College Planning

Financial Aid Strategy for Small Business Owners

By College Planning, Financial Planning

If you own a small business with fewer than 100 employees, here is something to consider to improve your eligibility for financial aid. Public universities use the FAFSA to collect information about your income and personal, non-retirement assets. They place a zero value on family businesses that employ fewer than 100 people. Don’t be offended – this is actually a good thing!

The FAFSA will ask for your income for the prior two calendar years, as reported on your 1040. They will ask you for the value of your various personal, non-retirement assets – checking, savings accounts and brokerage accounts – on the date the FAFSA is filed (generally, the autumn of your student’s senior year of high school). Small business owners can take advantage of these facts to loan their small businesses money from their personal accounts prior to completing the FAFSA to remove those dollars from the FAFSA, lower their family’s Expected Family Contribution and raise their eligibility for financial aid.

Following Divorce, Who is the “Parent” for Financial Aid Purposes?

By College Planning

The financial aid process is a little more complicated when a student’s parents are divorced. Who is considered the “parent” for financial aid purposes?  The answer differs based on whether you’re applying to a public university that uses the FAFSA or a private institution that uses the CSS.

Let’s start with schools that use the CSS because it’s simple and straightforward. Colleges consider both Mom and Dad – or both Moms or both Dads – to be “parents” for financial aid purposes. They also consider stepparents to be “parents.” They will look at the income and assets of all of them. They’ll examine retirement assets, annuities, home equity and small business assets – basically everything. (The one exception remaining is any cash value you may have in a whole life insurance policy.) Many private institutions have healthy endowments, so they still may award aid to students – but they want to paint a complete picture of all of the resources at a student’s disposal before reaching a decision on aid.

For schools using the FAFSA, who is a “parent” for financial aid purposes is more complicated.

First, parents whose divorce is not yet finalized as of the date the FAFSA is filed are still considered married for financial aid purposes, and the income and assets of both parents will be examined. Second, if a student’s parents live together – regardless of their marital status – the FA office will consider the income and assets of each.

Now, if a student’s parents are divorced, the one who is considered the “parent” for the FAFSA is the parent with whom the student lived the most in the last twelve months. If custodial time is split evenly, the parent who provided more financial support in the last twelve months is the “parent” for the FAFSA – even if that means only $1 more. (Note, it doesn’t matter which parent gets to claim the student as a dependent on their tax return.) The school using the FAFSA will then examine the income and assets of the one “parent” when determining financial aid. And, as for married parents, they will exclude from assets any retirement accounts, equity in your primary residence, annuities and the cash value in whole life insurance policies.

If, however, this “parent” has remarried, the school will also look at the income and assets of the stepparent. Fun fact. Knowing how the FAFSA ensnares stepparents, many divorced parents of high school and college aid children who are in relationships choose to delay getting married until the kids are in their final year of college!

Why Outside Scholarships Will Actually Reduce Your Financial Aid

By College Planning

Let’s say your guidance counselor tells your high schooler that she should find an “outside” scholarship – one offered by a foundation or other group rather than a college financial aid office. Often these scholarships are targeted at students who meet a specific set of criteria. For example, a San Francisco Bay Area family foundation offers $5,000 scholarships to local students who have good grades and 50% or more Filipino ancestry. Another offers awards to students who are African-American and want to study business. These are indeed great opportunities to gain “free money” for college.

But here’s the catch. If your student receives a $5,000 outside scholarship, your expected family contribution will not go down by $5,000. Instead, the college she ultimately attends will reduce her financial aid offer by $5,000. To illustrate:


Before Outside Scholarship After Outside Scholarship
Cost of Attendance $50,000 $50,000
Expected Family Contribution*  (20,000)  (20,000)
Student Need 30,000  30,000
Financial Aid ** $30,000  30,000
     less Outside Scholarship (5,000)
Revised Financial Aid ** $25,000
What Your Family Pays (aka the “Net Price”) $5,000

* As determined by every institution but following certain guidelines.

** Package can include grants/scholarships, work-study and loans.


So before you spend a lot of time and energy chasing outside scholarship money, visit the College Board’s website and use their tool to get an idea of what your family may be expected to contribute to college costs: Use another of their tools to further estimate the “net price” that a specific college or university could expect you to pay: If you discover that you’ll probably be expected to contribute the at or near the full amount of a college’s cost of attendance, then time devoted to searching out and applying for outside scholarships can be well worth it.

Who Owns an Asset Impacts Financial Aid – Part 2

By College Planning

In my last post, I explained that financial aid officers will treat assets owned by the parent and the child differently for the purposes of calculating a family’s “expected contribution.” Now let’s consider savings set aside for Junior’s college by his grandparents.

The financial aid officers will ignore them.

Yes, you read that right.

But here’s the catch. Colleges look back at the two prior years of income when calculating aid for the next year. If the grandparents take a $10,000 distribution from the 529 they’ve created for Junior in his freshman year, that $10,000 will be considered income to Junior in that year and a college will assess that income at 50% his second year. When determining financial aid for Junior’s sophomore year, your family’s expected family contribution will then go up by $5,000.

You don’t want that to happen. So here’s what you do. Wait to use 529 plan savings from the grandparents until the last year or two of Junior’s college, to minimize the impact on your family’s expected contribution.

Who Owns An Asset Impacts Financial Aid – Part 1

By College Planning

Who owns an asset – meaning the child, the parent, a grandparent or some other wealthy benefactor – can significantly impact how much of that asset a college’s financial aid office expects you to contribute to paying college costs. Let’s explore how and why.

Say you’ve saved $100,000 for your child’s college education by the time she’s a high school senior.

Assets that are considered to be owned by you, the parent, are assessed at 5.64%. This will include funds held by you in checking, savings and traditional/taxable brokerage accounts, and – good news – 529 plans, even if they are nominally owned by your child. Of that $100,000 you’ve saved, a college will expect that $5,640 be used to pay for college each year.

On the other hand, assets that are considered to be owned by the child – like funds held in an UGMA/UTMA – are assessed at a much higher rate – 20%. Of that same $100,000 saved in an UGMA/UTMA, a college will expect you to use $20,000 each year to pay for college.

Can you see what just happened here? The decision about where to save that $100,000 for college – in an UGMA/UTMA v. a 529, just raised your family’s expected contribution, or EFC, by $14,360 each year.


You’re first reaction is probably something along the lines of “No one ever told me….” There’s likely a good reason for that.

For those who’ve been working with a financial advisor

The typical financial advisor is operating under a business model where they make a percentage – usually 1% – of the assets that they’re managing. Since 529 plans are administered by institutional money managers like Vanguard or TIAA-CREFF, a financial advisor can’t profit from them. Savings placed in UGMA/UTMAs, on the other hand, can be included in an advisor’s managed assets, on which s/he earns fees.

Your financial advisor may have told you that 529 plan fees were high, investment plan choices were limited and performance v. traditional mutual funds was difficult to determine. And all of that was quite true in the early days of 529 plans – the late 1990’s and early 2000’s. (Hint: It hasn’t been true for the last decade.)

Your tax professional may have doubled-down on your financial advisor’s advice, since UGMA/UTMAs once enjoyed some beneficial tax treatment.

For those who were “do-it-yourselfers”

You’re off the hook. The financial press was largely echoing the advice that financial advisors and tax professionals were giving. (Hmm, could there be some relationship between what the financial press is touting and what financial advisors are selling? But I digress….)

 What to do now

So you got some bad advice. What can you do now?

Changes to the tax code made in late 2017 severely limited the already small tax advantages given to savings held in an UGMA/UTMA. Greater competition for 529 plan assets over the last decade means that

  • fees have come down drastically, to where a plan using index funds charges about 0.13% in fees;
  • investment options are as broad as they can be; and,
  • performance is transparent.

If you have saved funds in a UGMA/UTMA, all is not lost! You can liquidate the assets held and transfer the cash into a Custodial 529 account that will, ultimately, be considered an asset of the parent for financial aid purposes. You will have to pay tax on capital gains in the UGMA/UTMA, but the savings in financial aid granted should well exceed those taxes.

Next, we’ll explore how you can shelter more college savings in accounts held by grandparents or other wealthy benefactors.

Maximize Financial Aid by Minimizing Your Expected Family Contribution

By College Planning

Parents, our goal is to minimize our Expected Family Contribution so that we can maximize our chance of receiving financial aid.

So, how exactly do we do that?

To determine your Expected Family Contribution, or EFC, a college’s Financial Aid Office will look at income and assets – yours and your child’s. They will weigh income more heavily than assets.

How Income is Treated

Parents will be expected to devote 22-47% of their annual income to college costs. (And, heads up, salary deferrals to employer-sponsored retirement plans and contributions to IRAs, SEPs will get added back into your income.) Students will be expected to contribute more – 50% – of their own earned income. (How’s that for punishing a kid for getting a paid job during the summer or after school? Sheesh!) What’s more, colleges take a two-year “look back” on income, meaning that if you’re applying for financial aid for the 2019/20 academic year, they will look at your and your student’s income in 2017 and 2018.

How Assets are Treated Differs for Public v. Private

Whether a college includes an asset in their financial aid calculations depends on whether they are public or private. Public institutions use a form called a “FAFSA” to collect your financial information. They will include funds saved in bank or brokerage accounts; custodial UGMA or UTMA accounts; 529s and Coverdell ESAs; assets owned by a family business, and investment properties. They will, however,  exclude some assets, including funds saved in 401(k)s, IRAs and other retirement plans; equity in your primary residence; cash values in whole life insurance policies and annuities you’ve purchased. Private colleges use a supplementary form called the “CSS Profile” to collect your financial data. And they basically look at everything.

It’s important to know that who owns an asset also matters when it comes to whether and how that asset gets included in financial calculations. I’ll explain in my next post.

What Parents Actually Pay – The “Net Price”

By College Planning

The vast majority of families do not, in fact, pay the full sticker price for their children’s college education.  Two-thirds receive some form of financial aid. And two-thirds of that aid is in the form of “free money” – grants and scholarships that don’t need to be repaid. What parents actually pay is, in the parlance of financial aid officers, the “net price.”

Here’s how it works.

The college calculates the total “cost of attendance” or “COA” at their school. Sometimes it differs by program or major. For public universities, whether a student is a state resident or not will impact the cost of tuition and fees. Then they calculate a family’s “Expected Family Contribution” or “EFC.” You probably won’t be surprised to find that what the college expects you to contribute, from your income and savings, is far greater than what you would expect you should contribute! But I digress….

The college subtracts your EFC from their COA to determine a student’s “financial need.” The financial aid officers then figure out what mix of grants, scholarships, and work study they will offer you to meet that need. What’s left is the “net price.” A family is left to pay that “net price” from savings or loans (some subsidized by the government).

So how does a college determine your Expected Family Contribution? I’ll discuss that in more detail in my next post. One thing to know now is that each college will calculate your family’s EFC every year and that each college will use its own criteria when determining what mix of grants, scholarships and federally-guaranteed loans to offer. That said, each college will have a “Net Price Calculator” on its website to help you get an idea of what they might expect you to pay, given the income and asset figures you input. More broadly, the College Board has an “Expected Family Contribution” calculator on its website ( that can give you a good idea of what you might be expected to contribute towards college costs.

Was saving for college the easy part?

By College Planning

When my daughter Caitlin was in preschool I recall a mother with much older children warning me that the days may seem endless, but that the years fly by. How true! How could it be that my little Muffin is 15 and a sophomore in high school?!

Nowadays, she and her friends worry about getting into college. Are they taking the right classes? (Do they have to take AP’s?) Big college or small? Close to home – “No!” shouts Caitlin – or clear across the country?

And then, there’s volleyball. Caitlin is so very passionate about volleyball. It’s so much fun to watch her play! She was a Middle Blocker on her school’s varsity team last fall and plays the same on her club team now. She wants to play for her college team, so that adds to the complexity of her college search.

It makes me think that finding the right college for my daughter and getting her through the application process might turn out to be the hard part after all.

What College Really Costs

By College Planning

The short answer is – a lot, even at public universities. Currently, the average annual cost to attend a public university is $25,830 for in-state students and $41,980 for out-of-state. Those figures include:

  • Tuition and fees
  • Room and board
  • Books and supplies
  • Personal expenses and transportation

The costs to attend a private university are even higher, at $73,139. College costs have been rising by 5% each year, on average, over the last thirty years. That’s faster than inflation (2.5%) and there’s no reason to expect this rate to decelerate.  This means that parents of an eight year old are looking at a four-year college bill like this:

  Four Year Cost to Attend


Public University, In-state student $186,880
Public University, Out-of-state student  303,074
Private University $502,669

Parents ask me, how much they should be saving each year in the hopes of being able to fully fund their child’s education? And – reality check – how much should those parents of an eight year old have saved by now?

  Annual Savings from Birth Accumulated  College Savings
Public University, In-state student $8,100 $79,232
Public University, Out-of-state student 12,900 126,185
Private University $21,600 $211,286

Yikes! Those are big, scary numbers for sure. But take heart. All but the wealthiest among us pay the full “sticker price” for college. I’ll explain the how and why in my next post.

Looking ahead to the future.

Planning for College – What You Don’t Know Can Hurt You

By College Planning

As parents, we all want to give our kids the same support our parents gave us for college – or more. We have a vague notion that college – even at a public university – is going to be expensive and that we probably aren’t saving enough. We wonder, will we be able to get some financial aid? One thing most don’t realize is that where we place our savings – meaning, in whose name we place the assets – can substantially impact our ability to get financial aid. Over a series of posts, I’ll explain why.