If you’re the parent of a college-bound student, you may have been invited to a “free” informational session about repositioning assets in order to reduce your expected family contribution (EFC).
These sessions, though, are often thinly disguised pitches for products (like annuities or life insurance) that may end up costing you money instead of saving it. The advice these college consultants offer is often expensive and not worth the price. Be very cautious when you’re approached.
There’s no guarantee that repositioning family assets or income will result in a lower EFC. That said, about 20 percent of middle-income families will qualify for need-based aid that is higher than their merit scholarship. It often makes sense for these families to consider asset repositioning strategies to reduce their EFC so they are able to capture additional gift aid that may be available to them.
Upper middle-income families, especially those with more than one child in college at the same time, can also benefit from this strategy—especially if their student is headed to an expensive, highly selective private university.
Other reasons that may come into play:
The first reason: If your student loses their merit scholarship after their freshman year, you may still qualify for a grant based on your family’s demonstrated financial need.
The second reason: If you have a change in financial circumstances after your child is already in college, you can still appeal for additional financial aid. However, if you have not repositioned your assets, you may risk losing that opportunity.
The third reason: If any of your children end up attending one of the 200 or so colleges that use the Institutional Model (IM) for calculating EFC and your assets are not repositioned, you may lose an opportunity to get additional need-based aid. Most IM schools require a completed CSS Profile Application in addition to the FAFSA and copies of parent and student tax returns, including all schedules and W2s.
Other reasons to reposition assets include the need to rebalance your retirement portfolio to simply not wishing to reveal your net worth to the colleges.
Strategies for repositioning assets include:
Shifting student assets to parent assets: Student assets are assessed at 20 to 25 percent by financial aid formulas, while parental assets are assessed at about 5 percent. Perhaps you can transfer a custodial account in your student’s name to a 529.
Changing how rental property is held: Business assets are assessed at a lower rate than typical real estate assets that are often classified as personal investments. So, if you own rental property that truly is run like a business, consult a tax advisor about making a change.
Spending down cash or savings: If you’re anticipating any large expenditures using cash or savings that will be reported on your FAFSA (home improvements, new car, paying off debt, etc.), doing so before filling out the FAFSA will reduce your EFC.
By working with a qualified fiduciary, you can explore the pros and cons of asset repositioning, which will always vary from family to family.
Billie Jo Weis heads the Appeals Team for My College Planning Team and is a FAFSA and CSS Profile specialist. She has more than 20 years of experience in accounting and finance at a variety of companies and, as the mother of three boys in high school, knows first-hand the challenges and concerns of preparing for the cost of college.