Reduce Your EFC and Increase Your Financial Aid - Six Ways To Save
For many middle class and upper middle class families, income is tight, savings are limited and college financial aid is hard to come by. The good news is that if you learn how to reduce your EFC (Expected Family Contribution) as soon as possible you can qualify for substantially more financial aid. Here's how to do it.
When you file your FAFSA each year, the college and the Federal government will use your information to calculate your Expected Family Contribution for financial aid purposes. After they have these numbers, the colleges will then apply their own financial aid formulas and then provide you with a student award package.
With some careful advance planning each year, you can effectively reduce your EFC and increase your financial aid, sometimes by thousands of dollars annually.
Six Ways to Cut Your EFC:
1. Student's Savings: One important factor that can increase your EFC is having too much savings in the student's name. Approximately 20% of any savings or investment that are held in a student's name are included in your family contribution for that year. By keeping savings out of the student's name, it will reduce your EFC.
2. Parent's Savings and Investments: There are many types of savings and investments that college's include in your FAFSA and EFC calculations. The key is to find ways to save and invest in the areas that are exempt from college financial aid. If you are using non-qualified savings, mutual funds, stocks or bonds for accumulation purposes, these will be included in your financial aid figures. You need to find other avenues for these savings and investments in order to reduce your includable assets.
3. Parent's Taxable Income: If you are not already looking for ways to reduce your taxable income, you need to start. The lower your taxable income, the better your chances of qualifying for more financial aid. This can include using tax-deductible savings programs like IRA's, 401K's, HSA's and others. It can also include better use of itemized deductions like non-cash charitable expenses, employee business expenses and union dues to name a few.
4. Small Business or Farm Assets: For those of you that own a small business, consulting firm, side business or family farm, you have some opportunities to shelter assets and reduce your EFC. Assets that are held inside your business or farm are not included in the financial aid calculations for most colleges. So if you have working capital in the business, leave it there until it is needed.
5. Voluntary Retirement Savings: By making full use of your voluntary retirement savings plans, you can reduce your EFC in two ways. First it will reduce your taxable income. Second, these retirement assets are not included for financial aid purposes. So by taking care of your retirement first, you can actually help your financial aid situation.
6. Insurance and Annuity Values: Another area that is exempt from the financial aid calculations at most colleges is the cash and surrender values of life insurance and annuity contracts. These values are tax deferred and generally used for death proceeds and retirement income purposes which allows them to bypass financial aid. Be careful with this area as there are many restrictions on these assets as well.
Summary: So there are six ways to help reduce your family contribution for college purposes. If you make a concerted effort to plan your income and savings strategies each year, you can save hundreds, even thousands of dollars annually. These measures will also help you to save on your taxes and help plan for your retirement while keeping your child's student loans as low as possible. Sounds like another "win-win situation.
If you would like to discover more strategies specifically designed to help maximize financial aid and reduce the high costs associated with college, check out my Amazon author page below.
Keith Maderer has been a Financial, Investment and Tax professional in the Buffalo-Niagara region for over 30 years. He helps individuals and families by providing Simple Solutions to common problems that get in the way of enjoying life and retirement.
He is an author, an entertaining and humorous speaker that enjoys captivating audiences with stories, anecdotes and messages that inspire and motivate others to achieve their goals.
He has been married for over 30 years and has 5 adult children which contributes to his great sense of humor. For more information please visit: http://KeithMaderer.com or his Amazon Author Page at http://amazon.com/author/keithmaderer
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