Postponing remarriage to get more college financial aid

There are a many “tricks” that will increase your odds of getting college financial aid, including postponing remarriage so that household income looks low.

I Do! (In a Few Years)
The Fafsa asks a seemingly absurd question: “Who is considered a parent?” Yet frequently families react with frustration when I explain how the government defines parents for financial aid purposes. If both parents are alive and married to each other, they check off the “married” box and include their information on the Fafsa.

If there has been a divorce or legal separation, you need to determine who the student lived with more than 50 percent of the time the previous year. That’s the custodial parent. Only the custodial parent’s income and assets appear on the Fafsa; the noncustodial parent’s income and asset information don’t (though a child support question and another untaxed income question can reflect household support).

This is true even if the divorce arrangement says the noncustodial parent has to pay for the whole expense, or things are split evenly.

Here’s the surprise for some stepparents: Let’s say mom, the custodial parent, marries stepdad. Both mom and stepdad’s income and assets appear on the form. Maybe when they married they had a deal: he would pay for his children, she would pay for hers. Not happening. Of course, I don’t recommend holding off on saying, “I do!” (again) until after all the children have their degrees, but be aware of the rules.

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Your chances for merit aid are better at less selective schools

Less selective schools offer more merit money but less need-based money.  But if you qualify for need-based aid, your chances are generally better at the more selective schools.  [UPDATE: Tables revised to show corrected admission rates]

If you do not qualify for need-based aid, your chances for merit aid are generally better at less selective schools.  In the first chart above, moving down one step from the most selective private colleges more than doubles the average merit aid amount.  The standard advice is to apply to colleges where your test scores and grades would put you well within the top 25% of the student body to improve your odds for receiving aid.  Your statistics are viewed as a way to boost the school’s prestige.

“Schools compete with each other to attract talented students… “If you want to recruit some of those kids, one way to do it is through merit aid.”

… “Universities compete based on prestige, so if they want to increase their rankings in U.S. News & World Report, an easy way to do that is to bribe high-scoring students to come to your university with non-need-based aid,”…

In addition to boosting prestige, colleges know that relatively small tuition discounts that attract higher-income talented students often yield them more net revenue than the more generous scholarships they offer to lower-income students.

“That’s a fairly significant percentage of what’s happening, especially for universities and colleges that operate on a tight margin and where tuition revenue is an important part of keeping the lights on,” said Jonathan Burdick, dean of financial aid and admissions at the University of Rochester. “In those circumstances, giving $5,000 against a $25,000 tuition charge is just like the discounting you’d see in a retail operation to bring traffic to the door.”

The Harvard Effect is a factor, causing some colleges to feel compelled to follow Harvard and Yale’s lead in price-discounting to affluent families.

Universities say they also have been forced to pay out more aid to people who don’t need it thanks to widely publicized changes in financial-aid policies introduced in recent years by highly selective universities including Harvard, Yale and Stanford, which raced one another to give grants to families with income as high as $200,000.

* Merit aid is defined as grants “awarded to students without financial need or awarded in excess of need”.

Source data is from College Board Trends in Student Aid 2011:

Tax season reminders about education tax benefits

This summary of popular education tax credits and deductions is by Dee Lee of CBS Boston.  REMINDER – income limits apply to all except for 529 plans.

1. The American Opportunity Credit – This credit can help parents and students pay part of the cost of the first four years of college. Congress modified the Hope Credit, making it available to a broader range of taxpayers. Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student.

The income limits: For singles, it phases out between $80,000 and $90,000 and those filing jointly it’s $160,000 to $180,000. This credit is due to expire at the end of 2013.

2. The Lifetime Learning Credit – This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years it takes you to get a degree.  Eligible taxpayers may qualify for up to $2,000.

3. Tuition and Fees Deduction – Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American Opportunity or Lifetime Learning credits. You do not have to itemize to get this deduction!

4. Student Loan Interest Deduction – There also is the deduction for the interest you pay on your student loans. Limit is $2,500 for the year. As usual there are income limits as well. The deduction is phased out for incomes between $60,000 and $75,000 and there is no deduction once your income reaches $75,000. If you are married filing jointly it’s $120,000 and gone once you reach $150,000. This deduction can also be used whether you itemize or file the short 1040.
You cannot claim the American Opportunity and Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a Tuition and Fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse, or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

5.  529 College Savings Plans – Although not a credit or a deduction it is worth mentioning that the income generated in a 529 plan is free of federal taxes. And Congress expanded the definition of qualified higher education expenses to include expenses for computers and Internet access.

IRS Publication 970 gives a comprehensive explanation of all education tax benefits, including:

• Tax treatment of scholarships, fellowships, grants, and tuition reduction
• Tax treatment of student loan cancellations and repayment assistance
• Coverdell Education Savings Account (ESA)
• Education exception to tax penalty on early IRA distributions
• Education Savings Bond Program – tax-free distributions from U.S. savings bonds
• Employer-provided educational assistance – tax exclusions up to $5,250
• Business deductions for work-related education

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Overview of student loan options

This useful summary of the most common student loan options comes from The College Helper

1. Federal Student Loans

A. Perkins Loans – Students can only qualify for this loan if they display exceptional financial need.  These loans are available to both graduate and undergraduate students.  Perkins loans are given through the college or university you will be attending.  Unlike other types of student loans, they will be repaid directly to the university.

B. Subsidized Student Loans – Students qualify for these types of loans based on financial need.  The requirements aren’t as stringent as the Perkins loans process, but you still must qualify. The interest on these loans is deferred (or postponed) until after you graduate.  What this means is that even though you are responsible for repaying this loan 6 months after graduation, the interest attached on these loans does not begin to accrue (or accumulate) until after that 6 month point.

C. Unsubsidized Student Loans – Any student can qualify for these types of loans.  The only requirements are that you must be a student and enrolled at least part-time.  The interest on these loans accrues (or accumulates) immediately, which means that the total loan value could really add up over time.

2. Federal PLUS Loans

Federal PLUS loans are loans that are taken out by parents to cover their child’s educational expenses.  The maximum amount that any parent can borrow is the cost of attendance, minus any financial aid that the student has already received.  The repayment period for these loans starts 60 days after the funds have been dispersed to the school and the repayment period can be up to 10 years.

3. Private Student Loans

Some students opt to go with private loans, rather than Federal student loans.  Your qualification for these types of loans is based on your credit score.  These loans must also be used for educational purposes only.  If you do decide to go with private loans, please READ THE FINE PRINT…every company has different loan terms and conditions.  Take your time to evaluate a lot of different companies and compare prices before taking out a private loan.  These types of loans should only be done as a LAST RESORT.

MORE:  For maximum borrowing amounts and interest rates on federal loans check out FinAid Student Loans.

Boost your chances for college financial aid with these FAFSA tips

Lynn O’Shaughnessy offers some excellent FAFSA tips that can help maximize your chances of getting financial aid.

1. Don’t provide retirement assets
Families can dramatically hurt their chances for financial aid if they include assets from their 401(k) plans, Individual Retirement Accounts, 403(b) and other qualified retirement accounts on the FAFSA. The financial aid form only requires that you share non-retirement assets.

2. Don’t include business assets
Parents who have a family-owned and controlled small business do not have to report the company’s net worth on the FAFSA if it has fewer than 100 full-time employees.

3. Skipping deadlines
Colleges impose deadlines on families to submit their financial aid forms, and these dates can be much earlier for students applying through early decision and early action options. Find out what the deadlines are, and don’t miss them.

4. File early
Although there are essentially no federal deadlines for seeking financial aid, states do impose deadlines for families who hope to qualify for financial aid through their state programs. State deadlines can be as early as February. In some states, aid is given out on a first-come, first-served basis, so it’s best to file your FAFSA well ahead of the state deadline.

5. Seek help
Confused? FAFSA staffers can help. You can contact the Federal Student Aid Information Center via online chat, phone or email. Here’s where to find the financial aid contact information.

6. List the most current marital status
You need to provide your marital status — divorced, separated or married — on the day that the FAFSA is filed. Separated and divorced parents will sometimes enjoy a financial aid advantage.

7. Have the right parent complete the FAFSA
In families of divorce, the parent who has taken care of the child during the majority of the 12 months dating from the day the FAFSA is submitted is considered the custodial parent. This can be especially advantageous in families when one ex-spouse earns significantly less than the other. Ideally, the child would live with the lower-earning parent for at least six months and a day. This parent would complete the FAFSA, and the other parent’s income would not be included. If the custodial parent remarries, however, the income from the new spouse would also be included on the FAFSA.

8. Avoid blank answers
If the answer to a question is zero or not applicable, write “0″ or “Not Applicable” on the online form. Leaving blank answers can cause miscalculations.

9. Pay attention to graduation rates
When you complete the FAFSA and designate that the application be sent to specific schools, the FAFSA website will provide you with the graduation rates of each school on your list. Try to avoid schools with low graduation rates.

10. Don’t inflate your education
Plenty of schools will give applicants brownie points if they are considered first-generation college students. If parents didn’t graduate from college, select “high school” as the highest education attainment.

Regarding #7:  Every week it seems I hear about another variation that raises doubts about who the “right parent” is.
The latest one was a case where the parents are divorced and the student lived with a grandparent for most of the past year.  The answer hinges on which parent actually has legal custody, but there may be other mitigating factors.  It can get complicated, and sometimes it is advisable to notify the college about unusual circumstances.

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College Goal Sunday helps students obtain financial aid

College Goal Sunday is a program dedicated to assisting students and families in accessing financial aid for college.  Events are held nationwide where students can go to:

• Get free on-site professional assistance filling out the FAFSA (Free Application for Federal Student Aid) form.
• Talk to financial aid professionals about financial aid resources and how to apply.
• Get information regarding state-wide student services, admission requirements, and more!

Check out their website to find a location near you.  Act quickly because you must pre-register and some sites are very popular.  I will be at the New Rochelle College Goal Sunday on February 12, but it has filled up and is no longer accepting registrations.  Yonkers is nearby and still has open slots.

(Cross-posted at Kitchen Table Math)

Don’t wait too long to request college financial aid

SmartMoney‘s 10 Things Financial Aid Offices Won’t Say is a gold mine of wisdom for families seeking financial aid.  The entire list is good, but the first item is particularly timely.

1. “You waited until April? Sorry, we gave your money away.”

At first glance, the amount of financial aid available to students seems like a goldmine. According to the College Board, graduate and undergraduate students received more than $168 billion in aid during the 2008-09 academic year; more than $109 billion came from the federal government alone not including education tax benefits. But thanks to the down economy, competition for that money is expected to be tougher for the coming year. Don’t miss out on aid because of confusing deadlines for the Free Application for Federal Student Aid (FAFSA). Available at fafsa.ed.gov, the form must be completed to be considered for government grants and loans and both the government and prospective schools will review it. The federal deadline on the form is June 30, 2011, but schools’ financial aid deadlines listed in the colleges’ materials are as early as this February.

“Families need to submit their financial aid info as soon as they can after Jan. 1, preceding the student’s freshman year,” says Barry Simmons, director of university scholarships and financial aid at Virginia Tech. While the FAFSA asks for the previous year’s tax information a common reason parents postpone applying until April parents can estimate tax figures based on last year’s return and update them later.

A financial aid administrator posting on CollegeConfidential puts it this way.

Aid is limited, and when it’s gone, it’s gone. I would tell you that.

Another reminder that January is a good time to file your FAFSA.

How to approach the private (non-institutional) college scholarship search

Although private (non-institutional) scholarships comprise only about 6% of total college financial aid, it can still be worthwhile to devote some time pursuing them.  But it’s important not to get caught up in wasting time chasing small awards, so a methodical, no-nonsense approach like this one from Lee Bierer makes sense.

Start local: Contact your guidance office and check your local high school website. If your high school doesn’t publish a list of scholarship opportunities, check other public and private schools in your area.

Don’t get caught up in the big-money dream: The big-money scholarships (Coca-Cola, Prudential, etc.) receive more than 100,000 applications each year. You’re better off looking in your own backyard for scholarship opportunities. Places to think about: civic groups, Rotary, breakfast clubs, parents’ employers, organizations, churches, local businesses, etc.

Look for “renewable” scholarships: A $500 renewable scholarship may not sound like much at first, but over four years it totals $2,000.

Invest your time wisely: Read the fine print on eligibility and deadlines. Make sure your application positions you as someone deserving of the scholarship. You are better off with a rifle approach where you select “targets” based on an appropriate match. The “shotgun” approach of blasting out applications doesn’t work; don’t waste your time.

Determine whether you are a realistic candidate: Understand the purpose of the scholarship, research who has received it in the past and be honest about how likely your chances are of winning the scholarship.

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Do you qualify for the automatic zero EFC loophole?

In determining eligibility for college financial aid, the lower your Expected Financial Contribution (EFC) the better position you’ll be in to receive money.  Even better than a low EFC is one that equals ZERO.

Some families can qualify for the automatic zero EFC “loophole” when completing the FAFSA, landing them in an ideal position for maximum benefits.  How do you qualify?  One common way is if your household Adjusted Gross Income is $31,000 or less and if you are eligible either to file the short tax form or no form at all.  Here are full details.

For the 2011-2012 school year, a dependent student automatically qualifies for a zero EFC if both (1) and (2) … are true.

(1) Anyone included in the parents’ household size (as defined on the FAFSA) received benefits during 2009 or 2010 from any of the designated means-tested Federal benefit programs: the SSI Program, the Food Stamp Program11, the Free and Reduced Price School Lunch Program, the TANF Program12, and WIC; OR
the student’s parents filed or were eligible to file a 2010 IRS Form 1040A or 1040EZ, they filed a 2010 Form 1040 but were not required to do so, or the parents were not required to file any income tax return; OR
the student’s parent is a dislocated worker.

AND

(2) The 2010 income of the student’s parents is $31,000 or less.
• For tax filers, use the parents’ adjusted gross income from 2010 Form 1040A or 1040EZ to determine if income is $31,000 or less.
• For non-tax filers, use the income shown on the 2010 W-2 forms of both parents (plus any other earnings from work not included on the W-2s) to determine if income is $31,000 or less.

Details that apply to independent students, along with other information about the EFC formula, can be found in THE EFC FORMULA, 2011-2012 document.

Truman State University – a rural gem in the Midwest

Truman State University in Kirksville, Missouri may be a good fit for a bright kid who needs a financial safety and is attracted to a Midwestern rural location. Described as a  ”public LAC”, it originally caught my eye because, as explained in the chart to the right,  it offers automatic merit aid.

Truman has forged a national reputation for offering an exceptionally high-quality undergraduate education at a competitive price.

…
Fast facts, with more information here:

• Automatic scholarships based on GPA and ACT score combination, with one specifically for out-of-state students
• Many other competitive scholarships, including several NMF awards up to full tuition
• 74% admit rate with relatively high student test scores that are in the range of other more selective schools  -  The 2009 freshman class had an ACT midrange of 25 to 30 and  SAT CR of 570 – 710.  Compare this to the same statistics for two other well-regarded schools:  Boston Univ. (58% admitted) ACT 26 – 30, CR 580 – 670 CR; SUNY Binghamton (40% admitted) ACT 26 – 30, CR 580 – 670.
• Ranked 31st by Kiplinger’s and first by Consumers Digest on their “best value” colleges lists.
• Ranked #8 on USNWR Midwestern Regional Universities
• Rolling admission with decisions by October 1 or earlier
• 99% of first-year students live in college housing; 49% of all undergraduates live in college housing
• NCAA Division II sports
• 81% In-state students; 19% Out-of-state students

…
Some possible downsides

• Rural - Located in the rural town of Kirksville, Mo., Truman State University is about a three hour drive southeast of Des Moines and four hours northwest of St. Louis.  85 miles from Columbia,195 miles from St. Louis.  In addition to a possible downside of Truman’s distance from airports,  Kirksville has been described as “very lackluster”.
• Unusual service requirement of 60 hours per semester for scholarship recipients receiving more than $1250 per semester – may include work as a research assistant.

Here are Net Price Calculations for a hypothetical student who qualifies for automatic scholarships with top grades and test scores.  The three different levels of earned income scenarios are $50,000 (low), $80,000 (medium), and $150,000 (high).  These net prices would be even lower if this student were to be awarded one of the many competitive merit scholarships offered by Truman State.