Let’s just agree that the federal financial aid formulas overstate your family’s ability to pay for college.
For that reason, many parents try to game the system by reducing their reportable resources. At the top end of the scale, the aid formulas assess your income at 46%. However, your assets are assessed at “only” 5.6%. In other words, you have to contribute a maximum $560 out of a $10,000 assessable asset to pay college expenses. However, each $10,000 of income could require you to reduce your standard of living by $4,600.
Why then does everyone try to reduce assets, but pay no attention to their includable financial aid income? Maybe it’s because asset solutions are much easier to implement. There are various financial assets that are invisible to the financial aid formulas. As such, there is no shortage of advisors who would help you move your assessable assets to one of these non-assessable financial assets. Of course, non-assessable assets such as life insurance or annuity contracts often carry hefty fees and unintended financial consequences.
Admittedly, some of the more common ways to reduce taxable income, like contributing to your company’s qualified retirement plan or your own IRA, don’t reduce financial aid income. There are ways, however, to reduce both your taxable and financial aid income. For example, contributing to your flexible spending account, delaying the start of your pension payments, or delaying income in your family business represent options for reducing current-year taxable and financial aid income.
It may not be easy but if you really want to increase your aid eligibility, concentrate your efforts on reducing your assessable income rather than your assessable assets.
