Here’s the formula:
Cost of the College aid Expected Family Contribution (EFC) =
Need for Financial Aid
The keys to maximizing financial aid the same keys the colleges and financial aid offices dont want you to ever know revolves around minimizing your expected family contribution (EFC) and increasing your need. Once you have a need, you are guaranteed additional financial aid.
The top 6 factors affecting your EFC are:
1) Parents Income (20% of your income goes to your EFC)
2) Parent’s Assets (10% of your assets goes to your EFC)
3) Student’s Income (50% of your student incomes goes to your EFC)
4) Student’s Assets (50% of your student assets goes to your EFC)
5) Number of Students in College
6) Number of members living in the house hold.
Insider Strategy #1- Shelter your home equity from the financial aid system
On the federal financial aid form (FAFSA) you do not have to include your home equity in the definition of personal net worth. As a result, make sure you exclude your home equity so your EFC does not get unfairly bumped up. Also, for the all private schools make sure you use the Federal Housing Index Multiplier in order to get your home equity calculated based on a national average, not based on your local real estate prices which could be unfairly high.Most of the families I work with at my workshops will either list their home equity when they don’t legally have to or don’t know how to reduce the equity amounts listed on the private college financial aid forms. This directly translates into a super high out of pocket cost for the family.
Insider Strategy #2- Don’t save money under the student’s name
Many of the families I speak with at my workshops have significant amount of the money save for their children under a 529 or another similar college savings account. This is a horrific mistake when you understand how the financial aid system really operates. Assets under the students name are assessed 50 cents on the dollar and as a result will translate into a higher cost for the family when listed on the financial aid forms.For many families, 10-15 years of diligent saving for college could be destroyed by losing out on the ability to qualify for the financial aid they deserve because of their savings. Dont
let this mistake happen to you and make sure you put all your savings under the parents name so that you qualify for additional financial aid and you also still have your savings to help fund for the cost.
Insider Strategy #3- Significant assets, savings, rental properties can all be sheltered from the financial aid system.
One of the top reasons why any family can qualify for financial aid is because any form of asset can be sheltered from the financial aid system as long as you know what you’re doing. For example, if you have 4 rental properties which collectively have over 1 million dollars of equity you can open up a Limited Liability Corporation and shelter all the home equity under the new business. This is because as long as you have less than 100 employees within the business, the business net worth (equity) can be listed as zero on the financial aid forms. This strategy could qualify for you for massive amounts of financial aid without having to tap into your retirement or change your current lifestyle.
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