By Joe Harmon

Starting October 1st families will be able to access and complete the Free Application for Federal Student Aid (FAFSA) and College Board’s CSS Profile. In order to help you cut costs and create a strategy to pay for college, here are 10 Questions to test your readiness before you file any aid form.

1.     Does your student’s schools of interest impact affordability?

Merit aid awards, cost of attendance, need-based aid eligibility and likelihood of admission are all dependent on the colleges being considered. College selection and affordability always go hand-in-hand.

2.     Does every college offer merit aid?

Some schools offer academic merit aid while others do not. For example, many private elite colleges do not offer academic merit aid regardless of whether a student is a perfect applicant or not.

3.     What forms are required for need-based aid?

The Free Application for Federal Student Aid (FAFSA) is used by all accredited colleges for federal aid awards, while over 260 private colleges, and some public flagship universities, also utilize the CSS Profile to assess a student’s eligibility for an institution’s own lucrative grants and scholarships.

4.     How will your assets and income be counted on each aid form?

Your aid eligibility is equal to the school’s cost of attendance less your Expected Family Contribution (EFC), which is the portion the cost a family is responsible for paying. The higher your EFC, the lower your financial need. However, there are three different methodologies a college can use to determine your EFC. The Federal Methodology uses the FAFSA, while the Institutional and Consensus Methodologies utilize the CSS Profile. There are some stark differences between these methodologies, so your child’s need-based aid eligibility can vary greatly depending on which methodology a college uses to assess your family’s income and assets. For example, your home equity can be counted at varying values or not at all.

5.     What percentage of a student’s calculated need for aid will a college provide?

Not all schools are equal when it comes to doling out aid. Some schools will meet 100% of your aid eligibility while others may offer significantly less. A gap between eligibility and aid awarded will only increase a family’s share of the cost. A good rule of thumb is that those who make the grade get the aid, but it would be wise to research a school’s “percentage of need met” before applying.

6.     What does the aid award consist of?

Aid awards come in all shapes and sizes. You may be offered free money and/or self-help. There’s a big difference between these types of aid. Grants and scholarships are the most desired as they come in the form of free money that reduces the out of pocket cost dollar-for-dollar. A work-study or loan are both self-help. A work-study will likely provide some money for day-to-day expenses but will not impact large costs like tuition and room & board. Loans should always be the last resort as they increase the out-of-pocket cost and carry interest. So, what is your award likely to consist of? It all depends on the college being considered and your family’s situation, but an award full of loans really isn’t an “award” at all.

7.     Can you structure your finances to qualify for more aid?

There are no guarantees in being able to increase aid eligibility, which is why our approach to college funding is always based on the family’s best strategy and not merely trying to lower your Expected Family Contribution (EFC). But, there are certainly ways to increase aid eligibility when it makes sense. We have helped some families qualify for a few hundred to multiple thousands of dollars per year more in aid. The likelihood of increasing aid eligibility is dependent on the colleges being considered, the student’s profile and the family’s unique financial situation.

8.     Can you implement tax-saving strategies to pay less tax?

Many taxpayers will qualify for the American Opportunity Tax Credit (worth up to $2,500/yr/child), but there are other strategies to save on taxes with college if you’re income is too high. Business owners and high income earners can utilize income shifting and investment based strategies to lower taxes, which may be there best way to maximize college savings if financial aid is out of the question. However, in some instances there are strategies for these types of families to achieve the best of both worlds, tax and financial aid savings. These strategies can be advanced and require coordination with a tax professional.

9.     Which colleges can you afford after estimated aid?

You need to determine ahead of time what you’re likely to receive in aid from each school so that you can assess each college’s net cost, and identify which ones are affordable given your available assets and income. It’s possible that a $70,000/yr sticker price college could cost less than one costing $30,000 per year, just as a school offering the least amount of aid could be more affordable than a school offering the most aid.

10.  What is your best strategy to pay for college?

College is the toll booth on the road to retirement. Paying hefty college tolls could certainly hinder or delay your desired arrival. Every family needs to create an effective strategy to pay for college in order to preserve as much income and assets for retirement as possible. The tricky part is sorting all the pieces of the puzzle. For example, what assets should be used and when? How should assets be positioned should your child enter college in a down market or recession? How will certain assets impact financial aid eligibility now and in the future? How will you mitigate taxes? How will you coordinate your 529 distributions to qualify for the lucrative tax credit? Do you know how grandparent contributions impact financial aid? What about debt? Would it make sense to pay off a loan to free up income to pay for college? If you take out loans, what’s your interest rate, term and payment, and how soon can you pay them back? Will loans impede your retirement goals or overwhelm a graduating student? This is why paying for college encompasses your family’s entire financial life. At the end of the day, every family still has to determine how to pay their share of the cost with or without financial aid and tax savings.

So, how prepared are you? Were you aware of all the moving pieces and variables that impact your family’s college funding solution? If not, you’re not alone, but failing to understand the relationship between college selection, financial aid, taxes, investing and financial planning could potentially lead to over paying for college – or worse yet – negatively impacting retirement. Our goal at Harmon Wealth is to save you time and money by helping you determine your best strategy to pay for college using your personal resources and as much financial aid as your child can get, and to pay as little in federal and state taxes along the way. If you struggle with these questions, Contact Us today to learn how we can help you know ahead of time where your child can get in, get aid and afford to go to college.

Joe Harmon is the President of Harmon Wealth Management and specializes in helping families determine their best strategy to pay for college while preserving assets and income for retirement. Joe has been featured by the Michigan Association for College Admission Counseling, West Michigan Counseling Association and several local high schools. He also writes about paying for college on Harmon Wealth’s Blog

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