5 Financial Aid Strategies Parents of Sophomores Need to Know Before the Spring Semester

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Parents of sophomores need to know that their students’ college financial aid awards will be calculated on the base year that starts January 1 of the student’s sophomore year. This means that the fall semester of the student’s sophomore year will be the last chance parents have to implement some financial aid strategies that could significantly increase their student’s eligibility for need-based financial aid. Furthermore, there will be some major changes of the FAFSA starting with the 2024-25 school year that parents need to be aware of.

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Spending time learning about financial aid strategies now will probably pay bigger dividends than time spent convincing your student to sign up for just one more AP class so that she’ll get that full-ride scholarship.

There’s plenty of resources for understanding financial aid and how it will apply to your family’s unique situation. I’m listing five of the most common financial aid strategies recommended by financial aid experts and FAFSA changes that can have a major impact on financial aid if implemented in a timely fashion. (I’m not a financial advisor, so please check with one to see what’s best for your family.)

1. Move the assets out of the student’s name.

Or as Gen and Kelly Tanabe put it “Parents should keep their children poor.” This is an important financial aid strategy because the FAFSA assesses money in the student’s name at 20% while parent’s assets are assessed only a 5.65%. If students have UMGA funds, they shouldn’t by the start of their spring semester. The one exception to this rule is a college savings plan. College saving plans such as 529 plans are assessed at the same rate as the parents. Among the FAFSA changes, some previous “untaxed income and benefits” will be assessed at lower asset rates.

2. Explain to interested relatives the best way to contribute to paying for the student’s education.

Some grandparents have 529 Plans in their name that they intend to use to help pay for their grandchildren’s education. Unfortunately, since the plan is not in the student’s or parent’s name, the dispersion will count as income which will reduce financial aid eligibility. Probably not the intent the grandparents were looking for.

If the grandparents don’t want to put the accounts in the parent’s or student’s name, they should consider the financial aid strategy of waiting until after January 1 of the student’s sophomore college year to make any withdrawals. This way, it won’t affect their financial aid. Of course, if the student isn’t going to qualify for financial aid, this isn’t an issue.

3. Understand how your family structure will fare under FAFSA changes.

There two major changes that can significantly affect the amount of financial aid students qualify for. The first concerns divorced parents. Currently, the parent who the student lived with for most of the year was the one who filed the FAFSA. This meant that students could qualify for more aid if they lived with the parent with the lower income. With the upcoming changes, the parent who has provided the most financial support will be required to complete the FAFSA.

The second major change is that the discount for families with multiple kids in college at the same time is being eliminated. Currently, the student’s EFC was considered the total family’s Expected Family Contribution (soon to be called the Student Aid Index.) For example, a family was expected to pay a total of $20,000 regardless of how many children in college. A student’s EFC was reduced depending on the number of siblings in college. If there was only one child, his EFC would be $20,000. However, when his sister started college, both of their EFCs would drop to $10,000 each. Starting in the 24-25 school year, this discount will disappear. Families with multiple children in college need to plan accordingly.

4. Selling a house during the base year or while the student is in college is not a good financial aid strategy.

You can look up the details but as someone who ended up selling a house during this period, I think all you need to know is just. don’t. do. it. Of course, there will be times when it’s unavoidable but relying on financial aid officers to understand that the money is needed as a down payment for the next house is a risky business.

5. Avoid home equity loans.

As far as the FAFSA is concerned, any unspent part of the home equity loan is a cash asset that has to be reported. Not a great financial aid strategy. Also, a home equity loan won’t increase your financial aid eligibility by reducing the amount of home equity because home equity is NOT reported on the FAFSA. However, it is reported on the PROFILE.

What’s Next?

Even if the previous five financial aid strategies don’t apply to your specific situation, hopefully you realize that it’s a good idea to get up to speed on financial aid sooner rather than later. For those with students taking AP’s to get into the right school, this means that you should also be learning the differences between the FAFSA and PROFILE. Many of the most competitive colleges require students to submit the PROFILE as part of their financial aid application.

As important as understanding how the FAFSA and base year works when applying for financial aid, you’re likely to reap even bigger benefits by selecting the right schools to apply to in the first place. Some colleges are more generous with financial aid than others. Learning how to identify the colleges most likely to be generous with financial aid for your family’s situation can often cut the cost of college more than shuffling your financial assets.

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