3. Find a school that wants your kid. Another wild card in the financial aid game is how much the school needs your child to meet its own goals, whether it's for a smarter student body or a better volleyball team. Schools often offer merit aid to attract the students they want, and merit aid typically continues for the student's entire stint at the college. The first step in positioning your student is to start with academics, Fox advises. Look for schools where your child's SAT scores put him in the top 25% of the freshman class. You can find these numbers at the National Center for Education Statistics' College Navigator (the figure you want to exceed is the one for the 75th percentile). Then look for schools that are trying to diversify -- by geography, ethnicity, gender, major or skills.
"We found out that Duke was looking for female engineering students one year," Fox says. "That was worth $15,000 a year (in merit aid)." One way to find out who's considered desirable is to attend college fairs or seek out local representatives of the school and ask, Fox says.
4. Spend custodial accounts and other student-owned assets. Uniform Gift to Minors Act and Uniform Transfer to Minors Act accounts are considered to be the student's assets, and they will count heavily against your child in financial aid calculations. Again, the parents' income matters most, but you may be able to reduce your EFC by spending these accounts before you fill out financial aid forms. You can't use the money to pay for "basic support" such as housing, food or clothing, Fox warns, but you can use it for non-support purchases such as a computer, or to reimburse yourself for the cost of private school or tutors.
5. Save in a 529 college savings plan or other parent-owned account. Parent-owned assets get more favorable treatment in financial aid formulas, and 529s offer a tax-free way to save. But don't think you can hide money by having Grandma and Grandpa own the 529 account. It's true that you don't have to report 529 assets owned by a non-parent on the FAFSA, but any withdrawal from the 529 to pay college expenses has to be reported the following year and is typically considered student income, which can heavily affect the student's eligibility for aid. A better strategy if grandparents have opened a 529, O'Shaughnessy says, is to have them hang on to the money until the final year in college, when spending it won't affect the financial aid package since the student won't be applying for any more aid.
- Calculator: When should I start saving for college?
6. Max out your retirement contributions. You probably should be doing so anyway if you want a decent retirement, but financial aid formulas give you an added incentive. Retirement accounts -- either yours or your kid's -- aren't counted at all when figuring your EFC. Don't make the mistake, which some people do, of including qualified retirement accounts such as IRAs, Roths, 401k's and 403b's on the FAFSA.
However . . .
7. Don't tap your retirement funds to pay for college. Premature withdrawals are rarely a good idea, since you'll probably need that money later to fund your retirement. You may be able to dodge taxes and penalties, because withdrawals of contributions from a Roth IRA are tax- and penalty-free, and withdrawals from traditional IRAs incur taxes but avoid penalties if used for college. However, distributions from retirement accounts count as income, which could hurt your financial aid eligibility the following year. If you really must tap retirement funds, consider a loan from a 401k or 403b rather than a withdrawal. For more on retirement accounts and financial aid, visit FinAid.org.
8. Have more than one person in college at a time. Your EFC typically will be reduced, sometimes dramatically, if you have more than one student in college at a time. If your kids are close in age, it can make sense to have the older one put off starting for a year or so to maximize the number of years they'll be attending college simultaneously. Of course, if there's a big gap in their ages, this strategy isn't practical. "Nobody tells you about this when you're having children," O'Shaughnessy notes wryly. "People say, 'I should have had them closer together!' " Another option is to have a parent return to school full time to pursue a degree, but colleges are aware there's a lot of fraud in this area, so expect more scrutiny, says Mark Kantrowitz, the publisher of the FinAid.org and FastWeb sites.
9. Have the child move in with the poorer parent. As noted above, typically the income and assets of the custodial parent's household are what are used to determine financial aid packages. Say one parent is a teacher and the other a doctor. If the child spends more than six months of the year with the teacher, that's the household on which aid would be based. The federal financial aid formula "won't even know the other parent is a doctor," O'Shaughnessy says. Some schools, however, use an additional form -- the CSS Noncustodial Profile -- that takes into account the resources of the other parent. You can find a list of schools that use this form here. Finally, if you're divorced and the custodial parent, you probably don't want to get remarried right before your kid applies for financial aid. Holding off on the nuptials will keep your fiancé's assets and income from being included.
10. Use assets -- don't hide them. There's a breed of self-described college specialists who encourage parents to buy annuities and other expensive life insurance products to hide assets, O'Shaughnessy says. Sometimes they encourage parents to borrow against home equity to make these purchases, which pay the salesperson hefty commissions. Real financial planners, however, discourage clients from buying insurance they don't need. Hiding home equity is usually pointless anyway -- most colleges don't count home equity, and those that do often ask about annuities as well. For more, read "Is it OK to hide home equity?" A better strategy is to use any savings that could be counted against you to pay off debt, such as credit card balances and auto loans. For schools that don't count home equity, using savings to pay down a mortgage can be another effective way to boost potential aid.
One last bit of advice: Don't commit fraud. The strategies above are perfectly legal, even if some are based on loopholes that don't make a lot of sense. "Congress is involved" in creating the FAFSA formula, O'Shaughnessy notes. "Need I say more?"
Other strategies -- like doctoring the tax returns you submit with the FAFSA, or failing to include non-retirement assets or hiding income -- aren't legal. Besides being bad karma, committing fraud can extract a big penalty if it's discovered: Your kid could get kicked out of school.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
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