There are a number of strategies you can implement to try to enhance the amount of federal financial aid your child receives. These strategies take advantage of the federal rules about which family income and assets are counted in determining your family’s expected family contribution (EFC).
Note: The FAFSA relies on current asset information but income information from two years prior, which is referred to as the “prior-prior year” or the “base year” (e.g., the 2020/2021 FAFSA relies on your 2018 tax return; 2018 is the base year).
Strategies to Reduce Income
- Time the receipt of discretionary income to avoid the base year
- Pay all federal and state income taxes due during the base year, which will reduce assessable cash and increase your tax deduction on the FAFSA
- Have your child limit his or her income for the base year to the amount of the student income protection allowance
Strategies to Reduce Assets
- Use cash (an assessable asset) to pay down consumer debt, which is not counted in the federal methodology
- Use cash to make large planned purchases the year before your child starts college
- Use counted assets to pay down your mortgage, which increases your home equity (an excludable asset)
- Shift counted assets above your asset protection allowance (a sum automatically excluded from consideration) to assets excluded by the federal methodology (e.g., home equity, retirement plans, cash value life insurance, annuities)
- Use your child’s assets to pay for the first year of college, which reduces (for subsequent years) the student asset contribution factored into your EFC
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