You remember their birth and the first time that tiny bundle was thrust into your arms to hold. You played piggyback, attended the ballet recitals, and cheered from the sidelines at the soccer games. Now she or he is all grown up and looking forward to the greatest adventure thus far in their young lives: embarking on their college journey. You’ve paid off your mortgage, you have more disposable income and you want to help…but how? There’s a whole alphabet of confusing rules and forms out there: FAFSA, CSS Profile, SAR, and EFC. How do you and your adult children make sense of it all and find the best solution on how you can set your student up for success at the school of their dreams? Relax, you’ve come to the right place.
No matter what the financial wherewithal of parents, they should ALWAYS take the time to fill out the FAFSA (Free Application for Federal Student Aid). Depending on the size of the family, the number of children, parental marital status, and many other factors, it is still possible to get need-based financial aid even if your family is considered high-income. There are no shortcuts or rules-of-thumb or benchmarks that let you off the hook; please invest the time and energy into completing the form. The vast majority of colleges and universities use the FAFSA to make financial aid decisions, but a small group of about 200 schools, mostly private colleges, require a form from the College Board (they bring us the SAT Exam) called the CSS Profile. It takes a much deeper dive into the financial picture of a given family and contains approximately twice the number of questions as the FAFSA. If your student wants to check if “their” school requires the CSS Profile completion, please go to https://cssprofile.collegeboard.org. As I said, most of these schools are smaller, private colleges, but some elite state schools like the University of North Carolina Chapel Hill, University of Michigan, and the University of Virginia also require it. Please don’t be surprised when the “Expected Family Contribution” (the amount a given college expects your tab to be) from these two different forms looks very, very different.
Let’s pretend that your Susan wants to study Engineering at the College of William and Mary (a public university that requires completion of the CSS Profile). Her parents have filled out both the FAFSA (she’s applying to the University of Iowa and the University of Illinois too) and the CSS Profile. Both exercises say that she is going to have to pay “full-freight”. At that point, a non-parental adult can absolutely give cash gifts up to the annual exclusion gift ($16,000.00 per person in 2022). To maximize the exclusion gift, an individual can write a check to Susan and each of her parents, and all of that money ($48,000.00) can be used for college expenses. If the loved ones are a married couple, they can contribute up to $96,000.00 per year for that student. The other option is that the outside adult can make direct payments, upon Susan’s acceptance and registration, to her college of choice and exclude that payment from gift taxes. Please also note that Susan can still qualify for merit-based scholarships and other awards no matter what her family’s financial background.
If the FAFSA and/or CSS Profile indicate that Susan qualifies for need-based aid, it gets more complicated. Let’s first talk about you writing a check directly to the educational institution, that nifty tax trick we learned about above. If you can pay for the entire tab for tuition and room and board, go for it. If your budget allows for only a partial payment, please proceed with caution. You won’t get nailed with gift taxes, but your student can have that payment on her behalf treated as a “resource” which could reduce her potential needs-based scholarship money dollar-for-dollar for which she would rightly qualify. I’m pretty sure you wouldn’t be very happy if your well-intended gift ended up costing your student more in the long term. If a family will be able to apply for need-based aid, it is also critical who the owner of the popular college savings accounts called 529 Plans is. Since it is common to start college savings accounts when children are young, this is a fundamental question that needs to be determined many years in advance. Grandparents or other adults can absolutely set up 529 Plans for the benefit of their young one, but when the funds are distributed to fund college costs, they may adversely affect the formula and result in the family paying much more out-of-pocket than if the accounts had been set up by the parents. There are strategies to grandparents owning the accounts and taking distributions, but it takes know-how to make sure you do it right to minimize the amount of out-of-pocket that all interested parties will pay.
Want to come in, share a hot cup of coffee and talk about the best funding strategies for your student? I’ve earned my Certified College Planning Specialist certification from the National Institute of Certified College Planners and I love talking shop and helping college-bound families. Call me at 563-949-4705 or email me at [email protected].
