Looking Poor

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WANT TO INCREASE your kid?s chances of getting college financial aid? Then you?ve got to take some steps to appear less affluent. We don?t mean wearing clothes with patches to the campus interview. We mean hiding some of your income and savings — legally, of course — so that colleges consider them unavailable for tuition payments.

Almost all colleges use the same formula — the Federal Need Analysis Methodology — to determine how much aid a student may receive. It is figured by subtracting a school?s cost of attendance from the money considered available to pay for college based upon your Free Application for Federal Student Aid (FAFSA). So, knowing how the calculation works, you can reduce your expected contribution by following these five steps:

Keep It in Your Name
Don?t be tempted to transfer assets to your child?s name just because the income would be taxed at a lower rate. Why? Schools expect students to contribute 35% of the assets held in their name to pay tuition. Parents are only expected to contribute 5.6% of assets. So scrap the custodial accounts, and send the same message to the grandparents.

Max Out Your Retirement Accounts
Accumulated savings in your retirement accounts is generally not considered when calculating your financial aid eligibility. So if you want the money to fund your retirement rather than your child?s baccalaureate, then invest as much as you can into your 401(k), IRA and annuity accounts each year. One caveat: Yearly contributions to a 401(k), 403 (b) or other pension plans are considered untaxed income in the FAFSA form, so it?s a good idea — at least until the child has graduated — not to pitch in more money than your employer is able to match.

Capital Gains Don?ts
Your adjusted gross income, as represented on your tax forms, is by far the most important factor in your eligibility for financial aid. So don?t take big capital gains or dividend payments during your child?s junior or senior year of high school. As schools review your recent tax returns, they will assume that you have gains like that year in and year out.

Pay It Off, Down, or Simply Spend It
One way to reduce your savings is to spend it. So if you've been planning some expensive outlay — buying a new car or making needed home repairs, for example — now may be a good time to take the plunge. Also, public schools don?t consider equity in your home or car available to pay for tuition. So you can shelter even more savings by paying off or paying down your home and car loans. Most private schools, however, will consider home equity in figuring your expected contribution. So, for them, you?re better off showing a loan balance.

To further drive down your savings, buy junior those much needed items for school like a computer, refrigerator for the dorm room or even a car.

Go Back to School
Remember that accounting class you were always meaning to take? If, as a parent, you have been planning a return to school, try to coincide it with your child?s matriculation. Under the federal methodology, if you have two family members in college at the same time at least half time, the expected family contribution will be cut in half.

To learn more about securing aid for college, visit our College Planning section, where you'll find answers to such questions as How Much Do You Really Need and How to Negotiate for More.