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Neal Frankle
Neal Frankle
Cash for College Funding

Don’t write off these financial aid resources.

January 21, 2010
by Neal Frankle, CFP

Here’s some money management advice to help your clients manage financial stress: When it comes to financial aid for college — don’t assume anything. (You know what happens when you assume … don’t you? If not I’ll explain in another article perhaps.)

Many people think that they won’t qualify for aid to pay for their children’s college tuition. As a result, they don’t even bother to apply. Big mistake. Even if your client’s income is high, they should still investigate financial aid. And believe it or not, as their kids’ college tab rises, so does their eligibility for assistance.

The first step is to fill out the Free Application for Federal Student Aid or FAFSA. Don’t worry. Completing this form isn’t so bad, but I’ll tell what is: going to a two-and-one-half-hour meeting held by the high school to “explain” FAFSA. Basically, the FAFSA form asks for the parents’ and child’s incomes and assets. Then they apply a formula to calculate how much they have to cough up verses how much your client’s children’s college “stimulus package” will be.

But here’s a great tip. Your clients don’t have to wait for the FAFSA folks to make their calculations. They can visit this Web site and do their own quick calculation right now. This way they will know if it makes sense to go through the application process or not.

Want to boost the chances of qualifying for financial aid? Take these steps:

  1. Don’t let clients hold assets in their child’s name.
    FAFSA applies 20 percent of Junior’s assets towards college. Only 5.4 percent of the parent’s assets are counted.
  2. If the child already has assets, consider spending them before filling out the FAFSA forms.
    Tell your clients to use the money for the car they promised to buy their child. These items don’t have to be listed on the FAFSA application. But be careful. They have to spend the money on behalf of the child.

Once your clients collect from FAFSA, they should keep going. Many schools offer academic-merit scholarships and other scholarships for unique talents. (Why do you think my daughters took music lessons before they could walk?) All kidding aside, tell your clients to get the kids and grandkids involved in sports and music early. It could really pay off when the time comes.

Conclusion

Whatever your clients decide to do, I highly recommend against borrowing money for college. If they can get grants, terrific. If the student can work during school — even better. Get the best college education your clients can afford without making the mistake of saddling themselves or their child with debt. The best way to get out of debt is not to not have any to begin with.

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Neal Frankle, CFP, is the author of Why Smart People Lose a Fortune: 5 Steps to Restoring Your Wealth and Sanity.

The material in this article is general information and not meant to provide specific investment, tax or legal advice. Investing in the stock market involves risk.