Your baby boy has grown taller than you, and is now busy researching colleges and majors. You smile at him sweetly before heading for the bank to check up on his college savings account. Once there, your smile disappears as you look at the balance: $127.36. That can’t be!
You can clearly remember depositing $100 on his fifth birthday… and then there was the check from Aunt Glennis. Where did it go? How are you going to pay for college?
Hopes vs. Reality
Every parent hopes and plans to set aside money for her child’s college tuition, but it doesn’t always happen: Life gets in the way. The car breaks down, or something else interferes, and you find yourself with an empty savings account and a looming college bill.
The good news is the missing college savings account may be one of the best things for your college-bound teen. If your family qualifies for financial aid, then a savings account in your child’s name can actually hinder, rather than help, your quest for financial aid.
“First, parents need to get an accurate idea on their chances for qualifying for aid,” says Kalman Chany. Kalman has helped parents finance college tuition for over 15 years through his company, Campus Consultants and his book, “Paying for College Without Going Broke,” which is in its eighth edition.
“If you have any hope of financial aid, never put money in the child’s name,” said Chany.
Did you catch that “if”? Like most things, it’s hard to give an answer that will fit every financial situation. If your family does not qualify for financial aid, then putting money in a savings account for your child could be a wise move for income tax purposes. The key is figuring out first if you could qualify for financial aid.
The Plan
Chany recommends parents develop a very focused game plan. When should you develop the plan? The earlier you start, the more you can do to help cut your family’s college costs.
“It’s not too early to start focusing on the financial aid process, the need-based process, when your child is in ninth or tenth grade.” If your child is already a junior or senior, it’s not too late. Applying for financial aid is an annual process; you can still effect changes to your financial situation that can decrease your family’s costs for next year.
Financial aid is dispensed on a needs-based system, which is why Junior’s college savings account may not be a great idea after all. If Junior has a savings account, 25 percent of it would be earmarked as part of your family’s share. The same amount of money in a parent’s savings account only has to contribute five percent to college costs.
What does that mean? If the money is in Junior’s name, you will qualify for less financial aid because your need will be determined to be less. For example, a $20,000 savings account in the parents’ name is expected to contribute five percent or $1,000 to college costs. The same amount of savings in Junior’s name is expected to contribute 25 percent or $5,000 to college costs.
By having a savings account in Junior’s name, in this example, the family would qualify for $4,000 less in financial aid than if the same amount had remained in the parents’ name.
“Learn all you can about the process,” says Kate Kelly, a mom and author. “This is a case where knowledge is money.” In her book, “The Complete Idiot’s Guide to Parenting a Teenager,” Kelly reminds parents there is hope when it comes to financing their child’s college costs. “It can be worked out,” she says.
“Financial aid is based on the college cost and your ability to pay —almost everyone should apply,” says Kelly.
The Process
In order to qualify for financial aid, students will need to fill out forms including the Free Application for Federal Student Aid (FAFSA), state forms and college-required forms. The forms determine how much money a family can afford to help pay for the student’s college education. From the information provided, the family is given an Expected Family Contribution (EFC).
Four factors are used to determine the EFC including the parents’ income, the parents’ assets, the student’s income and the student’s assets. The resulting EFC is how much money the family can finance to pay for college. Yes, you read that right. It said, “finance.” The EFC takes into account the amount of money the family can pay directly, as well as what loans they can take in order to pay for the college costs for that year.
“Parents need to be assertive and do more than just fill out the forms,” said Chany. “You’re not going to find this ‘little thing’ in 30 seconds that is going to make college affordable.” The reality is that it may be a series of small changes, such as your choice of lender that will reduce the overall financial obligation.
One last tip for parents? Don’t rely on just the college to help you find ways to reduce your EFC.
“The college isn’t going to show me how not to pay them,” said Chany. “They are always going to put the financial interest of the institution ahead of yours.”
This article was first published on Moms Online in February 2000 by Oxygen Media, LLC, http://www.oxygen.com
Relevant Links
Campus Consultants — Kalman Chany’s Web site. Campus Consultants is a New York City-based firm that guides parents and students through the financial aid process.
http://www.campusconsultants.com
FinAid – The Smart Student’s Guide to Financial Aid http://www.finaid.org An award winning site that provides a comprehensive guide that is free to all users to locate information on how to finance college education
FastWeb – Offers a search engine for scholarships, information on admissions financial aid, money management, career planning, jobs and life after college. Also free tools such as calendars, e-mail and cost calculators. http://www.fastweb.com
Embark.com — Formerly CollegeEdge, it offers an interactive guide that connects people to their ideal opportunities so they can achieve their educational and career goals. It offers services to students, universities and guidance counselors. http://www.embark.com
California Student Aid Commission – A comprehensive site for students in California, with good general information for students elsewhere. http://www.csac.ca.gov/sfaprogs.html
