By now, you should be receiving award letters from the colleges and universities that have accepted your child for admission. In a moment, we'll talk about how to use the information in these letters to get the best deal for your child's education. But first, we want to emphasize some important facts for parents of high school juniors.
If your college-bound youngster is a junior in high school right now, this is one of the most important years in terms of his or her future chances for the best deals in college funding. This is your family's "Base Income Year" (also known as the "Base Year"). The Base Income Year is the calendar year before the academic year for which you will be requesting financial aid. It starts on January 1st of the year your child is a high school junior and ends on December 31 of that same year. (By then, your child will be a senior.)
When you apply for financial aid next year, you will be asked to report your family's income and assets during this Base Income Year. In other words ...
The amount of college funding your child receives next year
depends on how much money you make this year.
In the financial aid application process, "income" refers to your Adjusted Gross Income -- the bottom line, so to speak, on your federal tax return. This includes all taxable income, including earnings from your job, interest, dividends and alimony, plus all untaxed income, such as child support and deferred compensation to pension plans.
Now, here's the important point we want you to remember:
The more you reduce your adjusted gross income during your Base Year, the more you can increase the amount of financial aid your child may be eligible to receive.
There are many strategies for reducing your income: deferring bonuses, accelerating payments for deductible expenses (such as medical costs and charitable contributions), and managing your investments to avoid large capital gains are just a few suggestions. A tax professional can give you more information about methods for decreasing income that are based on your particular circumstances.
When you apply for college funding next year, you'll also be asked to report your assets. It's important for you to know...
The lower your assets, the more college funding your child may qualify for.
Assets include cash and money in checking accounts, savings accounts, investments and trusts, as well as the value of any ownership you have in a business.
Assets also include the market value of real estate you own. Does that include your home? The short answer is: Maybe. Now for the long answer: Whether or not your primary residence is considered an asset depends on whether a college uses the Federal Methodology or Institutional Methodology to determine how much financial aid you will receive.
Colleges and universities that use the Federal Methodology do not consider your primary residence as an asset in their calculations. Generally speaking, most state schools use the Federal Methodology. On the other hand, many private schools use the Institutional Methodology, which does count your home as an asset. The Institutional Methodology also figures in some other assets, such as assets in siblings' names and the value of any prepaid tuition plans that you may have set up for your children's education.
This can get a little confusing, so we've created a FREE Special Report entitled "7 New Ways To Beat The High Cost Of College" which you can get by calling our 24 hour toll free recorded hotline at 800-799-0627.
Although the Institutional Methodology may sound like a bum rap for home-owners who want to send their children to college, there's a silver lining in what at first appears to be a dark cloud: Most schools that use the Institutional Methodology are open to negotiating college funding packages.
Before you can negotiate, however, you need to get that first offer of financial aid. That's where the award letters come in. If your child is a high school senior this year and you have done everything according to plan so far, you should be getting those letters now.
Here are the steps to take as you start to get award letters in the mail:
Step One: Carefully Examine Each Award Letter.
The award letter is basically an outline of the financial aid package that the institution has decided to offer you. The typical award letter contains these parts:
The total cost of attending the school for one year. The school should include all known costs, including tuition, fees, room and board.
Your Expected Family Contribution (EFC). This number should be the same as the EFC on the Student Aid Report (SAR) you received from the Federal Student Aid Processing Center. If the number is different, call the financial aid office at the school.
Your financial need. This is the difference between the total cost of attendance and your Expected Family Contribution. The school uses this number to determine your eligibility for financial aid.
A description of each type of aid being awarded, including the amount. This may include loans, scholarships, grants, work/study programs or other forms of aid.
Step Two: Immediately Accept Every Financial Aid Award.
Check the award letter for a deadline for accepting the offer, and make sure you meet this deadline. Accept each school's award even if your child hasn't made up his or her mind about which college to attend ... even if you're waiting to hear from other colleges ... and even if you plan to negotiate for more aid. By accepting each offer, you keep your options open while you give yourself a chance to compare the offers and plan your negotiation strategy. Also, most colleges need a commitment from you soon; if you delay, the money you were promised could go to someone else instead.
In some cases, you may wonder if you should reject certain parts of the aid package. For instance, perhaps you and your youngster have decided that it would not be prudent to take an offer of a work/study program. You are allowed to accept parts of the offer and reject others, but is it a good idea? This depends on many factors that will be unique to you and your family. If you need some help with this process, or you would like to discuss some "tax favored" strategies for paying your "expected family contribution" without increasing your expenses or out of pocket costs, call us at 631-864-3688. We may still be able to help you.
Step Three: Compare The Offers.
Look beyond the bare numbers in the offers. At first glance, it may seem that School A, which offers you $12,000, is a better choice than School B, which offers you $8,000. But those numbers don't tell the whole story. You have to take several factors into consideration to make an accurate comparison:
What is the total cost of sending the student to each school? Consider not only tuition, but also room, board, fees, books, travel and spending money. Suppose, for example, that School B is within commuting distance but your child would have to live on campus at School A, which is further away. While School B's financial aid package is smaller, you'll save a lot of money and perhaps come out ahead because your child can live at home.
What type of aid is being offered? If School A's higher award is mostly in the form of loans and School B's offer is mostly in the form of grants and scholarships, School B's financial aid package may be a better deal for you. With interest, School A's loans will end up costing you more money in the long run. On the other hand, free money, which you don't need to repay, is usually a better deal than loans and work/study offers.
Which school is a better value for you and your child? It may be better to dig deeper into your pocket for a more prestigious college or university or one that offers the best education in your child's field of study. Although money is certainly a big factor in choosing a school, it shouldn't be the only one.
The excitement builds as you receive award letters in the mail. It's easy to get confused by all the different offers. If you follow the steps above, you'll be in good shape to get the best possible deal for your youngster's college education.
Remember, too, that we may be able to help you in the process of comparing college funding award letters. At the very least, we can give you some more tips and details about how to pay for your "expected family contribution" on a tax favored basis without increasing your monthly or annual expenses. Please feel free to call us at 631-864-3688, and we'll let you know how we can help you.
That's also the number to call for a schedule of our upcoming FREE College Funding Workshops in your area.
Or, if you'd like a copy of the FREE report, "7 New Ways to Beat the High Cost of College," call our toll-free, 24-hour financial aid hotline at 800-799-0627. This report contains valuable information that can help you no matter how old your college-bound child is right now.
That brings this month's issue to a close.
Until next month ...
Jan and Tony Esposito
P.S. You can also call our toll-free, 24-hour financial aid hotline at 800-799-0627 for a FREE report on "529 College Savings Plans".
P.P.S. Don't forget to visit our website at www.collegechannel.net