5 Mistakes That Kill Your Financial Aid Award

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Financial AidWith the cost of college on the rise, many parents and students are looking for ways to help defray the costs with financial aid. From loans with low interest rates, to scholarships and grants, student aid can be a big deal. However, many schools are giving out less aid; your options are becoming scarce.

Unfortunately, what you do now can make a big difference later. If you have a student getting ready to go to college in the next few years, watch out for these surprising mistakes that can harm the chances of financial aid.

1. Failure to Adjust Your Income

This matters more than you might think. Realize that financial aid awards based on need look at the previous year’s tax return. So, for the 2013-2014 school year, your 2012 tax return will establish your income. There are things you can do to adjust your income in order to bring it down a little bit. Sell some stocks at a loss, or, if you own a business, adjust your compensation downward. Look for tax deductions that lower your income as well. If you had planned to take steps to earn more, or sell an asset at a profit, do yourself (and your child) a favor and wait until after January 1 of the next year.

2. Focus Too Much on Grades

Anymore, merit scholarships aren’t just about straight As. Indeed, if your student has straight As, but no extracurricular activities, it could mean losing out on some forms of aid. Many universities look for well-rounded students, including those that have leadership experiences, and can show that they manage time well, or that they have participated in other activities. A B grade here and there, as long as your student has also done something worthwhile, can be more valuable than straight As.

3. Letting Your Child Hang on to Assets

Realize that your child’s income matters as well as yours. If your student makes more than $6,130 in a year, that reduces his or her reward. Additionally, the assets held in checking and savings accounts can count against your student. If you want to improve the situation, consider moving all those assets into a 529 plan. The financial aid award can be reduced, but it’s reduced by much less.

4. Assuming You Can’t Negotiate Financial Aid

When my husband wasn’t happy with his financial aid offer, he and his dad called the school to negotiate. Your financial aid offer isn’t the be all and end all of your help at college. You can negotiate. Call the school, and see what you can do. You might get a little more aid, or you might end up with better terms than you expected. If you don’t ask, the answer is always no.

5. Failure to Look at Other Options

There are more options than ever with financial aid. Don’t assume that you can’t take advantage of them. Make sure to fill out the FAFSA. Even if you aren’t eligible for grants, you might be eligible for work study, or for loans. Additionally, the P2P lending trend has spread to college education, and it’s possible to find alternative methods of aid. Look at your financial aid as a whole, and realize that you might have to pull from a variety of sources to make it work.

(Photo: CollegeDegrees360)

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3 Responses to “5 Mistakes That Kill Your Financial Aid Award”

  1. Educate4Less says:

    Nothing wrong with any of this except the assets-to-529 idea. Moving money into a market-risk investment to accommodate a date-certain expense one year forward is foolish (and would violate Suitability rules if regulators still cared).

    529s do reduce financial aid hit on kids’ assets or trusts, from 20% to 6%, but with too much risk. Better idea is overfunded cash-value life which is invisible for aid, protects principal, shelters the withdrawals for college and provides for college completion in the event of the catastrophic loss of the parent.

    Merit aid is now awarded with an eye toward family finances at hundreds of colleges. And colleges hate the word “negotiation” as well as phone calls asking for more. Aid appeal letters need to have a better reason than, “I still can’t afford ABC College” (like “your competitor college offered more”).

    Finally, do not co-sign a private student loan for any reason. Good general thoughts in article though – don’t file for aid until you’ve planned properly.

    • govenar says:

      I don’t think you need to invest in stocks or other risky things in the 529 plan. I looked up the investment options for a California plan, and one option was Principal Plus Interest Investment Portfolio, which sounds like it’s basically a savings account paying 1.5% interest.

  2. Connie Solidad says:

    Financial loans seem to be something that many students take lightly. It’s just like a regular loan and needs to be treated like one. Get the best rate possible. I like that it mentions that straight A grades aren’t the end all be all. Other factors came come into play.

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