Maximize College Financial Aid
Photo by Juan Ramos on Unsplash
In this article, we discuss maximizing financial aid for college.
A child's college education can be a big family expense
A college education is often the largest major expense outside of retirement for many families. According to the Federal Reserve (link opens in new tab), student loans represent the second-highest consumer debt category behind mortgages, but higher than both credit cards and car loans.
85% of first US college students in 2022-23 received some form of need-based financial aid according to the National Center for Education Statistics (link opens in new tab). Given the political changes announced regarding the Department of Education, it’s unclear what the future of need-based financial aid for colleges is at the moment.
According to Trends in College Pricing (link opens in new tab) research by the College Board, “In 2024-25, the average tuition and fees at public two-year and public four-year institutions increased less than the general inflation rate of 3.1%, continuing a trend that started during the Covid-19 pandemic.” While this is potentially good news for the cost of college over time, college is still a big expense according to the report: In 2024-25 school year, the average sticker price of a 4 year, public, out of state school tuition, fees, housing and food is $44,090 per year, or a cost over 4 years of over $176,000.
Planning for college expenses should typically start when children are young, so any savings have longer to potentially accumulate compound interest. I wrote another article (link opens in new tab) about some fun ways to contribute to a child's education savings account.
FAFSA & CSS calculate a family's expected contribution to college expenses
But what about all the other assets a family has when it comes time to apply for financial aid? Typically, the first step in seeing if a student qualifies for financial aid is to complete the FAFSA, Free Application for Federal Student Aid. Some private schools require the CSS, College Scholarship Service Profile. These forms calculate the family's expected contribution to college.
To complete either form, the family and student must provide many details about their financial situation, such as income, savings, debt, other children also in college, net worth, and more. Each application looks at the income and tax information from two years prior to the school year the student is applying for. For example, the 2024-25 FAFSA uses 2022 tax information.
Ways to potentially maximize financial aid
Here's an article (link opens in new tab) which looks at some ways a family and student may be able to maximize financial aid for college by doing things like paying off car loans and credit card balances, moving funds into retirement accounts, and using earned student income over a set limit to pay for things a student would need in college like a laptop, rather than keeping it in a bank account. Typically, assets in a student's name count towards the amount they will be expected to pay, so it can be beneficial to spend down these assets, like an UTMA account or checking account, prior to applying for aid. For parents, retirement assets and principal in a primary home are typically not counted as assets available for college.
Merit-based aid
It’s important to note that merit-based aid can be a critical aspect of paying for college. Merit-based aid differs by school, but it’s essentially a discount off the sticker price of the school’s tuition. Schools are competing with each other for a lessening pool of applicants. The available merit-based aid varies widely from school to school, but it also may be negotiable with the individual school, depending on how much they want your particular student, or depending on the applications they’ve received for that year.
Talk to your financial advisor about your specific situation.