Stop Committing these Money Mistakes to Keep Your Child’s Financial Aid
Many parents think they can stop paying attention to their child’s financial aid after they have gone to college. However, this only applies to the first year. This means you may need to reapply your child for financial aid every year until he or she graduates. Stop committing these money decision mistakes which can break your financial aid package in this crucial period in your and your family’s life.
Bad Timing in Getting Help From Grandparents
Seeking financial assistance from your grandparents may be a good idea to aid your child’s education, but if they give the assistance at the wrong time, this can put a dent in your aid package according to financial experts. For example, if one grandparent offers a $10,000 assistance to the child using their 529 college savings accounts, the college institution they’re in will count the money as student income.
This prompts the colleges to think a student can afford to support his or her studies, causing them to cut the student’s aid. The savingforcollege.com’s publisher and director Mark Kantrowitz recommends that grandparents wait for a while before giving assistance to the child.
He also adds that when a student is in his or her sophomore year already, most colleges stop scrutinizing the family’s income. This means that your grandparents can give assistance to their grandchildren from their 529 college savings plans without cutting your aid. However, be wary since this might become a hindrance if the student has a 5-year course.
If possible, the financial aid consultant named Kalman Chany also recommends that grandparents should wait until their children graduates to offer their financial assistance and help them pay for their student loans instead.
Too Much Gain
Most parents cash out their retirement funds or investments to pay for their child’s college tuition. While this is a good technique to help fund your child’s education without draining your budget, this can be a costly mistake especially if the calendar crossed January 1 of the student’s 10th-grade year. According to financial experts, any capital gains coming from an investment will be hit with tax returns used in the FAFSA or Free Application for Student Aid.
Any gains acquired can be a basis to reduce your child’s financial aid. Chany suggested selling your losing investments to offset your gains instead. If it’s not possible, then you need to hold on to your investments first and borrow money to pay for your child’s education for the first two years of his or her college. Then, sell your investments during their junior or senior years as it will not influence nor cut their aid package.
Taking a Second Mortgage
Many parents think they can finance their child’s college education if they cash out their house or property’s equity with a second mortgage. But financial experts advise against doing it. According to them, you may find yourself paying for holding on a large amount of cash in your bank account.
Aside from that, you’ll be trapped paying the interest rates associated with the mortgage loan. Chany recommends you use a home equity line of credit instead. In this way, you can only withdraw the money when you need it and pay your child’s tuition fee. Your money will not just sit on your balance sheet. Ironically, taking your house’s equity makes your child more eligible for more aid, since this is one of the packages in some state colleges and universities.
Raiding Your Retirement Account
Although parents won’t be penalized if they use their traditional IRA account to pay for college, you may have to face paying a hefty amount of taxes if you take it out as income. This type of aid causes the IRS to add your taxable income, so colleges expect you to pay more since you can afford to pay the tuition fee.
Channy recommends you borrow from your 401(k) plan instead to pay your child’s college fees. While it is still a risky move, this cannot hurt your aid as long as you retain your job and can pay back the funds. Otherwise, you’ll face the penalties.
More in Pocket Change
How Drake Outsold His Mentors After Learning Rap from a Prisoner
To many Drake is the popular music icon whose song ‘Hotline Blink’ became the subject of many hilarious memes, but what fans...September 13, 2019
The Median U.S. Household’s Income Rises to Above $61,000 Annually
A positive note for the American economy. According to a report released by the U.S. Census on Wednesday last week, middle-class...September 13, 2019
Pink Lost the Grammy But Her Kids Consoled Her With This Heartwarming Gift
There is no better consolation for an entertainer than winning a Grammy Award. Every star wants to hold that prestigious award in their...September 13, 2019
The Mindset that Helped Tennis Hall-of-Famer Andy Roddick Grow His Net Worth
The importance of saving and investing cannot be stressed enough by experts. Financial gurus have often advised setting aside a portion of your money for...September 13, 2019
Are The Presleys Broke? Elvis’ Ex-Wife Priscilla is Selling This Property to Save Her Daughter
With how popular the late Elvis Presley remains to this day, most people would think that his immediate family will all...September 13, 2019
Rihanna Is Now America’s Richest Female Musician–Here’s Why She Has No Plans to Stop Working Despite Having Millions
While Rihanna seems to have taken a break from making music, her last album being released last 2016, the Barbadian born...September 13, 2019
Stressed out? 9 Simple Tricks to Eliminate Depression and Heal your Inflammation Today!
It’s a given that you’ll feel blue at some point in your life. Whether its work or health-related, all that stress...September 13, 2019
Top Cities to Retire For Only $37,000 a Year
Want to retire comfortably without draining your pocket? A renowned retirement coach named Edd Staton says you might want to think...September 13, 2019
The Added Benefits of Selecting a Long-term Mortgage Fix for Your Financial Freedom
For decades, two-year mortgage setups have been quite the norm for homeowners and real-estate investors alike. However, with the rise in...September 13, 2019