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Timothy O’Connor: Get schooled on financial aid, whatever your income level

Published: Wednesday, July 30, 2014 5:30 a.m. CDT

In the 2012-13 academic year, more than $238.5 billion in financial aid (grants, federal loans, federal work-study and federal tax credits and deductions) was awarded to undergraduate and graduate students. Those students came from households spanning a wide range of household incomes.

During that same time period, the average amount of aid for a full-time college or university student was $13,730, including $7,190 in grants (that don’t have to be repaid) and $4,900 in federal loans. Once you realize how many resources may be available to your student and begin your research on financial assistance, you may be on your way toward easing some of the anxiety often associated with paying for higher education.

Here are some lessons on seeking financial help for your student’s tuition.

Start planning for aid during your student’s high school years. Pay particular attention to your child’s junior year of high school, and reposition assets or adjust income before that year begins. When financial-aid officers review a family’s need, they analyze the family’s income in the calendar year that begins in January of the student’s junior year of high school.

Assume you are eligible for aid until you’re told otherwise. There are no specific guidelines and no rules of thumb that can accurately predict the aid you and your student may be offered. Because each family’s circumstances are different, you’ll want to keep an open mind as you consider various financial-aid alternatives.

A number of factors – such as having several children in school at the same time – could increase your eligibility. Reassess assets held by your children. Federal institutions expect children to contribute 20 percent of their savings toward their education’s costs, while parents are expected to contribute up to 5.64 percent of their savings.

That’s why assets held in custodial accounts may reduce the aid for which the family qualifies. Assets held in Coverdell Education Savings Accounts (ESAs) and 529 plans will be factored into the parent’s formula, having less effect on the aid for which the family qualifies.

Steer grandparents’ gifts in the right direction. Grandparents’ hearts often lead them toward gifting directly to grandchildren or paying the student’s tuition expenses. Even though payments made directly to the institution avoid gift taxes, institutions generally count these payments as an additional resource the family has to pay for college expenses. Distributions from grandparent-owned 529 plans also are considered as additional resources and assessed as student’s income, which reduces the amount of eligible aid. A better idea for grandparents may be to consider gifting to a 529 plan owned by the parent or student. The financial aid treatment of gifts to a 529 plan is generally more favorable than that for gifts made directly to the student, and grandparents may realize estate-tax and gifting benefits by using this alternative.

Assess your family’s financial situation to determine the amount of funding your student will need. Gather records and begin researching available financial aid, grants, loans and scholarships. Two forms will be key to your aid application process: the Free Application for Federal Student Aid (FAFSA) and the College Scholarship Service Financial Aid Profile (PROFILE). The FAFSA form helps you apply for federal aid, and many states also use it to determine a resident student’s eligibility for state aid. You can find this form in high-school guidance offices and college financial-aid offices or online at

• Timothy J. O’Connor is a certified financial planner and first vice-president/investment officer at Wells Fargo Advisors LLC in Woodstock. Reach him at or 815-337-9470.

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