Financial aid decisions are based on information parents and students submit when they complete the Free Application for Student Aid (FAFSA), a form almost all colleges and universities use.
The FAFSA collects information about earnings and assets held in the names of both the student and their parents. A needs analysis formula is then applied to this information to determine the expected family contribution (EFC) to college expenses.
It's important to understand whether assets are included or excluded under the formula used to determine the EFC.
Assets included in the FAFSA are:
* Checking accounts
* Savings accounts
* Money Market accounts
* Certificates of deposit/share certificates
* Mutual funds
* Trust funds
* Net value of businesses owned, if the business has more than 100 employees
* Non-home real estate, including vacation homes and rental properties
Assets excluded from the FAFSA are:
* Family residence
* 401(k) Funds
* Life insurance
* Family-owned farms
* Personal property such as a boat or artwork
* 529 funds in the student's name
* Coverdell Education Savings Accounts in the student's name
Improving your EFC
Financial aid also varies depending on whether assets are held in the name of the student or the parents.
The EFC assumes students will contribute 20% of their assets to educational expenses each year, while parents are expected to contribute just 5.64% of their assets. So it's usually better to keep savings in the names of parents or grandparents, or place them in an account that is excluded from EFC calculations.
To be effective, make any change in account status by Jan. 1 during the child's junior year of high school. If your student is starting college this fall, shifting assets may be less effective than simply spending the student's money first.
In addition to grants and scholarships that students never repay, aid packages often include either subsidized loans, where interest is waived until after graduation, or unsubsidized loans, where interest is charged during the college years.
When aid packages fall short, students and parents can expand their use of loans, including both student loans and loans made to parents, such as home equity loans. Consult True North for more information about loans to help pay for college costs. Call your local branch today!