You make a good income. You save adequately. You like to give to charity, not just for the tax deductions (but it sure doesn’t hurt😊). How can you use all three to pay for college?
Most parents we work with understand the value of saving, either discovering this “value” too late or benefitting from actions taken years ago. In preparing for children heading off the college, and the associated college costs, The College Funding Coach has shown hundreds of families how to utilize those savings in practical ways for the aid they cannot qualify for and enhance the amount of aid they can receive.
Determine Your EFC and Whether You Will Qualify for Need-Based Aid
As you finalize how far you’d prefer not to drive and convince your child Pepperdine is TOO far from home, you can start to calculate your Cost of Attendance as it relates to your Expected Family Contribution using our College Money Report. After you evaluate the amount of aid for which your family is eligible, you can start to apply the average percentage of need met by each school. (For further explanation of these terms, go ahead and read this blog post.
Good news. A few schools your children want to attend have a higher cost of attendance than your Expected Family Contribution. Why is this good news? Because that means you can potentially qualify for aid from the college.
If this is the case, why wouldn’t you try to qualify for more?
Increasing Your Financial Aid Eligibility
Are there ways to do so? Can we lower our Expected Family Contribution if our reported income from two years ago can’t be changed on our FAFSA? If you’ve attended our workshops, you understand the difference between assessable and non-assessable assets. And you understand that if you’d like to qualify for more aid, you should INCREASE the amount of non-assessable assets and DECREASE the amount of assessable assets as it fits with your financial goals.
If you are regularly charitable, you may have ample opportunity to increase your aid eligibility AND lower your tax bill. Ask yourself the following questions:
- How much do I give to charity each year on average?
- Is this something I would like to continue while my child is in college?
- Do I have assets/income I could devote to continuing these charitable endeavors for the four years my child is a college/university student?
- Which of my assets are “assessable” by the FAFSA and CSS Profile (i.e. which assets negatively affect your financial aid?)?
- Of my assets, which ones would be subject to capital gains taxes of 15% or 20%?
Disclaimer: If you’re not going to qualify for any need, then it doesn’t make sense to try and maneuver assets to maximize need. You need to come up with a financial plan with someone who knows their stuff to pay for college as efficiently as possible without ruining your retirement goals.
Case Study: Charity Strategy & Financial Aid
Consider the following example from a family that currently works with one of our coaches:
- Established business owner making $140K+ each year
- Annual charitable giving of $20K
- Bright child; accepted to MIT and Johns Hopkins
- Both of these schools meet 100% of need
- EFC of $35K
- Cost of Attendance for MIT – $79,850
- Cost of Attendance for Johns Hopkins – $77,387
- Need-Based Aid Eligibility of around $42,500 for these schools
- Assessable assets of $200,000
- With $80,000 in unrealized gains subject to 15% capital gains tax
- Utilize a “forward-giving” strategy to donate the $80K in gains to a donor-advised fund (DAF)
- Give to charity out of the DAF in the amount of 20K/year for the next four years
- Avoids approximately $12,000 in capital gains taxes
- Reduces EFC from 35K to 30K, therefore increasing aid eligibility by an estimated 5k/year for four years
- Continues client’s charitable desires
- Keeps $20K in the client’s pocket every year that would have been devoted to charity for the next four years
Is this the entire strategy we implemented? Of course not! We had another half-dozen ideas for our client to implement their planning, but this aspect certainly had a significant and immediate impact.
Your situation will almost certainly prove different than theirs. But ask yourself the questions laid out above, and you might have an easier time paying for college and qualifying for aid.
For a more in-depth exploration of college funding strategy, schedule a free consultation with one of our coaches:
Don’t want to talk with us quite yet? Check out one of our free webinars on saving and paying for college: