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The Facts About College Financial Aid

Most American families are offsetting the high cost of college by applying for some degree of financial aid by submitting their FAFSA (Free Application For Federal Student Aid) on or after January 2nd. Unfortunately, this is not a simple process as the college financial aid system is anything but user-friendly. There are an endless number of pitfalls in the application process, and it is far too easy for families to lose some or all of the aid they are eligible for.

Many families fail to even attempt application because they don’t know how to, or they incorrectly assume they are not qualified, or simply because they are intimidated by the complicated and confusing process and all its paperwork. With far more qualified applicants than desks in all of America’s colleges and universities, it is reasonable to expect a system intentionally designed to eliminate all but the most knowledgeable and persistent applicants.

What’s a family to do with one or more college-bound students facing as much as $260 to $500 thousand dollars (and still rising), to send their kids to a 4-year college? Many make the mistake of relying solely on the advice of guidance counselors, college financial aid officers (FAO’s), and even their accountants. Sadly, these families are not getting all of the financial information they need and are in for a rude awakening!

Nationally, guidance departments are facing their worst crunch ever, and are overloaded with as many as 800 or more students for each counselor! Budget cuts have added to the problem causing schools to increase the responsibilities of guidance counselors in areas other than guidance, leaving them with even less time for their students – and there is no relief in sight!

Despite these obstacles and to their credit, guidance counselors still manage to effectively advise students in career planning and college selection. However, when it comes to college funding, they come up short in providing the necessary financial information that could save families thousands of dollars.

Counselors have little time and lack the expertise to show parents how to reduce their Expected Family Contribution (EFC), the minimum the federal government determines that each family will pay at any college, based on the information submitted on the FAFSA. Additionally, knowledge of specific legal financial aid strategies and their correct application would help families avoid or reduce an array of assessments that could cost them thousands of dollars for each year their students are in school.

For example, most parents are unaware that students have no asset protection allowance. Consequently, students with assets in their own name are assessed by the federal government at 20% for each year they are in college. Thus, a student with $1,000 will be assessed $200 for each year the $1,000 remains in their name. After 4 years, they will have lost $800 in financial aid for having only $1,000 worth of assets. This is tragic as it can be legally avoided – if you know how.

Periodically, guidance departments present “in-house” Financial Aid Nights which focus on filling out financial aid forms and understanding the basics of the process. Nevertheless, year after year, the majority of families applying for financial aid wind on the short end by not filling out their forms advantageously. Clearly, parents are not getting enough guidance on the college funding process.

Well-meaning guidance counselors invite FAO’s to speak at their high schools, trusting them to put the best interests of the students above the financial interests of their college. By evening’s end, parents are often left with a false sense of security that the school of their choice will award their student its best possible aid package. This is hardly ever the case!

Much like frugal employers whose goal is to hire the most talented applicants for the least amount of pay, FAO’s seek the most promising students for the least amount of aid. Relying on an FAO to cut your college costs is like expecting an IRS agent to help reduce your income taxes. FAO’s can be helpful, but their loyalties are with their schools – not their applicants!

Accountants may offer some assistance, but far too few have experience with college funding. Although they are experts with income tax forms and tax strategies, financial aid forms and legal strategies are a horse of a different color. The good-intentioned application of accounting principles to college funding can actually hinder a family’s chances of getting all the aid they are entitled to.

There is an endless amount of misinformation on the subject, and a good deal of it is from so-called reliable sources. Oddly, while many families seek professional counseling for their income taxes, few seek the expert advice of college funding professionals despite the fact that the average cost of one year in college far exceeds the average tax bill.

College funding professionals, a small group of financial aid experts, offer parents assistance through the entire process and help families provide their students with the best possible education for the least possible cost. One would naturally assume they are in great demand and buried with invitations to lecture at America’s high schools. Sadly, this is often not the case.

It would surprise and outrage parents to learn that, on a national scale, many guidance departments still refuse the services offered by college funding experts and authors, often stating that bringing in “outsiders” is against school policy, even when such services are offered absolutely free! Thus, every year parents enter the college funding arena without the necessary ammunition to do battle with the system – and severely overpay for college.

Financial Planning – The True Definition

Financial planning is a good idea for anyone with an income. Some people think of it as a synonym for retirement planning. However, financial planners are professionals who assist people in developing plans for many kinds of investments and expenses. Essentially, they help people earn, save and spend their money more wisely than they would if left to their own resources.

What Is Financial Planning?

The work of a financial planner can be broken down into several categories. Some of these categories of planning focus on the future, when a client plans to retire or hand over a business or estate to an heir. Others are focused on issues in the present or the near future, such as tax planning or simple cash flow management. However, all forms of financial planning follow certain elementary steps.

Varieties of Financial Planning

• Investment planning goes beyond simply purchasing financial instruments and other assets. An investment planner helps his or her clients think strategically about an investment portfolio. While an untrained client might let investments sit unprofitably for too long or trade too frequently to properly take advantage of profit margins, a financial planner can guide this client to earn more money from investments.

• A retirement planner assesses a client’s present economic status and prognosticates how much money that the client needs to earn from investments and savings in order to achieve financial independence by a specific age.

• Cash flow management is a type of financial planning which helps a client control income and expenses in order to save money. The goal of this management might simply be improvement in the quality of life for an individual. Financial planners can also help large businesses to improve their efficiency and their balance sheets.

• Estate planning anticipates death or incapacitation of a client and the distribution of his or her assets and belongings. A central part of this sort of work is writing wills and designating executors and heir.

The Financial Planning Process

• In the first step, the financial planner and the client set goals.

• Then the planner gathers financial information and other pertinent data about the client.

• Now the planner analyzes the information and determines what changes must be made to achieve the goals set during step one.

• The fourth step may require resetting goals in light of obstacles discovered during the analysis. Otherwise, client and planner devise a plan for meeting the goals.

• The planning team implements the plan.

• The sixth step is the longest phase of financial planning. The planner monitors progress toward the goals, often over a period of years or decades. Adjustments will probably have to be made as time passes.