Too Wealthy for Financial Aid? How to Make Higher Education Affordable
Higher education is a commitment—not just of time but money. And increasingly, universities are demanding a larger financial commitment. According to the College Board, the average tuition for a public four-year college is $9,139 for in-state students and $22,958 for out-of-state students. For private colleges, the average is $31,231. That’s per year.
Financial aid is available, but many wealthy families can’t count on qualifying for need-based aid. So what do you do to make higher education more affordable for you and your child? Here are some ideas:
Start Saving Early
Ideally, you should start saving while your child’s age is still in the single digits. Open a 529 college savings plan, and let the magic of compounding work on your kid’s behalf. The earnings on these investment accounts are tax-deferred—and they’re tax-free when withdrawals are made for qualified education expenses, such as tuition, fees and books. Plus, depending on the state, contributions to the plan may be tax deductible.
Like your retirement accounts, investing early in a 529 plan helps your earnings grow. You can choose plans that start with aggressive allocations while your child is young, then get more conservative as your child approaches college age.
There are more advantages to a 529 plan. First, if your child doesn’t end up going to college, you can give the funds to another student—or even use the money as part of your retirement planning (talk to your financial advisor how to do that). Plus, the plan will be in your name rather than your child’s, which will help in the calculations that the government uses to determine need-based financial aid. That’s because a student’s assets play a larger part in those calculations than a parent’s assets.
As your child ages and college approaches, here are some other strategies to make higher education more affordable:
Reduce Your Income
In the calendar year before your child applies for aid, defer income, spend down assets that would be counted in aid calculations or shift those assets to accounts that wouldn’t be counted—for example, move cash from your savings (which is used in financial aid calculations) into your IRA (which isn’t used in calculations). This approach can be helpful for students who will be eligible for need-based aid, but if your income is simply too high, this strategy isn’t likely to help.
As part of this approach, talk with family members and friends who would like to help your child with college costs. Their gifts could count against your child in financial aid calculations. Instead, the gifts can be given to you and you can apply them toward tuition, or the gifts can be deferred until your child’s senior year, when applying for financial aid will be a moot point.
Similarly, strive to reduce your child’s assets, or move them into a more aid-favorable account, like a 529 plan. Bear in mind that the sale of assets such as stocks could trigger capital gains for your child.
Negotiate with Colleges for Tuition Discounts
Yes, many universities do offer tuition discounts when they’re especially interested in a student, such as an academic standout. If a second-choice university offered your kid better tuition, go to the first choice and see if it’ll offer a discount.
Seek Merit-Based Aid
If your child excelled in academics, the college may provide financial assistance based on merit rather than need. Call the admissions office and talk about the school’s policies on merit-based aid. In addition, there is a universe of financial aid available from organizations, charities, businesses and others that isn’t based on need. Fastweb and BigFuture by The College Board are resources for researching possibilities.
Paying for a child’s university education can be costly. There is no need to make it unduly so. Start planning early, and consider all funding possibilities. An ongoing conversation with your child is essential, and we are happy to coordinate family meetings. That way, there’ll be no surprises about who is expected to pay what and how much. Talk with us—we know your situation and can advise you on the strategies that are likely to work for you.
BigFuture by The College Board, “College Costs: FAQs,” bigfuture.collegeboard.org/pay-for-college/college-costs/college-costs-faqs.
FinAid, “State Tax Deductions for 529 Contributions,” www.finaid.org/savings/state529deductions.phtml.
Liz Skinner, “Even Affluent Parents Can Tap into Financial Aid to Lower the Cost of Their Children’s College,” Crain’s Wealth, September 4, 2015, www.crainswealth.com/article/20150904/WEALTH/150909948/even-affluent-parents-can-tap-into-financial-aid-to-lower-the-cost.
William Baldwin, “12 Insider Tricks to Pay for College,” Forbes, January 2, 2013, www.forbes.com/sites/baldwin/2013/01/02/12-insider-tricks-to-pay-for-college/#15063b2e3ce5.