201509.14 Posted by Wealth Management
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The joys of parenthood sometimes get outweighed by the concerns when parents start to plan to save for their children’s college education. It seems like there’s a potential for an uphill battle, depending on when you start to save (relative to your child’s age) compared to where they want to go and what they want to study. As of today the national average of the yearly cost of a non-state school is just north of $30,000.   While there are many savings instruments to help you meet your goal, there’s also many “myths” that you should be aware of as well. The following information was obtained from LPL Financial, a valued relationship ally of ours in the investment business.

The following are common college planning related myths, which many parents and planners encounter, as well as the facts related to each myth:
Common Education Planning Myths and Fact

Education Planning:

Myth 1: “If a child is not claimed as a dependent he or she can file for financial aid as an independent student.”

Fact:

  • The fact that a child is or is not claimed as a dependent on a parent’s tax return has no bearing on whether that student will be considered independent for financial aid purposes.
  • In order to be consider independent for financial aid purposes the student would need to meet one of the criteria, such as
    • being age 22 or older,
    • being married,
    • being a U.S. Armed Forces veteran, etc.

Myth 2: “Contributing to a 401(k) or IRA will help a family qualify for more need-based financial aid.”

Fact:

  • While parents should, ideally, continue to contribute to retirement plans during the child’s college years, making these contributions will not increase the student’s need-based aid eligibility.
  • The financial aid equations add qualified plan contributions back in when assessing a parent’s income.

Myth 3: “Private colleges cost more than public colleges.”

Fact:

  • Private colleges usually have a higher published cost of attendance or “sticker price” than public colleges. However, families should not write off private colleges altogether for this reason.
  • Private colleges often provide significantly larger financial aid packages, with better loan-to-free-money ratios than publics.
  • Families eligible for needed-based aid (and sometimes even merit aid) may be able to get the net out-of-pocket cost of a private down to the point that it is equal to or lower than the out-of-pocket cost of a public college.

Myth 4: “If a family makes too much money to qualify for need-based aid, and they are not interest in being offered loans, there is no need to file financial aid forms.”

Fact:

  • All families should file for financial aid. The federal financial aid forms allow the student to list up to 10 colleges on the form. This can serve as a means of creating competition for the student.
  • If the student’s college of choice sees that the student is applying to the college’s competitors, that college may offer a financial “enticement” if they want the student.
    • In addition, some colleges will not release merit aid if a student has not filed financial aid forms.
    • Also, instead of attempting to look as needy as possible on paper, high income and high net worth families can use the financial aid forms to make the colleges take notice that they may be potential future benefactors.

Myth 5: “Never put money in a student’s name.”

Fact:

  • This myth is only relevant to families who will qualify for need-based aid.
  • High income earning families and other families who will not qualify for need-based aid will gain no advantage by moving money out of their child’s name.
  • Families who may qualify for need-based aid should determine the potential benefits prior to removing any funds from the child’s name.
    • This includes determining the likelihood of getting free money from the college as opposed to moving money around only to end up being offered more loans.
  • Families should also determine whether there could be any negative consequences from making money moves.
    • For instance, if a child owned a large holding in a highly concentrated stock position, which could trigger significant taxable income if the stock was sold, the additional income generated could end up having a larger impact on the student’s aid award than just leaving the account alone.
  • Also noteworthy is the misconception that a 529 plan is counted as a student asset for federal financial aid purposes. 529 plans are reported as parent assets.

Securities offered through LPL Financial, member FINRA/SPIC. Insurance products offered through LPL Financial or its licensed affiliates. The investment products sold through LPL Financial are not insured Chemung Canal Trust Company deposits and are not FDIC insured. These products are not obligations of Chemung Canal Trust Company, and are not endorsed, recommended or guaranteed by Chemung Canal Trust Company or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and the loss of principal is possible.

Submitted by Jason Glowski, Financial Services Specialist.


For additional guidance, please contact Marci Cartwright at 607-737-3754 or mcartwright@chemungcanal.com.

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