Financial Aid Tips

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May 13, 2002

Looking to increase your chances for financial aid? Here are some tips:

  • Don't sell any securities for a profit in the year before you are applying for aid. Any profits you see from sales of securities will be counted toward your income, the first item that goes into determining need on the financial aid forms.
  • Reduce your income as much as possible. If you have losses from a business venture gone wrong, now is the time to take them. Reducing your income will help your eligibility for more financial aid.
  • Don't take any lump-sum distributions in the year before you need aid. This is the same concept as the previous two. Don't do anything that will stick you in a higher "they can afford it" bracket on the needs assessment form. Purchasing a mobile hot tub or luxury cruise ship would raise a few red flags.
  • Have your child classified as "independent." The good news is that your child will be judged on his own savings and income when the school assesses need for financial aid. The bad news is that you won't be able to claim him as a dependent for tax purposes any more, and he'll have to fend for himself for a year before the benefits of this strategy kick in. There are very specific rules about what qualifies someone as independent, so do your homework before trying this strategy.
  • Look for unorthodox sources of scholarships. Millions of dollars in scholarships are given away each year to deserving students. The problem is that everyone is vying for the same scholarships. Look for the out-of-the-way treasures. Find out if any fraternal societies or religious groups that you belong to offer scholarships.

A note about school loans
The good news is that most college students receive some form of financial aid. The not-so-good news is that most of that financial aid is in the form of loans. Most financial professionals will tell you that taking on debt in order to earn a degree is a prudent move, and we generally agree. After all, college grads earn 81% more than their high-school grad peers, according to the College Board. However, those loans will be a burden on your kid as she starts off her professional career. To wit: Here's an excerpt from an email we received at the Fool:

A friend of my wife's is a schoolteacher and makes about $30,000 a year. She is a single mom with two kids, 6 and 2. Her youngest is profoundly deaf and will, of course, need extra financial support throughout his life. Her problem is that she has about $40,000 in college loans that are just beginning to come due. She is realizing that she will never be able to save anything and she will be burdened with these payments for a long time. Of course a house, decent car, etc., will also be out of her reach.

It's an extreme example, to be sure, but it does demonstrate how much of a burden school loans can be.

So should you eschew school loans? Absolutely not. If it's the only way that your progeny will be able to go to college, the loans could result in a great investment. And it's not such a bad idea to ask kids to be responsible for financing a portion of their education, whether through work study, earning scholarships, or graduating with school loans. The point is that taking on any form of debt should never be taken lightly. If the difference between going to one school over another means assuming tens of thousands of dollars worth of loans, factor that prominently in your decision process.