In divorce negotiations many parents face the daunting question of how to pay for college. Most folks have no idea how much is needed or how to even begin saving money of that magnitude. They're usually pretty sure they don't want the kids beginning their adult lives burdened with heavy student loans. It is our job to facilitate the negotiation, as educational costs are part of every child support agreement. And college costs are their own distinct and intimidating category.
Navigating the complexities of the financial aid world has just become easier with the publication of How Not to Blow it With Financial Aid by Rachel Louise Ensign of the Wall Street Journal. As mediators, we've transformed her sage advice into a game -- one in which mom and dad are teammates -- their mortal enemy, the savvy financial aid officers. And this issue offers an opportunity for the divorcing couple, normally in conflict, to work together toward a mutual goal.
The game of college financial aid is just that -- a game. Two opponents face off in a kind of tug of war, trying to pull a number in either direction. The college or university looks to grant the minimum financial aid package required to get you to attend their school, while families maneuver their financials in order to make their aid package as large as possible. Here the opponents -- college vs. family -- are in a five round financial aid battle.
Round 1: Lower your income the year prior to your child's college application, that is Junior's junior year. This is the year's tax return that colleges look at, in order to interpret your family's financials, and decide on an aid package. Some folks may, for example, delay payment of a bonus.
Your opponent is at a loss.
Round 2: Use the net-price calculator that most universities and colleges feature on their financial aid websites. Families input their financial information, and the calculator generates a number. This number represents the college's net price for your family. Using a net-price calculator allows a family to be prepared, beginning the application process with the most information possible. Beware that even using the net-price calculator, loans may be "hidden" in the calculations.
Round 3: Frontloading is nearly always a winning move on the part of colleges, so be prepared. Colleges will often offer students a substantial financial aid package for their freshman year, upon their initial acceptance. When it comes time to renew your student's financial aid for their sophomore year, the amount offered may be much smaller. Nowhere does it state that colleges must offer the same aid package throughout all four years of college.
Unfortunately, it looks as if your opponent has won this round. The only defense you have in this situation is to prepare. Go into the application process knowing the universities' tactics, and begin saving sooner rather than later.
Round 4: Do very well in school. This move is encouraged throughout a child's life. Extremely qualified students sometimes apply to mid-tier universities in the hopes of receiving substantial merit-scholarship money. Colleges, however, are skilled at spotting when a student is using their school as a mere safety. Instead of offering up a large merit scholarship, colleges may reject an over-qualified student altogether, knowing he or she is unlikely to enroll. They won't waste their offer of admission, or their offer of money, on someone unlikely to accept.
Your defense here is to show a genuine interest in a school. If you are hoping to receive substantial merit money, have the student contact professors and alumni, and visit the campus. This display of interest makes a very qualified student more likely to receive a merit scholarship.
Round 5: Put your child's money in the right place. Any assets a child has in the bank--this includes checking and savings accounts--can work against you in the financial aid world. For every dollar a child earns over $6,130, colleges could potentially cut their aid by 50 cents. Every dollar a child has in assets reduces potential aid by 20 cents.
In order to avoid such drastic aid cuts, move your student's money into a 529 college savings plan. Money in your or your child's 529 plan only lowers your potential aid by 5.645 on the dollar. But beware, money in a grandparent's 529 reads like income and cuts the aid package 50 cents on the dollar.