How to Avoid Financial Aid Mistakes
by Howard Freedman
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Regardless of which form you completely; simple mistakes or assumptions can prove costly especially when applying for financial aid. Here are some case studies and mistakes to avoid improving your financial aid rewards.
Be accurate but not necessarily to the penny. One client failed to round 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 that would have negated any financial aid, the bottom line is that it makes more sense to keep things simple without risking financial aid.
Don’t Sacrifice Your Retirement. One client cashed in his retirement funds to help to pay for his son’s education. Being the good father, he anticipated that his son would earn a degree and repay him. After his son’s freshman year, he flunked out at the same tie his dad lost his job and his retirement. The bottom line is that paying for college is a partnership that should not be taken for granted or gambled away.
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 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 would have been upfront with her before and not after college acceptance. The bottom line is that students should always have safety schools especially when it comes to costs and need for financial aid.
Being Nice can Be Expensive Tom’s grandmother transferred her assets to Tom’s dad to manage in the event that she would have 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 aid
Don’t try to Hide Reportable Assets-After reviewing a client’s financial aid forms and income tax returns, they told me that they had no assets to report or money in the bank. Upon further review of their form 1040, I found stock dividends and several thousands of 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 by using credit cards may not help the cause especially since income plays an even larger role in determining a family’s need. Sensible spending makes more sense especially if loans or other sources of financing are not available.
The credit curse-The biggest obstacle of paying for college is not having money saved but having poor credit. So 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 or can be a very expensive option if the parent is a 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. Community college is a bargain versus expensive college. Many students that are unsure about which college or major to pursue or just want to go to college to save face or be with their friends. Families should cast aside their egos or care what others may think and look at community colleges as a stepping stone to better 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 as long as timely and well-supported documentation is provided to the colleges.
Single Parents-Half of my clients is single parents focused on their anger rather than the educational and emotional needs of their children. Parents need to look for the best ways of providing for their children in a reasonable and unbiased way by focusing on helping the student to find the right colleges and resources to pay. This is not easy but the best way to prepare for a bright future rather than what happened in the past.
Buy or make a calendar. This is the best investment especially when it comes to filing applications and financial aid forms and responds to financial award deadlines. Even those families with the greatest financial need that 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 early bird gets the worm still holds true when it comes to financial aid.