LITTLETON, Colo. — Many people are worried about skyrocketing college costs. As a result, parents of high school seniors often suggest that grandparents make donations to junior’s college fund in lieu of holiday gifts. Reduce My College Costs, LLC warns that this is not a wise solution. While many older generations want to help the younger set with the financial burden of education, their generosity may devastate their family’s finances. “What most parents – and even their financial planners – don’t realize is that the timing of financial gifts is critical in determining how much their family pays for college,” Marc R. Hill, CCPS, RFC(R), CCFC, CAFC, founder of Littleton, Colo.-based Reduce My College Costs, LLC, says.
“Do it incorrectly, and not only will the child lose scholarships and other forms of gifted aid, but the family will also be expected to contribute more, financially, toward the child’s education.”
Hill explains that when cash gifts are given to high school seniors for Christmas or Hanukkah, the money is in the child’s name and bank account when the family completes the Free Application for Federal Student Aid (FAFSA) in January. The FAFSA is used to determine the Expected Family Contribution (EFC), which is usually the minimum dollar amount a college expects a family to contribute toward their child’s education in any given school year. Families with more money are expected to pay more for their child’s education; families that are less well-off are not expected to contribute as much.
The EFC calculation is primarily based upon an assessment of parental and student income and asset values. The income and assets attributable to the student are assessed at a higher rate than those of the parents. Hence, grandma’s gift is assessed at the maximum rate which is reflected by increasing the initial Expected Family Contribution.
A higher EFC also indicates a student does not need financial help in the form of scholarships and other types of gifted aid, which do not require repayment. Instead, the student will qualify only for loans and other forms of assistance that require repayment, which can result in thousands of dollars in interest charges.
So, what’s the bottom line? According to Hill, “Between the increased EFC and lost gifted aid, the $5,000 gift given to a loved one during their senior year of high school could feasibly cost the child a total of $3,000 or more over the course of his or her college career. That means the value of the gift is really only $2,000. The good news is that these painful consequences can be avoided by ensuring that the gift is given at the right time – and in the right way.”
A financial planner by training, Hill now works full-time as a publisher and coach to educate families about ways to dramatically cut college costs.
“Saving money is only one consideration when putting a child through college,” Hill says. “To fully leverage educational investments, it is important to understand how the financial-aid formula will be affected by how and when investments are used. The choice made could cost or save families tens of thousands of dollars.”
Hill publishes a free monthly e-newsletter, the “College Savings Tip Sheet.” New subscribers receive two issues of Hill’s monthly eight-page newsletter, “Affording College,” as well as a special report: “The 3 Most Dangerous Mistakes Financial Planners Make with 529 Plans That Could Force You to Pay MORE for College!”
To learn more, visit: http://www.reducemycollegecosts.com; or call Marc R. Hill at: 866-675-5031 (toll free); or 303-954-0200 (office).
[tags]Reduce My College Costs LLC, Marc R Hill CCPS, Free Application for Federal Student Aid, donations to college fund[/tags]