The closer your child comes to college, the likelier it is that you're thinking about how to help pay for it. While the specifics of financial aid might not yet be as clear as you might want, you probably have a general sense of what that aid entails, which leads to this common question: “Will saving for college hurt my child's chances of receiving financial aid?"
It's true that most aid students receive is need-based, which means that a family expressing a greater need for assistance will typically receive more than a family with more readily available assets. But that doesn't mean that you shouldn't bother saving at all, or that you're guaranteed to get more financial aid if you don't. Here are a few reasons why you're better off saving for college, along with some considerations for the early stages of financial planning.
Financial aid officers (FAOs) are actual human beings who consider whether to come to the assistance of a family that lacks the means to pay for college. Don't underestimate that “human" part: FAOs are more likely to be genuinely concerned for a family that was unable to save than they might be for one that was unwilling to save. They'll probably want to assist the former. By contrast, they may be less sympathetic and more resistant to aiding an affluent family that has lived beyond its means for years and is now relying on the college to support their lifestyle.
The key, then, is to avoid appearing financially irresponsible to FAOs. You want them in your court as much as possible. That's where an honest attempt to save money and a willingness to make sacrifices can make a large impression.
While a heftier financial aid package may come your way if you have less saved in the bank, it's key to note that a great portion of that package will come from loans. And what else comes with loans? Loan repayment — and interest. Sure, your child won't have to start paying off loans so long as certain enrollment requirements are maintained, but when that interest kicks in, it can add up quickly!
Instead, consider earning interest now so as to avoid paying interest later. If you start saving money now, many account types will grant interest for continued savings and/or contributions. That means that the money you're able to put away before college can earn your child even more money toward paying for college. Quite often, that can be a safer bet than counting on financial aid, which can ultimately lead to paying more in debt post-graduation.
A college fund, even a small one, gives your family more control when faced with unforeseen events. There's always a chance that, even with a great financial aid package, you'll be left with some unmet need. What would come in handy if that happens? Money saved and waiting in the bank. What if you lose your job just as your child's college years are approaching? Parents who chose to forego saving when the funds were available will wish they hadn't! By planning a little for the future now, you can ensure that you'll have options when the college years are upon you.
So, while appearing more financially stable by saving for college now may have a small impact on the financial aid you are eligible for later, the benefits of saving greatly outweigh the drawbacks. When it comes to paying for college, it's better to rely on your own money than somebody else's. For more on financial strategies for funding a college education and for filing financial aid forms, check out our books Paying for College and 8 Steps to Paying Less for College.
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