Rationality

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Regardless of which form you take, simple mistakes or assumptions can prove costly, especially when applying for financial aid. Here are some case studies and mistakes to avoid when improving financial aid rewards.

Be accurate, but not necessarily to the penny. One client should have rounded her income to the nearest dollar. Despite her good intentions, she reported $90,000 in part-time earnings when she only made $900. Her parents also made the same mistake, which would have negated any financial aid. The bottom line is that keeping things simple without risking financial aid makes more sense.

Don’t Sacrifice Your Retirement. One client cashed out his retirement funds to help pay for his son’s education. Being a good father, he anticipated his son would earn a degree and repay him. After his son’s first year, he flunked out when his dad lost his job and retirement. The bottom line is that paying for college is a partnership that should not be taken for granted or gambled away.

Could you discuss college costs before you apply? Mary was an above-average student planning to get a degree in elementary education. She was elated to be accepted at a private college of choice, although the college could only fill a small part of her unmet need. Her father owned a small business and spent little time communicating with his daughter. Although her father did not want to say no to her, he had no other option since his small business went bankrupt and he was heavily in debt. She was disappointed that he could not afford to help her, but wished that he had been upfront with her before, not after college acceptance. The bottom line is that students should always have safe schools, especially regarding costs and the need for financial aid.

Being Nice Can Be Expensive. Tom’s grandmother transferred her assets to Tom’s dad to manage if she had to turn her life savings over to a nursing home. Despite his good intentions to help, those assets were reported under her son’s Social Security number and on the FAFSA, reducing Tom’s need for financial aid. The bottom line is to evaluate the overall impact of any financial transaction that may reduce your need for financial assistance.

Don’t try to Hide Reportable assets after reviewing a client’s financial aid forms and income tax returns. The client told me they had no assets to report or money in the bank. Upon further review of their Form 1040, I found that stock dividends and several thousand dollars in interest were reported on their income tax return. I later declined to help them because of the potential repercussions of reporting inaccurate information.

Don’t spend money for the wrong reasons. Many families believe that spending down their cash will help them get more financial aid. Excessive spending, especially using credit cards, may not help the cause, especially since income plays an even larger role in determining a family’s needs. Sensible spending makes more sense, especially if loans or other sources of financing are not available.

The credit curse: The biggest obstacle to paying for college is not having money saved but poor credit. Many clients with high incomes are overburdened with high credit debt or poor credit scores. As a result, borrowing for college may no longer be an option, and it can be costly if the parent is at high credit risk. Students should also realize that building good credit while in college will help them throughout their lives.

Don’t Rule out Community College. It is a bargain compared to an expensive college. Many students are unsure which college or major to pursue, want to go to college to save face, or be with their friends. Families should cast aside their egos or care about what others may think and look at community colleges as a stepping stone to prepare their students to move on to a four-year college when they are ready. This is much better, especially during these tough economic times.

Change of Circumstances –Because of the economic uncertainty and job cuts, many families fail to notify colleges if they have been laid off or suffered a steep drop in earnings from what has been reported on their financial aid forms. Based on well-documented information or appeals, financial aid awards can be increased if timely and well-supported documentation is provided to the colleges.

Single Parents—Half of my clients are single parents who focus more on their anger than on their children's educational and emotional needs. Parents should seek the best ways to provide for their children fairly and without bias by helping their students find the right colleges and financial resources. This is not easy, but it is the best way to prepare for a bright future instead of being stuck in the past.

Buy or make a calendar. This is the best investment, especially when filing applications and financial aid forms and responding to financial award deadlines. Even families with the greatest financial need who fail to comply with deadlines may lose out on needed financial aid. Conversely, those who are not as needy but file early will gain an advantage over those who procrastinate. Remember that the saying "the early bird gets the worm” still holds true regarding financial aid.