Ray Martin Helps Students Maximize Next Year’s Financial Aid

February 24, 2012

On CBS’ MoneyWatch, Ray Martin outlined several financial moves to increase a student’s financial aid package a few weeks ago on the program. There are incredible tuition costs this year, and student debt has been increasing exponentially. Because of all those factors, focus has turned to creating more financial aid opportunities for students through grants and scholarships. Martin suggest financial planning to figure out the costs of college and figuring out the ins and outs of FAFSA to up the amounts even higher.

Martin suggests using financial strategies to reduce the base year income and also reduce includable assets to increase your potential to get more financial aid. If your base year income is lower, then your expected family contribution will also lower. The amount of Pell Grants and other federal aid programs is based on this number. Therefore, you can receive more financial aid for having a very low expected contribution number.

When you consider your includable assets, Martin suggests that the student should remove most of the assets from his possession first. Assets in accounts owned by a parent for a dependent student are reported as a parental asset on FAFSA, which means that parental assets are assessed at a maximum 5.64 percent rate according to Martin. This percentage raises or lowers your parent’s expected family contribution numbers. However, the percentage is much higher for students at 20 percent.

You can maximize your retirement plan contributions. Assets in retirement accounts are not includable as part of the expected family contribution number. You can make the maximum contribution to 401 accounts this year and use savings outside of retirement to pay for living expenses. This is a strategy that many families have been using recently to their advantage with financial aid.

You can also spend student asset’s first. If you feel that students should be used towards education costs, which was probably the purpose for the savings, then you can place all of the student’s assets towards college costs, before using any of the parental assets.

Martin also recommends minimizing taxable income. This is one of the major factors in determining the amount that you’ll receive for financial aid. You should think twice before selling any investments on taxable accounts. Realized capital gains are considered included income. You can also avoid taking taxable withdrawals from retirements accounts and exercising stock options.

Your student’s bank account shouldn’t have any money in it. You can delay giving gifts to students until after the financial aid period and ask family members to do the same. The student can use these gifts later after graduation.

Ray Martin frequently discusses financial aid topics in his column for MoneyWatch. You can find the latest information by visiting CBS News.

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