Maximizing Your Financial Aid Eligibility

Top Strategies These strategies will have the largest impact on need-based aid eligibility. Save money in the parent's name, not the child's name. Or use a savings vehicle that is treated like a parent asset, such as a 529 college savings plan, prepaid tuition plan or Coverdell Education Savings Account. Pay off consumer debt, such as credit card and auto loan balances. Parents should go back to school to further their own education at the same time as their children, or have multiple children in college at the same time. The more family members in college simultaneously, the more aid will be available to each. (Note: This strategy is not as effective as it once was, as whether the parents count is now an item subject to professional judgment review. The school will want to see documentation that the parent is genuinely pursuing a degree, since this is prone to fraud. Many schools will merely reduce income by the amount the family spends for the parent's education, instead of increasing the number in college figure.) Spend down the student's assets and income first. Accelerate necessary expenses, to reduce available cash. For example, if you need a new car or computer, buy it before you file the FAFSA. If you feel that your family's financial circumstances are unusual, make an appointment with the financial aid administrator at your school to review your case. Sometimes the school will be able to adjust your financial aid package to compensate using a process known as Professional Judgment. Minimize capital gains. Maximize contributions to your retirement fund. Do not withdraw money from your retirement fund to pay for school, as distributions count as taxable income, reducing next year's financial aid eligibility. If you must use money from your retirement funds, borrow the money from the retirement fund instead of getting a distribution. Minimize educational debt. Ask grandparents to wait until the grandchild graduates before giving them money to help with their education. Trust funds are generally ineffective at sheltering money from the need analysis process and can backfire on you. Prepay your mortgage. A section 529 college savings plan owned by a parent has minimal impact on financial aid. Choose the date to submit the FAFSA carefully, as assets and student marital status are specified as of the application date. Introduction In the strategies that follow, the term base year refers to the tax year prior to the award year, where the award year is the academic year for which aid is requested. For example, if the student who is applying for financial aid will matriculate in September 2014, the base year is the calendar year from January 1 through December 31, 2013. The need analysis process uses financial information from the base year to estimate the expected family contribution. Many of these strategies are simply methods of minimizing income during the base year. Likewise, the value of assets are determined at the time of application and may have no relation to their value during the award year. Keep in mind that the federal regulations governing financial aid change frequently. There is no guarantee that any of these strategies will work in the long run, since the federal need analysis methodology is changed annually by Congress. Basic Principles There are several basic principles behind the strategies for maximizing eligibility for financial aid. These principles include: Reducing income during the base years. Reducing "included" assets. There are two types of assets, those that are included in the need analysis formulas and those that aren't. Converting included assets into nonincluded assets will increase eligibility by sheltering them from the need analysis process. However, most financial planners recommend that parents maintain a contingency fund equal to six months salary in relatively liquid form for emergencies and other unforeseeable circumstances. Increasing the number of family members enrolled in college and pursuing a degree or certificate at the same time. The family contribution is split among all family members who will be enrolled in college, so the more family members in college, the greater financial need for each. Taking advantage of the differences in the way the need analysis process assesses the assets and income of the student and his or her parents. Changing the student's status from dependent to independent. This is generally not very easy to do. Income If you estimate your income on the Free Application for Federal Student Aid (FAFSA), don't overestimate. Families have a natural tendency to overstate income, in part by reporting gross income (before deductions for health insurance premiums) instead of adjusted gross income. Using too high an income figure can have a significant impact on your expected family contribution. If possible, do your taxes early, so you can use the correct figures instead of estimating. Or at least compare this year's figures with last year's federal income tax returns. Be careful when reporting the amount of taxes paid. Many people confuse the amount of withholding (the figure from the W2s) with the amount of taxes paid. Don't make this mistake. Avoid incurring capital gains during the base year. Capital gains are treated like income. Sell the stocks and bonds during the sophomore year in high school. If you must sell the securities while your child is in college, wait until April of their junior year, when their last financial aid application has been filed. If you sell the securities during their freshman, sophomore, or junior year in college, it will reduce their eligibility for aid during the subsequent year. You could try to compensate by selling some of the losers in your portfolio.Note that many schools do not allow offsetting losses. For example, you cannot use capital losses to offset your salary. Do not take money out of your retirement fund to pay for educational expenses. Retirement funds are sheltered from the need analysis process. If you withdraw too much money from your pension, or withdraw them before the financial aid application is filed, you will have converted them into an included asset. It is much better to spend your liquid assets, such as cash in bank accounts, first.Moreover, when you withdraw funds from your pension, you may incur a penalty. It may be better to borrow money from the pension, if possible. You cannot borrow against your IRA, but you may be able to borrow against your 401(k) plan. In certain circumstances, a slight decrease in the parents' income may yield a significant increase in eligibility for Federal financial aid. If both of the following are true The parents' adjusted gross income is under $50,000. All family members are eligible to file an IRS Form 1040A or IRS Form 1040EZ income tax return or aren't required to file (or were eligible for certain federal means-tested programs, such as SSI, the food stamp program, the free and reduced price school lunch program, TANFF, and WIC). then the family qualifies for the Simplified Needs Test which disregards assets when determining the expected family contribution. So if the family has a substantial amount of assets and the parents' income is close to $50,000, the parents should consider taking steps to reduce their income below the $50,000 threshold. (There is also a special test called Automatic Zero EFC which applies when the parents' income (AGI) is less than $20,000.)Some methods of reducing the parents' income include: Taking an unpaid leave of absence. Incurring a capital loss by selling off bad investments. Postponing any bonuses until after the base year. If the family runs its own business, they can reduce the salaries of family members during the base year. (This will only have an effect if the family business is a C corporation. S corporations, partnerships and sole proprietorships will pass through their income to the owners.) The income retained by the corporation will still be considered as a business or investment asset, but assets are treated more favorably than income. Also, assets can be disregarded if the family qualifies for the simplified needs test. Making a larger contribution to retirement funds. Note that making a larger contribution to the parents' retirement funds doesn't normally affect eligibility for financial aid, because the contribution gets counted in the formula as untaxed income. It only works in this case because the Simplified Needs Test depends on the AGI and not the total income or total available income. If both members of a married couple have earned income, but one falls below the income threshold for filing an income tax return and the other falls above the threshold, it may be beneficial for the member with income above the threshold to file as married filing separate. This will allow the other member to not file a return. This yields a lower AGI. Normally, if a married couple has no AGI but earned income, the federal need analysis methodology substitutes earned income for the AGI. But in this case there is nonzero AGI, so the substitution of earned income for AGI does not occur. In effect, the income of the nonfiling spouse gets excluded from the need analysis assessment of income, but still triggers the allowances against income. The US Department of Education's published guidance on nonfilers specifically indicates that it is inappropriate to include that income as untaxed income. Note, however, that the Department could correct their logic error in the future, and financial aid administrators are within their rights to use professional judgment to include the income within AGI. Note also that filing a married filing separate return eliminates eligibility for certain tax deductions and tax credits, including several of the education tax benefits. But it would be worthwhile running the numbers both ways (on both the income tax returns and need analysis), to evaluate the total financial impact. Assets As a general rule, unless the family is completely certain that the child will not qualify for need-based aid, money should be saved in the parents' name, not the child's name. Putting assets in the child's name has one major benefit and two major risks. The benefit is the tax savings due to the child's lower tax bracket. The risks, however, often outweigh the benefits. Such a transfer of assets will result in a reduction in eligibility for financial aid. Moreover, the child is not obligated to spend the money on educational expenses. After the child reaches age 18 (age 14 in 2005 and before), a family can realize tax savings by placing up to $26,000 a year in assets in the child's name, because the income from the assets will be taxed at the child's tax bracket. (The Uniform Gift to Minors provision in the tax code allows each parent to give up to $13,000 a year to each child without incurring a gift tax.) But the need analysis formulas assume that the child contributes a much greater portion of his or her assets (and income) than the parents, with the result that such tax-sheltering strategies often significantly reduce eligibility for financial aid. In most cases the financial aid "tax" overwhelms the income tax savings. Parents should carefully consider the financial aid implications before transferring money into their child's name. The advice in this section discusses the advisability of various asset shifting strategies. The parents cannot just transfer the assets back into their own name as college approaches. The assets legally belong to the child, and the child could sue the parents to recover them. (This happens more often than you might think. For example, it isn't uncommon for a child to sue the non-custodial parent in divorce cases.) Moreover, the IRS could assess back taxes and penalties for such a transfer of assets. Nevertheless, there are ways to legally shift the child's assets back into the parents' name. For example, the parents could spend the child's assets on the child's behalf, provided that the expenses are for the child's benefit and not part of the usual parental obligations. For instance, the parent may use the child's assets to pay for summer camp but not for groceries, clothing, health care or rent. An accountant will be able to help you identify which expenses qualify. If you can transfer the child's assets back to the parents in this fashion, do it before the base year to reduce the impact these assets will have on the need analysis process. The College Cost Reduction and Access Act of 2007 changed the treatment of custodial versions of qualified tuition accounts (529 college savings plans, prepaid tuition plans and Coverdell education savings accounts), effective with the 2009-10 award year. When owned by a dependent student, these plans are reported as parent assets on the Free Application for Federal Student Aid (FAFSA). This is a much more favorable treatment than before July 1, 2006, when they were treated as student assets. (From July 1, 2006 to June 30, 2009, the custodial versions of these plans were ignored as assets on the FAFSA due to a legislative drafting error Section 8019(d) of the Deficit Reduction Act of 2005 (Public Law 109-171). For example, Dear Colleague Letter GEN-06-05 suggested that if the student and not the parent is the account owner of the plan, it is not reported as an asset at all.) Specifically, for a custodial account to be counted as a parent asset instead of a student asset, all of the following must be true: The account must be a custodial account, meaning that the student is both the account owner and beneficiary. Only 529 College Savings Plans, Prepaid Tuition Plans and Coverdell Education Savings Accounts qualify. The student must be a dependent student. If any of these conditions are not true, then the accounts are still reported as an asset of the student. For example: Regular custodial accounts, such as UGMA/UTMA bank accounts, are reported as an asset of the student. If the student is an independent student, the custodial versions of 529 College Savings Plans, Prepaid Tuition Plans, and Coverdell Education Savings Accounts are reported as an asset of the student. Note that if the student is dependent, but the 529 college Savings Plan, Prepaid Tuition Plan or Coverdell Education Savings Account is not a custodial account, the account is also reported as a parent asset. This provides an additional way for a parent who saved in the child's name (in a regular UGMA/UTMA account) to undo the damage. Before filing the FAFSA, the parent should convert the asset (by liquidating it, as contributions must be in cash) into the custodial version of a 529 college savings plan, prepaid tuition plan, or Coverdell ESA. The money will then be treated as a parent asset on the FAFSA even though it is still owned by the student. Before worrying about shifting assets, first determine who owns the asset. For example, a bank CD in the parents' name "in trust for" the child's name is generally a parent asset. Likewise for "payable on death" or POD accounts. The test to use is to identify who is responsible for paying taxes on the asset's earnings. For example, if the parent receives a 1099 that reported the earnings on the parent's social security number, the asset is owned by the parent. Likewise, if the earnings were reported on the child's social security number, even if the parent files taxes on behalf of the child, the asset is owned by the child. Most need analysis formulas shelter $35,000 to $60,000 of the parents' assets, depending on the age of the older parent. For most families of college-age children the asset protection allowance (APA) will be around $45,000 to $50,000. (The median age of parents with college-age children is 48. The asset protection allowance for a family with two parents where the older parent is 48 years old is $47,700 using 2006-2007 need analysis tables. The amount fluctuates up and down from year to year, depending on complex factors involving the consumer price index.) As a result, only about 10% of families have any contribution from the parent assets. Even when parent assets exceed this threshold, they have a negligible impact on the family's expected family contribution. A $10,000 decrease in parent assets, for example, will yield only about a 560 decrease in the EFC. (Also, the Federal Methodology's Simplified Needs Test will ignore assets altogether when the parents' income is less than $50,000 and all family members are eligible to file an IRS Form 1040A or 1040EZ or aren't required to file an income tax return.) Thus parent assets do not have as much of an impact as is normally assumed by most parents. So before you spend much effort trying to optimize the parents' assets, use FinAid's EFC calculator in detailed mode and see whether there is any contribution from parent assets. If your children have any hope of being eligible for financial aid, do not put any assets in your children's names, regardless of the tax savings. Likewise, don't pay your children a salary as part of the family business. On the other hand, if you are absolutely certain that your children will not qualify for financial aid, take advantage of all the tax breaks you can get. But be very careful about assuming that you won't be eligible for financial aid because you earn too much or have too many assets, since parents are often mistaken when they make this assumption. Spend the student's assets before you touch any of the parent's assets. Since the student's assets are "taxed" at a much higher rate in the need analysis formula than the parents, why let them be taxed a second time during the next year? If possible, spend the student's savings to zero during the first year.For example, suppose the student has a $20,000 college fund in his or her own name and the school calculates an expected family contribution of $13,000, with $7,000 from the student and $6,000 from the parents. (This assumes that the parents have $107,000 in assets above any asset protection allowance, that student assets are assessed at 35% and parent assets at a maximum rate of 5.64%. Effective July 1, 2007, the student asset conversion rate will change from 35% to 20%.) These student and parent contribution figures are not targets. Rather than have the parents contribute $6,000 during the first year, spend all $13,000 from the student's college fund. After all, the purpose of the college fund is to pay for the child's college education. The following tables show the impact of three different asset spending policies: Spend student and parent assets according to the need analysis expected contributions. Year Student Assets Parent Assets 1 $20,000 - $7,000 = $13,000 $50,000 - $6,000 = $44,000 2 $13,000 - $4,550 = $8,450 $44,000 - $5,280 = $38,720 3 $8,450 - $2,958 = $5,493 $38,720 - $4,646 = $34,074 4 $5,493 - $1,923 = $3,570 $34,074 - $4,089 = $29,985 Remainder $3,570 $29,985 This yields a total of $33,555 in family assets left over when the student graduates. Spend the parent assets before touching the student assets. Year Student Assets Parent Assets 1 $20,000 - $0 = $20,000 $50,000 - $6,000 - $7,000 = $37,000 2 $20,000 - $0 = $20,000 $37,000 - $4,440 - $7,000 = $25,560 3 $20,000 - $0 = $20,000 $25,560 - $3,067 - $7,000 = $15,493 4 $20,000 - $0 = $20,000 $15,493 - $1,859 - $7,000 = $6,634 Remainder $20,000 $6,634 This yields a total of $26,634 in family assets left over when the student graduates. Spend the student assets before touching the parent assets. Year Student Assets Parent Assets 1 $20,000 - $7,000 - $6,000 = $7,000 $50,000 - $0 = $50,000 2 $7,000 - $2,450 - $4,550 = $0 $50,000 - $1,450 = $48,550 3 $0 $48,550 - $5,826 = $42,724 4 $0 $42,724 - $5,127 = $37,597 Remainder $0 $37,597 This yields a total of $37,597 in family assets left over when the student graduates. It is clear that spending the student assets first leaves the family with the most money left over when the student has finally graduated. This is a simplified example, but the principle is valid even for more complicated examples. Moreover, suppose the cost of attendance is $25,000 and the school gives the student $2,000 in grants, $7,000 in loans and $3,000 in employment during the first year. It is better for the family, financially, to refuse the loans and instead spend all $20,000 of the student's college fund during the first year. The assets of other children are not considered by the need analysis formula. So putting parent assets in the name of a younger (or older) sibling can help shelter them from the need analysis. On the other hand, when that child enrolls in college, his or her assets will be assessed at the usual rate for students.Assuming that the family follows a policy of spending the student's assets first, putting assets in the name of a younger child might yield a small increase in the family's overall eligibility for financial aid. The calculations are so complicated, however, and require so many questionable assumptions that this strategy is probably not worthwhile. The only case in which this strategy might work is when the younger sibling will never attend college, as might happen with a severely disabled child. On the other hand, many schools now ask for the assets owned by the student's siblings, so this strategy may affect the awarding of institutional funds. Certain types of property, such as automobiles, computers, boats, furniture, appliances, books, clothing and school supplies, do not count as assets. If you will need to make certain major purchases, such as buying a new car, do it by the base year so that your liquid assets are reduced. We are not suggesting that you go on a spending spree, but simply accelerate a few necessary expenses. For example, if the student will need a computer, automobile, dorm refrigerator and microwave oven for school, it may be worthwhile to buy them before the student enters college. Since student assets count more heavily than parent assets, this strategy should apply mainly to items needed by the student and purchased using his or her own money.For example, if you've been saving money in the bank for a specific purpose, such as a big dollar-item purchase, use it for that purpose before you file the FAFSA, not after. You cannot ignore the money even if you plan to use it the day after you file the FAFSA. If the money is there, even only temporarily, it must be reported. Needless to say, the student's assets should be spent before dipping into the parent's assets. So instead of giving the student a car, the parents should let the student buy a car with the student's own money. Note that computer costs drop significantly every year and many schools have arranged special educational discounts with major computer manufacturers, so it may not be worthwhile to buy a computer ahead of time. Other expenses, such as a dorm fridge and microwave oven, are definitely worthwhile. The federal methodology does not count boats as an asset, but several private colleges and universities count the family boat as an asset when allocating institutional funds. Likewise, some schools will ask whether the student owns a car and when it was purchased. If grandparents want to give money to the children to help them pay for their education, ask them to wait until the child graduates and then pay off the child's student loans. If they can't wait, have them give the money to the parents, not the children, so that the money is assessed at the parent's rate in the needs analysis process.Ask the school if they have an option whereby the grandparents can pay the money directly to the school to cover the child's educational expenses without impacting the child's eligibility for financial aid. In most cases, however, the money won't be treated as a payment on account, but as untaxed income to the student (reduces aid eligibility by 50% of the amount paid) or as a resource (reduces aid eligibility by 100% of the amount paid). Trust funds are generally ineffective at sheltering assets. Moreover, if the fund is set up to prevent the trustees from spending the principal, it can harm the student's eligibility for financial aid. The school will assess the entire trust as if it were a student asset, regardless of any restrictions on the principal. Since the student can't spend down the principal, the trust will represent an annual drain on the student's finances by increasing the student contribution. Retirement funds and pensions are generally not considered assets by both the Federal Methodology and the Institutional Methodology need analysis formulas. You can shelter a considerable portion of your assets by making the maximum contributions to these funds in the years before the base year. Likewise, tax-deferred annuities and life insurance policies (e.g., single-premium, universal and whole life insurance policies) are not considered assets by the need analysis system.During the base year, however, any pre-tax contributions to retirement funds are not sheltered because the need analysis formulas count these contributions as untaxed income. It is still worth contributing to your retirement fund during the base year, because this shelters the money from being assessed during the subsequent years. Small businesses that are owned and controlled by the family are excluded as assets on the FAFSA. Small businesses are defined as having 100 or fewer full-time-equivalent employees. The family as listed in household size on the FAFSA must own and control more than half the business. A partnership where the family only owns 50% of the business is not excluded. Real estate is normally treated as an investment asset, not a business asset, unless it is part of a formally recognized business that provides services beyond utilities and trash collection, such as maid service. However, incorporating a business and transferring the real estate to the business bypasses this restriction, since a corporation is a separate legal entity. When combined with the small business exclusion, this can cause real estate to change from being reported as an investment asset to being entirely excluded from assets. For institutional need analysis, do not overestimate the fair market value of your home. If you have a recently assessed valuation or appraisal, use that figure. Otherwise you might wish to use theFederal Housing Index Calculator to get the minimum derived value of your home, a very conservative estimate of the current market value. Loans Avoid consumer debt, such as high credit card balances and car loans. Consumer debt isn't counted in the need analysis formula, so there's no benefit to having a credit card balance. Paying off your credit card balances and auto loans will reduce your available cash, thereby increasing your eligibility for financial aid. Moreover, as any financial planner will tell you, the high interest rates charged by card issuers are costing you a lot of money and the interest charges are not deductible. You would be better off eliminating all credit card debt, even if you have to deplete your cash to zero or take out a home equity loan.The only kind of debt that counts in the need analysis process is that which is secured by property. For example, the mortgage on a second (vacation) home offsets the value of the home and a capital loan for your business offsets the value of the equipment purchased using the loan. The Federal need analysis methodology does not consider the equity in the family's primary residence. So to maximize your eligibility for Federal aid, you could use your cash and other included assets to prepay part of your mortgage. Many private colleges and universities, however, do count your home as an asset when allocating institutional funds. If so, it may be worthwhile to get a home equity loan to provide funds for your children's education. Not only are the interest payments tax deductible, but the loan reduces your assets. If you decide to get a home equity loan to help pay for your college expenses, get a home equity line of credit, not a loan. When you get a loan and don't spend all of the money before you file the next financial aid form, you'll have created an asset that shows up in the need analysis and you're also paying interest on the full amount of the loan. With a line of credit, you borrow only the portion you actually use. In most cases, the interest rate on educational loans is better than the interest rate on home equity loans. On the other hand, the interest payments on your mortgage are tax deductible. Only a limited portion of the interest payments on student loans is deductible, and the deduction is subject to income phaseouts. All things considered, however, educational loans are usually the financially superior choice. Number of Family Members in College Many need analysis formulas divide the parent contribution among all children in college. (Previously this was "all family members in college", but the rules changed because of abuse.) A family which doesn't qualify for financial aid when one student is in school may suddenly qualify when two or more children are enrolled at the same time. (The parent contribution will increase a little because the income protection allowance depends on the number of family members in school, but the change is not very significant and splitting the parent contribution among several children more than compensates for any increase.) For example, suppose the need analysis formula calculates a parent contribution of $17,000 when one student is in school and a student contribution of $2,000. With college expenses of $19,000 a year, the student will have a financial need of $2,000 and will probably not be eligible for much financial aid. But next year, when the student's sibling is also enrolled, the parent contribution is split in half. Even though the parent contribution has increased a little, to $18,000, each student is expected to receive $9,000 from their parents. With college expenses of $21,000 and a student contribution of $2,000, each student now has a financial need of $10,000 ($21,000 less an EFC of $11,000), and both will be eligible for some financial aid. However, as noted above, most of the $10,000 in financial aid in this hypothetical example will be in the form of loans. A typical financial aid package might include a $5,500 Stafford Loan, a $2,500 Perkins loan and a $2,000 work-study job. Although these low-interest loans do represent financial assistance, many families only consider grants and scholarships that don't need to be repaid to be true financial aid. Don't be misled into thinking than a decrease in the EFC will mean that somebody else pays. So there are several strategies that depend on increasing the number of family members in school at the same time. When you have children, space them closer together. For example, a family with two children with a four year difference in ages will get much less financial aid than a family with twins or children spaced nine months apart. Of course, by the time your children matriculate in college, the rules governing financial aid could have changed. Consider having the older child take off a year before attending college, or having the younger child skip a year in school, to increase the overlap. Note that having a parent go back to school to finish their education is no longer as effective in improving aid eligibility, because parents are no longer included in the number in college figures. Congress changed the formula because there was a lot of abuse (e.g., parents with PhDs or MDs registering at a community college to get their associate's degree, but not actually attending classes or even paying the tuition bill). If you are a parent who is legitimately going back to school to finish your education or pick up an additional degree, provide documentation of this to the school's financial aid administrator and ask for a professional judgment review. The school has the authority to deduct the parent's actual education expenses from income or compensate in other ways. Since there has been a history of fraud in this area, you will have to convince the financial aid administrator that you are genuine. The financial aid administrator has the final say in this matter. He or she will probably want to see paid bills from the bursar from both semesters, proof that you've actually been attending classes, and grade reports. If the parents have been thinking about returning to school, going to school at the same time as your children can increase financial aid eligibility for both student and parent. Number of People in Household A person counts as a member of the household if they get more than half their support from the student's parents. The student is also counted, regardless of where the student gets his or her support. If the student's parents are divorced or separated, the custodial parent is responsible for filling out the financial aid form. The custodial parent is the parent with whom the student lived the most during the past year. This is not necessarily the same as the parent who provided more than half the student's support or who claimed the student as a dependent on their tax return. It does not even have to be the parent who has legal custody of the child.This has many consequences for the aid application. For example, a student could arrange to have the parent with the lower income and assets be their custodial parent simply by living with them. It can also lead to a student being counted twice for financial aid purposes. For example, suppose a student's parents get divorced and the non-custodial parent remarries and has a family of his own. If he provides more than half of the student's support, when his children apply for financial aid, he may count the student as a member of his family. The custodial parent, who fills out the financial aid application with the student, also gets to count the student as a member of her family. If the custodial parent remarries, the new spouse's finances will be considered by the need analysis formula. Prenuptial agreements have absolutely no effect on need analysis. (A prenuptial agreement is between the two individuals who agree to it and cannot be binding on a third party, the government and the schools.) Unlike most questions on the financial aid application, which focus on the base year, the questions about the number of people in the household and the number of family members in college are concerned with the award year. So if the mother is pregnant the unborn child counts toward the household size, but does not count toward an independent student status determination. (Strange!) Also note that if there's been a medical determination that there'll be multiple births, all of the unborn children can be counted. Dependency Status The requirements for a student to be considered independent are rather strict. Only two are reasonably under the student's control and those are getting married before submitting the FAFSA delaying college until age 24 Either of these will qualify the student as independent for the awarding of federal funds. For the awarding of institutional funds, many schools adopt a stricter stance and require evidence that the student is strictly self-supporting. A student who lives at home with his or her parents (even if he or she pays rent) and doesn't earn a modest income probably won't qualify.If a student gets married after filing the FAFSA, it will have no effect on the current year's need analysis. You can't change your dependency status mid-year by getting married. A mid-year change in marital status will affect dependency status only in subsequent years. Independent student status does not always lead to an increase in eligibility for financial aid. Although it does mean that the parents' finances are not considered by the need analysis process, a student who gets married will have to include the financial information for his or her spouse. Many parents mistakenly believe that if a student is not claimed as an exemption on the tax return for two years, the student is independent. This "Bright Line Test" has not been in effect since 1992, when the rules changed. The requirements for independent student status are spelled out on the FAFSA. The financial aid administrator may make exceptions on a case by case basis, but will only do so in extreme circumstances, such as a documented adversarial relationship (e.g., evidence of sexual or physical abuse, such as court protection from abuse orders, social worker reports, etc.), abandonment or inability to locate the parents, and the parents both being incarcerated. Just because the student is self-supporting doesn't mean he or she will qualify as an independent student. Financing College Costs Ask whether the school has a tuition installment plan that allows you to spread the tuition payments over a 12-month period. Some schools do not charge any interest for their tuition installment plans and the up-front fees are usually low, so it may be worth participating. Save for college. Even though the need analysis formula takes a bite out of any assets, the more you save for college the better off you'll be. The more money you have, the more options you'll have on how to pay for college. If you start early enough, saving a reasonable amount of money regularly can grow to a substantial college fund by the time your children reach college. For example, saving just $25 a week in a savings account that earns 5% interest will grow to almost $35,000 in 17 years. In contrast, you'd have to save a little more than $150 a week to accumulate the same amount of money in only four years. Time is one of the greatest assets available to you; don't squander it. Apply for private sector scholarships. Although receiving outside scholarships will often result in a compensating decrease in the need-based financial aid package, some schools will reduce loans before touching the need-based grants. For example, MIT uses 40% of an outside scholarship to reduce the self-help level and the rest is used to reduce the institutional grant. Pursue college-controlled merit scholarships. Although an Ivy-League school won't award you a full-tuition scholarship for academic, artistic, or athletic talent, some of the less prestigious institutions may offer you such aid in order to entice you into enrolling. Section 529 Plans Effective July 1, 2006, prepaid tuition plans are treated as an asset of the account owner, with an asset value equal to the refund value of the account. This is a more favorable financial aid treatment than the previous treatment, which considered such accounts to be a resource. The current treatment has a maximum impact of 5.64%, compared with the dollar-for-dollar reduction in aid eligibility for resources.