Maximizing College Aid (Legally)

Susie just got her acceptance letter to a big-name university and now you're trying to figure out how to pay for it and whether you could possibly qualify for financial aid. Tip: the key strategies to maximize financial aid eligibility are to reduce assets or income or both.

“All who have meditated on the art of governing mankind have been convinced that the fate of empires depends on the education of youth.”—Aristotle

Susie just got her acceptance letter to a big-name university and now you’re trying to figure out how to pay for it and whether you could possibly qualify for financial aid. Tip: the key strategies to maximize financial aid eligibility are to reduce assets or income or both.

Hiding assets or lying about income is not the way to go, however. Falsifying information on a college aid application can get you a $20,000 fine or even some time behind bars. And colleges are tougher at checking than the IRS, which audits only small percentage of tax returns. Colleges routinely vet at least third of the aid applications they get; some audit all of them.

There are some financial moves, however, that are not only legal but would make a lot of financial sense even if you weren’t trying to maximize aid eligibility. One is to pay down credit card debt. Since the federal financial aid formula ignores family debt, a big credit card bill won’t help your bid to get aid. Paying it down, however, reduces your available cash reserves, which will enhance your chances.

You should also beware of saving money in your child’s name. The college will put heavy emphasis on those assets in calculating financial aid and tap them first to pay the tuition bill. And you can’t just transfer the cash back into your name, since it legally belongs to your child. You can reduce those assets legally, however, by spending them for the child’s benefit—a new computer, for example. Make sure you do this before you fill out the financial aid application—and check with your accountant for expenses that qualify. For a full rundown on aid eligibility strategies, go to FinAid.

$21,000Average education debt carried by a new college graduate.(USA Weekend, 2008)