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The Ten Deadliest Mistakes Parents Make

The Ten Deadliest Mistakes Most Parents Make When Applying for College Funding and How to Avoid Them

We’re going to start by talking about the ten deadliest mistakes most parents make when trying to garner aid for their child’s college education.

If you make any one of these mistakes, it could end up costing you thousands or even tens of thousands of dollars in lost funding for which you might have been eligible. I don’t want to see you make these mistakes if you don’t have to. So without further ado, let’s discuss the ten deadliest mistakes most parents make when applying for college funding.

1. Most middle and upper-middle class parents assume they won’t be eligible for financial aid because they own a home and make over $85,000 per year.

Reality: most families with income range from $50,000 to $125,000 per year who own a home are eligible for some form of financial aid. There is over $132B available each year from the federal government, the state, colleges and universities, and private foundations & organizations. You just have to know how to find your “fair share”. Unfortunately, most parents give up before they even start and assume they won’t be eligible. This is exactly what the government hopes you will do. Don’t make this mistake. Make sure you apply. You’ll probably be eligible for some money.

2. Focusing your time and energy on private scholarships instead of spending your time trying to qualify for “need based” financial aid.

Reality: private scholarships make up 3% to 4% of the money available to you to help you pay for your child’s college education. The other 96% comes from the federal government, the state in which you live, and the colleges and universities to which your child will be applying. Therefore, you are much better off spending your time and energy pursuing the 96% rather than the 4%.

3. Assuming only athletes and the academically gifted are award financial aid.

Reality: nothing could be further from the truth. Need based financial aid is solely awarded on the financial need, which is calculated by taking the cost of attendance at a school and subtracting the family contribution (which is the minimum amount the government feels you can afford to pay based on your income and assets, and your child’s income and assets). Whatever is left over after you subtract these two numbers is your “financial need” or eligibility starting point for financial aid at a school. If you haven’t noticed, this has nothing to do with a student’s athletic ability or grades.

4. Picking college or the university without paying attention to where your student lies in comparison to the rest of the student body, grade and SAT score wise.

In reality, to increase your chances of getting the best possible financially packages, it’s imperative that you pick (at least one) schools where your child lies in the top 25% of the incoming freshman class with respect to their GPA and SAT/ACT score. All the schools give you financial aid based on your level of need at their school. They would definitely give you preferential packaging (more in gift aid, less in loans) for students who lie in the top 25% of the incoming class. The reason they do this is to attract better students to their schools. Use this to your advantage and apply to at least one school where your child would fit in the top 25% category.

5. Assuming all schools are created equal and would be able to give you the same amount of money.

In reality, all schools are not created equal and will not be able to give you the same financial aid package. Some schools are well endowed and benefit from donations from alumni and corporations. These schools have more money to share and are generally able to meet most or all of the students’ financial needs at their school. Other schools, such as the state universities, garner less in private funds per student, and more commonly rely on state and federal funds to help fill the student need of their school. In many cases, these schools leave students short and give them less money than they would be normally be eligible to receive. The process can actually end up costing you more to send your child to a cheaper school if they don’t have the money to meet your need. It’s very important that you know each school’s history of giving money before you ever apply so that you are not surprised when you receive an unattractive financial aid package from your child’s top school of choice.

6. Not understanding the differences between included assets and un-included assets for purpose of filling out financial aid forms.

Certain assets are counted much more heavily (against you) in the financial aid formulas than others. For example, savings accounts, CDs, stocks and bonds are all included on the FAFSA. However, retirement plans, annuities or cash value life insurance policies are not found anywhere on that same form.

7. It doesn’t matter where I keep my money; it’s all counted the same way.

As addressed above, nothing could be further from the truth. Where you keep your money could mean the difference between you garnering $10,000 in financial aid or garnering nothing. For example money in the child’s name is weighted much more heavily than money in the parent’s name. If you don’t know how to legally and ethically position your money properly for the purpose of financial aid, you could end up losing thousands in financial aid.

8. My CPA or tax prepare is qualified to fill out my financial aid forms. I’ll let him/her do it.

Unfortunately, CPAs and tax preparers are experts in tax planning and preparation, not financial aid planning. For example, a CPA or tax preparer might suggest that you put all or some of your assets into your child’s name to save money on taxes. While this advice is well meaning, it will usually eliminate most or all of your chances of garnering financial aid. Also, CPAs and tax preparers are not trained in completing the financial aid forms. In many cases they will unknowingly complete these forms improperly and these minor mistakes will impede your financial aid effort. If this happens, you will have to resubmit these forms and you will probably end up losing thousands in financial aid.

9. Waiting until January or worse, spring time, of your child’s senior year in high school to start working on your college aid financial planning.

Since financial aid is based on your previous year’s income and assets, it’s imperative you start your planning as soon as possible before January of your child’s senior year. If you want to legally massage your income and assets so you can maximize your eligibility for financial aid, you must start working on this at least one year in advance, preferably in the beginning of your child’s junior year of high school. The longer you wait and the faster you approach your child’s senior year, the tougher it gets establish up your financial aid picture without creating a “red flag” for the colleges and universities. It’s also important to know your expected family contribution so you can start saving for it. And you should also know which schools give you the best packages before you start visiting and applying. My advice (for parents of high schoolers) is if you haven’t started planning, start now.

10. Going through the financial aid process by yourself because it’s “cheaper”.

If this describes you, the colleges and federal government are going to love you. This allows them to keep control of the process instead of you and an advocate understanding how the process works and taking control of the process. It always amazes me that people will readily use a doctor when they experience an illness, a lawyer when they experience a legal issue, but suddenly when they’re going to send their child to college and spend between $20,000 to $50,000 per year, parents attempt to save a couple thousand dollars. Unless you’ve spent the last five years of your life studying and understanding the financial aid process, it’s going to be very difficult for you to know how to garner the maximum amount of aid from each school.

And if you try to do it yourself, you’ll probably spend countless hours in research. The moral to this story is don’t be a penny wise and a pound foolish. Use an expert who can help you through this process and make sure you garner everything to which you’re entitled.

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