Paying for college; tips to help you manage

Written by Steve Ciaccio, MBA, Certified Public Accountant, CERTIFIED FINANCIAL PLANNER™

Planning for college and preparing financially to pay for it is a daunting process for most people. Although it is better to start the planning process early in the student’s life, for those who will begin paying for someone’s college in the next year or two, there are still some strategies that can potentially help lessen the burden.

There are two basic reasons to grant financial aid, needs based and merit based. Needs based relates to your financial situation while merit based relates to the student’s academic and personal achievements. Needs based financial aid for attending public colleges is generally applied for through the FAFSA. FAFSA is the nickname for “Free Application for Federal Student Aid”. The FAFSA is also used for obtaining low cost federal student loans.

Regarding needs based aid, many people manage the amount of aid that they might receive by structuring their assets and income in certain ways. For example, postponing reportable income to a future year by waiting to sell an asset with a capital gain can have a favorable impact on financial aid in some cases. Postponing a withdrawal from a retirement account can sometimes have a favorable impact as well. Holding money in the parent’s bank account might have a more favorable impact than holding it in the student’s account. These variables and many others can affect the amount of aid that you might receive. The FAFSA website (www.FAFSA.ed.gov) has a tool called FAFSA4caster that you can use to estimate the amount of potential needs based aid that you might receive. By using the FAFSA4caster tool, you can see how your potential federal financial aid changes with varying financial circumstances. In order to effectively use the tool, you will need to know which types of assets and income are reportable, as well as other rules.

Keep in mind that the college that the student attends actually determines the amounts and types of aid that you receive and that might vary from the FAFSA4caster results. Also bear in mind that many schools (usually private schools) use a different application system (called CSS), which uses different criteria for determining certain types of aid. Some colleges might use their own financial aid applications and rules as well.

Managing your circumstances with the goal of increasing the amount of aid that you receive can be very complex. Although there are many reputable college planners, some people use their college planning credentials to sell insurance or other products that are not necessarily suitable in some cases. To protect yourself, you should have a thorough understanding of the FAFSA and CSS rules if you are planning to pay for someone’s college. I recommend that you consult with a qualified and trustworthy CERTIFIED FINANCIAL PLANNERTM Professional and Certified Public Accountant when developing a financial plan. Remember that advisors’ recommendations sometimes result in conflicts of interest. As such, you should be personally knowledgeable about these matters so that you can make informed and well thought out decisions. There are many well written books as well as free resources through high schools and online that are helpful with college planning. I recommend utilizing several trustworthy resources so that you have the knowledge that you need when you need it.

Food for thought: You are the first line of defense in preserving your money.

All the best to you!

Steve Ciaccio, MBA, CPA, CFP^®

Steve Ciaccio, MBA, Certified Public Accountant, CERTIFIED FINANIAL PLANNERTM is the founder of Ciaccio Wealth Management, Ltd., located at 232 South Batavia Avenue, Batavia. He can be reached at 630-454-4599, Steve.Ciaccio@LPL.com. The opinions voiced in this article are for general information only and are not intended to provide specific investment, college planning, or tax advice or recommendations for any individual.

Ciaccio Wealth Management, Ltd. and LPL Financial do not provide tax advice or services. Please consult your local tax advisor regarding your specific situation.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.

Copyright Steve Ciaccio 2016