Keep Your Financial Aid – Avoid These Mistakes

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The pursuit of a 4-year college degrees requires a parent file the Free Application for Federal Student Aid (FAFSA) at least four times. Each filing generates a financial aid award letter.

The first award letter typically covers only the first year. As each family’s financial situation could change yearly, so could the award.

A mistake made by many families is believing the first letter covers all four years. Financial decisions made during this period could drastically affect financial aid.

Here are a few mistakes to avoid:

1. Grandparent Assistance. Grandparents may want to help. Here, as with many other aspects of life, timing is everything. Giving money at the wrong time can greatly reduce available aid. Money given by grandparents counts as income in the child’s name; schools assess a child’s income at a vastly greater percentage than they do a parent’s income, then reduce aid accordingly.

2. Cashing Out Investments. A cash out occurring after January 1 of a child’s sophomore year in high school will impact the first FAFSA filed on the child’s behalf, increasing income and thereby reducing financial aid. Selling those investments during junior or senior years in college will have little to no impact on aid.

3. A Second Mortgage. Parents taking a second mortgage may end up with too much cash on hand. Too much cash equals less financial aid. A home equity line of credit (HELOC) may be a better solution and may increase aid at a select number of schools who consider home equity as cash on hand. However, there are still interest costs and any amount loaned must be repaid.

4. Raiding Your Retirement. While more than 57% of parents across the country indicate they will raid their retirement funds, it’s not the greatest strategic move. Pulling funds from these plans increases taxable income. Not only are you taxed, but you lose financial aid due to increased income.

If you have a college-bound student, whether they are currently in high school, middle school, elementary school, or the crib, please contact us to schedule a free, no-obligation evaluation.

We can tell you the wisest and safest place to place and build your college funding.


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