’s not too late for any younger siblings).
But unlike income, assets are assessed the day you file for financial aid. And the FAFSA form will be late this year. Due to recent changes, it’s not due to be released until December sometime (where usually it’s out October 1). We don’t know yet what date it will be out. But we have three/four months to plan around assets, particularly parental assets that, under the Federal Methodology, can be assessed at up to a 5.64% rate.* If I were counseling you, here is an example of one of the many recommendations I might make (after taking into account your specific financial circumstances as there are costs and considerations related to any financial planning opportunity):
I might suggest you accelerate this year’s retirement contributions to remove those assets and any subsequent appreciated value from being assessed. If you end up filing in 2024, I might suggest making 2024’s contributions as well before you file.
You want to minimize student assets as well, which are assessed at the much higher 20% rate by the Federal Methodology.* But if you’ve already utilized custodial accounts or direct gifting in the past, there may not be much we can do with those assets. We certainly can avoid adding more though. Here are a couple of example recommendations:
I might suggest you (and grandparents or other family members) hold off on gifting assets to the student until after school. If the student is forced to take out loans, just pay the loans off with the gifts right out of school.
If permitted by the plan, transfer ownership of any parent-owned 529 accounts to a grandparent or other family member. Under new rules, this now eliminates the balance from being assessed by FAFSA (and is no longer counted as untaxed student income when distributed).
Savvy College Shopping
My help extends beyond just financial aid optimization. If we’re working together, I’d go down to the school-by-school level because average college sticker prices are totally irrelevant. Every student is going to receive a unique price based on their attractiveness to schools, their household’s financial wherewithal, and how both of those interact with an individual school’s business model. We want to compare what your particular student’s total college cost would be at different schools. And also compare those costs to the additional lifetime earning power a degree from each institution is likely to provide. Only then can you and your student confidently make an intelligent return-on-investment decision.
And if there are any funding gaps remaining? I’ll develop a strategy with you to fill them or else we need to find a different school that makes better economic sense.
This is my broad strategy framework:
Financial Aid Strategy & School Selection Framework
Get Help Navigating the Financial Aid & College-Shopping Maze
The reality is college counselors cannot provide financial advice. And school recruiters, tour guides, and admissions offices are in the business of selling their institution to you and your student and maximizing tuition revenue, not providing an impartial estimate of the return on investment of attending. An informed financial planner who knows how to navigate the financial aid world and help you shop for college the smart way is the key resource you need. Professionals such as myself are here to analyze all your major investments, paying for college included.
Start with a free consultation. We can even work together on an hourly/project basis to maximize financial aid eligibility and shop for college. Click the scheduling link below to get started:
Eric R. Figueroa, CFP®
I am a Folsom, CA, fee-only wealth manager serving the Greater Sacramento area, California Gold Country, and the nation virtually. I offer financial planning and investment management, specializing in impact investing and personalized values-based investing.
*Note, most private schools use the Institutional Methodology (IM) or Consensus Methodology (CM), which, while much more accommodating of special circumstances, are much less affected by planning around assets and income. So if your child is pursuing an Ivy League school, for example, the impact of some of the planning ideas in my toolkit, or actions I may caution against, is limited or not relevant at all. That said, in some cases, these private methodologies will be more generous than FAFSA. For example, the IM’s CSS profile takes how many children you have in college at the same time into account, whereas the new FAFSA does not and inherently penalizes families with college-bound children with short age gaps.
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