You’re proud of your daughter for working hard and saving her money—but could her little pile of cash actually reduce the amount of financial aid she’ll receive when it’s time to go to college?
If your daughter has a nice little stash of cash in her own name during the time your family finances are scrutinized to see how much you can afford to pay for college, she’ll be asked to contribute a significant portion of that money to pay her own college bills.
How can you help your daughter keep as much of her hard-earned money as possible?
1. Suggest that she stash her extra money away in retirement accounts before January 1st of her 10th grade year.
If your daughter stashes her extra cash away in a retirement account such as a Roth IRA by this date, it’ll be safely tucked away and won’t be considered at all in financial aid calculations.
If she tries to stash cash in retirement accounts between January 1st of 10th grade and January 1st of her sophomore year of college, though? That will reduce her future financial aid awards.
2. Suggest that she put the money she really wants to save for college into a 529 plan owned by her grandparents (with her named as the beneficiary).
Money saved in this way won’t affect your daughter’s future financial aid awards at all—as long as she takes the money out and spends it on “qualified educational expenses” after January 1st of her sophomore year of college (when the influx of cash can no longer hurt her future financial aid awards).
Why not just put her college savings into a 529 plan owned by her own parents?
She can, and a lot of students do—but if she does this, her future financial aid awards will be reduced by 5.64% of that amount. (In other words, if she puts $1000 into a 529 savings plan owned by her own parents, her future financial aid award will be reduced by $56.40.)
To find out why grandparent-owned 529 plans are fantastic places to put college savings, read the article I’ve written here. This article is a great read for students, parents, and grandparents!
3. Suggest that your daughter always know exactly where her “safe” income line is.
Between January 1st of her 10th grade year and January 1st of her sophomore year of college, your daughter will be able to earn just a certain small fixed amount of money each year without cutting into her future financial aid awards.
As of 2018–2019 that amount was $6,570 per year after taxes (about $7,162 before federal, FICA, state, and other taxes are taken out), with the amount adjusted upward slightly each year for inflation.
4. Be aware of the portion of her income that is always “safe” and so is never included in the above total.
The fixed amount of income described in #3 above does not include her earnings from college work-study programs, co-op college programs, or grad school assistantships or fellowships. Income from these sources never counts against her for financial aid purposes no matter how high it might be. (A great reason to always accept them eagerly when they are offered!)
5. Suggest that your daughter strategize so that she earns right up to the line—and then doesn’t go one toe over it.
Wouldn’t it be a great goal for your daughter to try to earn exactly that small $6,570–$7,000 amount of money each year starting on January 1st of her sophomore year of high school, and stretching until January 1st of her sophomore year of college?
If your daughter earns $9.00 per hour at her job, she may want to stop working and put more time into volunteering once she’s worked about 795 hours in each of these years.
January 1st of her sophomore year of college is the date when her earnings can no longer affect her college financial aid awards, so she can earn all she likes after that.
Suggest that your daughter wisely spend down most of her cash just before October 1st of her junior year of college.
Perhaps she can call the bursar’s office at her college and university and see if she can pre-pay some of her upcoming college bills.
Why is this a good idea? Because October 1 of the junior year of college will be the last time she’ll submit a FAFSA form to get financial aid for her undergraduate years. To get maximum financial aid to help pay for her senior year of college, she’ll want to be sure she has as little cash as possible sitting around in accounts in her name on that date.
About a month after she fills out this last FAFSA form, have her go to her college’s financial aid office and ask if she can get extra aid to pay for her senior year of college.
Learn why every student 15+ needs a part-time job.
See the helpful, encouraging article I’ve written on this subject here.
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Remember, getting maximum financial aid for college is only a small part of the picture when it comes to getting your kid through college debt-free.
For clear, step-by-step help with the whole process from beginning to end, get your copy of my book.
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You can see why financial planners and wealth managers love LAUNCH, here.
You can see the top 9 questions parents are asking me about LAUNCH, here.
Read just one chapter of LAUNCH every 1–3 months while your child’s in middle school and high school, and you’ll know every viable strategy for debt-free college at exactly the right time to implement it.
And if your child’s already well past middle school? That’s OK; you can run to catch up. But the process of getting your kids through college debt-free goes more smoothly the earlier you start it—especially if you’re not planning to save up any money to pay for college.
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Who is Jeannie Burlowski?
Jeannie is a full-time author, academic strategist, and speaker. Her writing and speaking help parents set their kids up to graduate college debt-free and move directly into careers they excel at and love. Her work has been featured in publications such as The Huffington Post, USA Today, NerdWallet, and US News and World Report.