In our last publication, we discussed ways to plan for higher education costs by utilizing different types of accounts to grow your money. In this edition, we will look at how to prepare for the cost of college.
A basic timeline to help prepare your college bound children:
- During their High School Freshman/Sophomore/Junior years, the preparation for the potential
costs starts to be addressed. Conversations of potential universities & majors should become
- In September – November of their Senior year, applications for admission and scholarships
should be completed.
- In October of their Senior year, applications for Financial Aid need to be submitted.
- In March – April of their Senior year, you can begin to analyze & appeal any financial aid offers.
- In April of their Senior year, acceptance of the right school and any awards are finalized.
- And lastly, in May of their Senior year, you should be evaluating options to cover any shortfalls
with the cost of education.
One of the most important steps during the preparation phase is the application for Financial Aid. Most schools use the Free Application for Federal Student Aid (FAFSA) form. This provides access to federal financial aid like Pell Grants, Federal Supplemental Educational Opportunity Grants and a variety of loans such as subsidized loans, unsubsidized loans, PLUS loans, and Perkins loans.
Another application gaining popularity and many schools is the College Scholarship Service (CSS) profile. The CSS provides institutional aid including scholarships, grants, and work-study programs. The deadline to complete the SCC profile depends on the school, but most fall between January 1 and March 31. The deadline for FAFSA depends on the state you reside in and school year that they are applying for, but the rule of thumb is that you should apply far in advance of the deadline as some federal aid programs have limited funds
Both the FAFSA and CSS profile can be extremely time consuming and complex so having guidance from financial assistance programs or even a financial planner that specializes in this field can help tremendously.
There are ways to find “free” money as well. Private entities in the form of scholarships from sources like a parent’s employer or local community groups can be very rewarding. You can even look at scholarships from associations in the major and career you are working towards. And keep in mind that the number one source for community scholarships is the high school’s guidance office. Applying for private scholarships should be done every year while you’re in college, not just the freshman year.
You should also be aware of two different tax credits that can be applied to eligible students. The more generous credit is the American Opportunity Credit (AOC). It is a credit of up to $2,500 per eligible student where up to $1,000 is refundable (1). It is only available for four tax years per student and they must be enrolled at least half-time to be eligible.
The second credit is the Lifetime Learning Credit. This credit allows up to $2,000 for qualified education expenses paid for all eligible students (1). This credit is generally claimed by graduate students or undergrads who are enrolled less than half-time.
Every family situation is unique and scholarships, grants, and other forms of financial aid will vary greatly. If you have children who are college bound, we can determine the best strategies to help pay for the cost of education.