I recently read the Princeton Review book, Paying for college without going broke. Here is a link to the book on amazon.com.
This is an excellent book that every family should read. Here I will try to summarize what I found to be the most important ideas in the book. These ideas are worth reviewing with your college and financial advisors.
TIPS AND INFO TO HELP MAXIMIZE NEED-BASED AID
- Don't put savings in the student's name because the aid formulas (FAFSA and CSS/Profile) assume up to 20% of student savings are available to pay for college, but only about 5% of parent's savings.
-Your annual income (up to 20%) counts more than your assets (about 5%) in aid formulas.
-The CSS/profile (used mainly by private schools) includes home equity in your assets, FAFSA (used mainly by public schools) does not.
-Assets, not debt, are used to calculate your federal aid amounts. Therefore, if you have credit card debt, pay it down before your student starts college, to reduce your assets counted for aid.
- Similarly, if you have pending purchases (car, home improvements, etc.) buy them now to reduce your assets counted for aid.
ADVANTAGEOUS OPTIONS TO PAY FOR COLLEGE OTHER THAN STUDENT LOANS:
- Paying for college with a home equity line of credit instead of a loan is a good idea because:
1- You get a tax deduction on interest.
2- Reduce your home equity in CSS/profile asset formulas.
3- It is a secured loan which has lower interest rates than student loans.
4- You use the line of credit as needed vs. a loan that gives you lump some $ added to your assets.
However, paying for college with a home equity line of credit is risky because it is tied to your home if you default.
If generous grandparents want to help pay for college, ask them to pay off loans after college because if they give you (or the college) the money during college years, it counts as more assets.
- Paying for college using margin loans on investments is a good idea because:
1- Avoid capital gains on investments.
2- Retain the assets.
3- Costs less than personal loans
4- Reduces assets for federal aid formulas.
HAVE A FINANCIAL SAFETY SCHOOL
Have a financial aid safety school, defined as:
1- Child will definitely be accepted.
2- Tuition is affordable even if family gets no aid.
3- Student is willing to attend that school if need be.
DON'T OVERPAY FOR A DIPLOMA
Don't pay private school prices for a public school diploma:
If your student goes to a private school for a year or two and then transfers to a public school for financial reasons, you have overpaid for the public school diploma.
Pay public school prices for a private school diploma:
If your student does well at public school, they can transfer to private school and earn the diploma at a discount.
Please send comments or questions to eric@topchoicecollegeconsulting.com or call 617.240.6899
