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Affording College

The world of financial aid can be overwhelming, not just from a personal investment perspective, but from the amount of knowledge required to get up to speed, even on the basics.  Here are a few points to keep in mind as you consider your specific circumstances:

Parents of 9th and 10th Graders:  The FAFSA (Free Application for Federal Student Aid) uses a 2-year look-back period in determining your financial “responsibility” in paying for college.  I use the term “responsibility” loosely because the government’s and colleges’ ideas of your ability to afford college is usually vastly different than the reality of your situation.  That said, when you complete the FAFSA in your student’s 12th grade year, the information required uses your reported income and assets from your IRS filing the prior-prior year, aka, your student’s 10th grade year.

Protected Assets:  Your primary residence, ownership in a business, and your retirement accounts are not calculated into your assets.

Divorced Parents: Is the non-custodial parent required to help pay for college?  The Federal government does not consider the income and assets of the non-custodial parent in determining a student’s financial need. However, it does consider child support received by the custodial parent. Many private colleges do consider the non-custodial parent as a potential source of support, and require a supplemental financial aid form from the non-custodial parent. This affects the awarding of the school’s own aid, but not Federal and state aid.

Government Loans:  In 12th grade, after you have completed the FAFSA on behalf of your student, you will receive an “award package” from the college that will consist of scholarships, grants, work study, and loans.  The government may offer your student Subsidized or Unsubsidized loans, up to $5500 the first year of college, $6500 the second year, and $7500 for the third and fourth years.  Unsubsidized loans are similar to bank loans in their repayment terms, but subsidized loans have the feature that the clock does not start ticking on interest until 6 months after the student graduates or leaves college.

What is the best way to afford college?  Let’s pose another question:  Is a student whose parents fully fund their college education but who then changes career direction 3 years later better off financially than a student who takes on college debt, and leverages hidden resources like co-ops and then hits the ground running with a salary $20000 higher than the student in the first scenario?  The nature of shifting situations is what can make all of college planning so important and necessary. The best way to “afford” college is to go to a college that’s right for you in the first place, offers strong institutional merit scholarships, and has a good understanding of potential majors that align with your interests and strengths.   Maximize AP and College in High School courses, do co-ops in college, set yourself apart, and in the end, your starting salary may be more than $20000 a year higher than the student sitting next to you at graduation. 

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