By Matt Gallagher
Your Finances
Matt Gallagher
For most Americans, August signals the end of summer and a return to a more normal schedule for work and family. If you happen to be a parent or grandparent of college-aged children, it signals a drive to campus and a sober reckoning of the cost of educating your children. Regardless of their age, if you have children, you are constantly thinking about saving for and paying for college. As such, every family should become knowledgeable about college savings plans and student financial aid programs.
The first step to addressing the cost of college should be a 529 plan. Investing in a 529 plan provides an array of tax benefits, as the plan grows on a tax deferred basis and any distributions are tax free when used for eligible education expenses including tuition, room and board, fees and supplies. In Connecticut, contributions are deductible for state income tax purposes up to $5,000 for a single return or $10,000 for a joint return. A 529 plan also receives favorable treatment when your student is applying for financial aid, as it is considered a parental asset and has a minimal effect on eligibility for aid.
The second step for parents looking to tackle the issue of college costs occurs once your child starts to apply to colleges, when you will need to understand and navigate accessing federal, state and institutional student aid. Regardless of income level, anticipated borrowing or potential schools, everyone needs to use the Free Application for Federal Student Aid. FAFSA is used by all schools in awarding federal student aid and filling out the FAFSA form is the only way to ensure that you are taking advantage of the best student loan options. The FAFSA form opens on Oct. 1 for the subsequent school year, and aid is awarded on a rolling basis, so the sooner you apply, the better.
As you prepare to use the FAFSA form, your initial step will be to gather all relevant financial information including recent tax documents, bank and savings account statements, employment and income verification and the school information for the colleges your child wishes to attend. Once you apply via the FAFSA form, it is important to review your student aid report, which is a summary of the information submitted. This report will include a breakdown of your expected family contribution, which is an estimate of your expected contribution toward college expenses. Confirming that the information is correct and a timely response to any requested information is critical to maximizing any financial aid.
Ultimately you will receive a financial aid award letter from the various schools you listed on the form. The award letter will outline the entire aid package, detailing subsidized or unsubsidized loans, grants and work study opportunities. It is also possible to appeal your aid package to request additional aid or if your financial circumstances have changed.
Ensuring the opportunity for a college education is the goal of most parents. Reasonable planning and a greater understanding of the college financial aid landscape can assist parents in attaining this goal.
Matt Gallagher is a partner and head of business development at TrinityPoint Wealth. He can be reached at 203-693-8519 or mgallagher@trinitypointwealth.com.