When college is just around the corner

Here's how families can position their assets to win the most financial aid

Arthur Abbott cheered when the first of his three sons decided to attend Boston College in the mid-1990s. The other two followed - Michael, the youngest, is now a junior - giving Mr. Abbott and his wife, Jeanne, two more reasons to feel vested in the school from which they both graduated in 1970.

But from time to time, the Abbotts' gold-and-crimson pride has been tinged with panic. Instead of the roughly $2,000 a year they paid back in their day, tuition, room, and board have soared to more than $40,000.

So how do the Abbotts - or any moderate-income couple with children in college or about to enter - cope with such skyrocketing costs? Carefully. The good news: Even if you haven't spent years socking away a small fortune for junior's education, there are ways to position yourself so he or she can win maximum government and institutional aid, experts say.

"The poorer you look, the better your chances," says Peter Bielagus, a financial planner in Bedford, N.H.

The first step, surprisingly, is to raid your child's bank account. "Across the board, people should realize that the worst way to save for college is in the child's name," says Harold Simansky, an investment adviser and founder of Educational Investments in Chestnut Hill, Mass.

That's because of the way colleges calculate the estimated family contribution - what a family should pay before aid kicks in. Anywhere from 2.6 percent to 5.6 percent of parents' assets are expected to go toward each year of college costs. It leaps to 35 percent of student assets. Mr. Bielagus and others suggest that a student's cash be burned through about a year before the paperwork - beginning with the all-important FAFSA, the Free Application for Federal Student Aid - gets under way. Think laptop, not Florida trip.

"If you have a $3,000 computer," says Bielagus, "that will not show up" in aid calculations.

At the very least, shove it into a 529 saving plan, which is viewed as the parents' asset, even with a student cited as a beneficiary.

Also sometimes worth shielding: home equity, the single greatest asset of most Americans. As a general rule, public colleges and universities won't count it when figuring aid. But it can be a factor at private schools.

Experts caution that lowering home equity won't produce a dollar-for-dollar benefit in aid eligibility, and many warn against extending a new mortgage deep into retirement years. But it can be a cheap way to borrow money.

The Abbotts, for example, refinanced their mortgage shortly before their first child applied for aid, and used the funds to build an addition they had long wanted. Lowering their home equity helped win them more aid, Abbott says - as did having two sons enrolled at once during several overlap years.

If you can't have twins

Because families with more than one child in college often get more aid, one bold strategy is to delay a slightly older child's matriculation to allow a younger child to reach college age, Bielagus says.

But he cautions that the plan can backfire if a year in Europe turns into five, or a would-be lawyer in a holding pattern as a ski instructor decides on a career change.

Timing is also key in other ways. Meeting aid-application deadlines with accurately completed forms is essential, experts agree. And getting assets squared away early in the aid process - typically in February and March - can make all the difference in how you are sized up as an aid candidate.

The day you fill out the federal aid form or College Scholarship Service profile you are effectively rendering "a snapshot" of your financial status, says Dan Cosgrove, a financial representative at Guardian, a life-insurance and financial-services firm in Boston.

"The day before, you can have $45 million and move it," he says. "So you make those moves" before filling out the paperwork.

Asset-shifting can be done as late in the game as February in a high school student's senior year, says Mr. Cosgrove. So where to quietly park funds? One possibility is a life-insurance policy, from which loans can be taken and principal withdrawn tax-free under most circumstances. (Make sure premium payments do not exceed the level that could raise red flags with the Internal Revenue Service.)

"Money that you've accumulated in life insurance, annuities, or retirement plans is not counted," says Cosgrove. But "once [students have] reached January of their junior year, contributions into 401(k)s, IRAs, any kind of tax-deductible plan like that come back into the calculation for the federal-aid form and all the way down."

Another caveat: Beware fund-maintenence costs that can offset the advantages, others say. "In the end, the more sophisticated the financial vehicle, the higher the fees - and, frequently, the less effective it's going to be," says Mr. Simansky. "You're going to be locking up your money and rolling up high fees when the amount you would have lost in financial aid [by leaving the money elsewhere] is not that great."

Other places to park freed-up home equity or other cash can raise sticky ethical questions.

Money in a safe can't be seen but is widely regarded as gaming the system. Parents might be tempted to shift funds to grandma and grandpa, which can be used later to pay tuition, experts say. But an eagle-eyed officer, sensing such a benefactor in the wings, could tighten the purse strings.

Ultimately, the process should not be reduced to a game of numbers, experts agree, particularly when it comes time to negotiate with a college in which interest is serious. The process is fluid and very human, say Simansky and others, and honesty is generally rewarded with fair treatment in kind.

"Two families with identical circumstances and finances should receive the same amount of financial aid," writes Gen Tanabe, founder of SuperCollege.com, in an e-mail. "But if one family manipulates their assets and gets more, then this runs contrary to the goals of the system."

Colleges have found this to be true from their end.

"The best thing to do is to deal straight- forwardly with families and students, and the outcome is that they deal straightforwardly with you," says David Hoy, director of financial aid at Haverford College, near Philadelphia.

Mr. Hoy recommends that students investigating colleges talk to those schools about scholarships early on. And he notes that it is not always financial-aid offices that make the decisions about desirable grants. Grant funds are often administered separately and use different criteria. "Some may do it by SAT range, some might do it in other ways," he says.

Haverford is one of some 30 highly selective colleges that practice need-blind admissions, he notes, admitting students without regard to financial need.

Tips for now

Among the other steps experts suggest:

• Focus on colleges at which the student's credentials would put him or her in the top 20 percent of applicants, and at far-away colleges not likely to see youths from the same high school. Both moves boost the student's allure as an aid recipient.

• Don't lowball yourself. Even B students who only ever made junior varsity can find funds. Indeed, money is reportedly available for innovative users of duct tape.

• Think locally, tapping the Rotary Club and the local police. Consider "what can I apply for where I'm competing with just six other people - or none," says Bielagus, who advises students to be systematic and prolific in generating their pitches.

• Never pay for a scholarship search; these generally just mine the same good websites - www.lunch-money.com or www.finaid.org - that you can hit on your own, financial planners say.

Aid packages that start out to be generous can decrease without steady efforts by recipients to maintain them. A parent's rising salary, while welcome, can also dent aid eligibility. The process can seem unrelenting.

"You do a lot of reading," says Abbott. This year, as in the past, subsidized federal Stafford loans helped him and his wife cover costs to the tune of $16,000. Another bank loan and an $800 grant helped make up the difference. Their son pitches in.

After that it's just shoveling over the income about as fast as it arrives.

"I came from a large family, and my parents sacrificed to put us through school," Abbott says. "So I just figured that was how it was going to be."

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