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Financial aid
No one has to tell you that you need to begin a college fund when your child is young. You've heard that piece of wisdom often enough. What you need to know is how to find all available financial aid. The federal government, states, colleges, and private organizations all sponsor student aid programs. College financial aid offices are the best sources of information about the various types of aid, and they will supply the application forms you need.The good news
Average college aid packages (including federal grants and loans) for a full-time student have risen 68 percent over the last decade. The average annual aid package per full-time student is now just over $6,000. The average cost in tuition, fees, room and board at four-year public institutions last year was $8,265.
At private colleges, the average tuition, room and board for the 1999-2000 year was $22,541. However, very few students are paying that price. At private institutions, around eight of every ten students are receiving aid, with an average discount of more than 30 percent of the sticker price. Every year, the amount colleges and universities spend on need-based and non-need-based financial aid rises.
Students with good grades and test scores or with athletic or artistic ability are in a position to haggle over financial aid packages. You may be surprised at the funds that colleges are making available for better students. Institutional grants (grants from the college itself) have risen over 50 percent in the last five years.
Tax credits
Remember to check your eligibility for the HOPE and Lifetime Learning tax credits. To take advantage of these credits, which directly reduce the amount of federal income tax owed, you must complete and submit IRS form 8863 with your federal tax return. For more information, call the IRS Help Line at 1-800-829-1040, read IRS publication 970, or visit the Treasury Department's web site.
Income and asset reduction strategies
- Only the "custodial" parent's income and assets are reported on the student's FAFSA and/or PROFILE (financial aid application forms). Parents who are separated or divorced or in the process of getting a separation or divorce can split their "base year" income and assets for FAFSA and PROFILE reporting.
- If you have retirement funds in addition to your IRAs and employer retirement plans, move them into annuities. Retirement annuities and life insurance assets are not reportable on the FAFSA.
- Sell investments that can be taken as a loss and defer receiving any bonus income. If possible, avoid pension and IRA distributions.
- Report "unearned" taxable income of children under the age of fourteen on that child's federal 1040EZ, not on the parents' federal tax return.
- Use all available cash assets to pay off or reduce consumer debt or to make all large, expensive purchases before filing the FAFSA and/or PROFILE. Reduce the student's cash assets by using these funds to purchase all needed college items before applying for financial aid.
