How can I manage this asset so that it does not interfere with FAFSA college aid?


Q. I showed my son’s UTMA amount on his FAFSA and ended up paying 20% ​​of that account for tuition. For 2023, I would like to save the rest of the amount from UTMA to pay for her future expenses, such as her Masters. How can I show it to the FAFSA so it doesn’t count against it? I have another child in medical school and am a single parent.

– Mom

A. You certainly have a lot of tuition ahead of you.

It’s important to develop a strategy for funding education expenses each year, but we don’t want you to forget about your own retirement either. More on that in a moment.

There are a number of funding sources that can come into play for education bills, said Peter McKenna, certified financial planner at Modera Wealth Management in Westwood.

This includes parent savings, student savings, parent income, student income, loans and grants.

“Having a game plan for how each of these sources will be tapped each year to fund undergraduate and graduate studies is critical,” McKenna said. “In order to make informed decisions about funding, you need to know whether you are potentially eligible for need-based aid or not. “If you are eligible for undergraduate need-based aid, it is important to know how each of the above factors into FAFSA calculations as well as any school-specific calculations,” did he declare.

The federal formula assumes that 6% of a parent’s assets are available each year to support the undergraduate student, while 20% of assets in the student’s name are assumed to be available each year, McKenna said.

“All things being equal, if you’re eligible for need-based assistance, spending the child’s assets earlier in the process and the parents’ assets later might make sense,” he said. declared. “If loans are needed, how much and when to borrow are important things to plan for.”

There are limits to how much you can borrow in Stafford loans each year, so if more than $20,000 is needed for the four years, having a strategy for borrowing some each year can make sense, he said. .

If private or Parent Plus loans are needed, it may make more sense to delay borrowing for as long as possible, he said.

“The rules for graduate school are different, and knowing the rules around civil service loan forgiveness is important for the kid in medical school,” he said. “Many physicians hold positions in nonprofit hospitals after graduation and may be eligible for loan forgiveness.”

For your specific question and the 2023-24 FAFSA, which just opened Oct. 1, know that the form will take into account 2021 income and assets at the time you complete the form, McKenna said.

You might still have time to work out your bucket plan to mine for each semester, he said.

“If eligible for need-based aid, it might make sense for the student to fund the spring semester instead of the parent to reduce assessed assets at 20% and preserve assessed assets at 6%,” said he declared.

Another thing with the plan is that it should be flexible. Many 529 accounts suffered losses in 2022 and it may be a good idea to give them time to recover and pay for upcoming expenses from other sources, he said.

“The best time to plant a tree was 20 years ago, the second best time is today. Developing an education finance plan is similar,” he said.

McKenna said it’s important to have a financial plan that takes into account funding for education without forgetting retirement.

“The greatest gift a parent can give a child is knowing that the parent can live out their days with dignity and independence,” he said. “If your retirement security isn’t in good shape, determine what corrective action is needed before tackling your children’s education goals.”

Send your questions to [email protected].

Karin Price Mueller writes the Bamboos column for NJ Advance Media and is the founder of Follow NJMoneyHelp on Twitter @NJMoneyHelp. To find NJMoneyHelp on Facebook. Register for NJMoneyHelp.comit is weekly e-newsletter.


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