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College savings conundrum

When it comes to college, the biggest hurdle most families face is financing. But it’s not as simple as just loading up a savings account over the years to ultimately pay for your kids’ tuition, housing and books. There are potential hurdles — even for those who’ve spent years saving.

To wit: Each family is provided with an “asset protection allowance” (APA) under the Free Application for Federal Student Aid (FAFSA) calculation. This allowance is the amount of non-retirement assets, like savings and investments, that won’t be factored in to a student’s financial aid package. While this asset protection allowance peaked at $52,400 in 2009-10, it plummeted to $18,700 in 2016-17 and is still trending downward.

So does that mean families without savings have an advantage because they’ll make up for it in aid?

Jeff Boron, a Certified College Planning Specialist with The Financial Guys in Williamsville, explains the significance of the asset protection allowance.

“What that means is the first $18,700 that you’ve saved does not affect financial aid whatsoever. After that, it starts to count at 5.64 percent of every dollar. So if you’ve saved a dollar, it’s going to increase your family’s expected contribution — or what you need to pay out of pocket before you are considered needs-based.”

While the APA may appear to penalize parents who plan ahead, Boron still recommends the benefits of saving over being panic-stricken financially when it’s too late.

“Let’s assume the APA is $20,000 because that’s approximately what it will be for most families. Every $10,000 saved after that will increase your expected family contribution, or what would then result in a decrease of aid by $560. So for $10,000, it’s only going to decrease your aid by $560, but you’ve also got some money set aside to help pay for college.

“Looking at the scenarios of having no money saved and getting a $560 increase in financial aid, you’re going to be worse off than a family that has saved.”

Boron points out that retirement accounts, life insurance and annuities are not counted into the FAFSA calculations. However, more than 400 schools – including many in the Northeast – also use another format called the CSS Profile for their financial aid process, asking questions about the types of assets that the FAFSA does not. Nearby schools Syracuse University, Ithaca College, RPI and Hamilton College are among those that require a CSS Profile along with FAFSA.

“Because of the way certain families may have their household financials positioned, and if they want to qualify for more aid, they will avoid those colleges,” Boron explains. “You really have to do your homework and plan upfront so that you can set a strategy and know what schools to look at, what aid you are likely to qualify for and what things you can do to reduce the cost of college.”

He also notes that many families ignore the numerous financial aid opportunities available, both at the federal level and through the schools themselves.

“Somebody who makes $150,000 in Western New York and has a pretty good lifestyle often thinks there’s no way they’ll qualify for any aid,” said Boron. But he said most families at this level will still qualify for aid at a private school.

Boron does take a firm stance on pillaging retirement savings to help pay for college.

“I’ve seen some real disasters where people have robbed their retirement plans, which then puts them at jeopardy of being able to retire on time,” Boron explains. “You can take out student loans, but you can’t take out a retirement loan.”

Boron said parents need to remember this is a complex process with important deadlines, so planning ahead is essential – even earlier than sophomore year in some cases.

“Without saving anything and just depending on financial aid, what I always tell parents is know where you are, know what your expected family contribution is going to be and have a strategy even before you start looking at colleges,” said Boron.

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