Look Needy for Better College Funding

Physician's Money Digest, September30 2003, Volume 10, Issue 18

Many physician-parents are feeling the pinchof rising tuition costs. The strain is evengreater for savers than it is for spendthrifts,because colleges generally award more aidto those with less money. You can increase your chancesfor college aid, however, by making it appear that youhave less money than you actually do.

Climbing Tuition

The endowments colleges receive are tied to the markets.This helps explain today's climbing tuition rates,and why colleges say they, too, are suffering. Accordingto the College Board, notes a Business 2.0 article, privatecolleges boosted annual tuition an average of 5.8% thisyear to $18,273. Public schools increased their rates byan average of 9.6% to $4081. And although college officials boast that aid has doubled during the past decade,57% of such aid is in the form of loans. In actuality, themoney that colleges give away as true financial aidaccounts for less than 20% of all aid.

Paying for College WithoutGoing Broke

Kalman Chany, author of (Princeton Review; 2002), says creativeparents can still pay for college. An important step in thefinancial aid process is to fill out the Free Application forFederal Student Aid (FAFSA). The 6-page form is availableat www.fafsa.ed.gov. Colleges use this form todetermine the expected family contribution (EFC), whichis the amount your family should contribute to collegecosts. The deadline for filing this form with schools isJune 30 for fall enrollment, but colleges will accept it asearly as January 1. Submit it early to avoid the last-minutemistakes that financial aid officers sometimesmake when they are rushed and money is running low.

Moving Money

Colleges assess your child's savings at a higherlevel than yours. As much as 35% of your child'sassets are counted toward the EFC, compared with amaximum of 5.65% of your savings. Closing yourchild's savings accounts can help tremendously. Alsoconsider filing separate income tax returns for yourother children. This assures that their income doesn'taffect your aid eligibility.

Keep in mind that, beginning with the year yourchild becomes a high school senior, financial aid officerslook closely at your adjusted gross income—Line 35 onIRS Form 1040. An ideal way to reduce it is to contributeyour pretax dollars to a 401(k) account.

Take advantage of plans available at your job thatallow you to further reduce your income. For example,you can sign up for a plan that takes out pretax dollarsfrom your earnings to pay for medical expenses. If youhave substantial business-related expenses, take a paycut in exchange for reimbursements of equal value.Although your income will drop, your cash flow won'tsuffer. Deferring any bonuses for as long as possible canalso help trim your income.

Be aware that converting a traditional IRA to aRoth IRA increases your income by the amount in theaccount. If you are considering such a move, therefore,do it before the year your child becomes a highschool senior or wait until after January 1 of theirjunior year in college. Also, postpone large capitalgains as long as possible; avoid cashing in savingsbonds before the second term of your child's thirdyear of college; and put off large charitable contributions,which reduce your aid eligibility.

The above strategies will help, but it's likely that youwill still come up short and need to consider studentloans. Fortunately, the rates are low right now.Unsubsidized Stafford loans (www.staffordloan.com),with a recent rate of 3.46%, are the cheapest studentloans available. Dependent students can borrow as muchas $23,000 over 4 or 5 years. With subsidized Staffordloans, no interest accrues while the student is in school.

Federal parent loans for undergraduate students(PLUS; www.plusloan.net) let parents borrow as muchas the total cost of a child's education. It allows youto choose to pay only interest while your child is inschool; you have up to 10 years after graduation topay off the principal.