Budget Cutting

What do you do if the government's Expected Family Contribution is just too high or you can't manage the unmet need in your financial aid package? This page provides a few tips on finding the necessary resources.

See also FinAid's page concerning cutting college costs.

Professional Judgment

Your first step should be to talk to the financial aid office at the school. Ask for a professional judgment review and tell them about anything unusual about your family finances and anything that has changed since last year. Sometimes the school can make adjustments that will result in more financial aid.

Ask Relatives for Help

Asking relatives for money is never easy, but it is easier when you are asking for help with a worthwhile cause like your children's college education. Their grandparents may be interested in helping because your children are their legacy.

Relatives can pay the money directly to the college without incurring any gift taxes. (A payment for the education of a designated individual is not a charitable contribution and cannot be deducted on their income taxes.) Be sure to ask the school whether this will affect the student's need-based aid eligibility. If the school will be treating it as a payment on the student's account, it will generally have no impact on aid eligibility. But if the school treats it as a resource, it will reduce aid dollar-for-dollar.

There are other ways your relatives can help that will not have an impact on the student's financial aid package:

• If the grandparents set up a Section 529 College Savings Plan (or a prepaid tuition plan after July 1, 2006) where they are the account owners and the student is the beneficiary, it will not be reported on the FAFSA as an asset. Qualified tuition plans like these are only reported on the FAFSA when either the parents or the student are the account owners. (Some private colleges, however, will count all such plans as assets for awarding their own financial aid.) Distributions from qualified tuition plans are also not counted as income.
• If the grandparents pay the money to the parents, instead of the student, it will have no impact on aid eligibility. Gifts to the student are reported on Worksheet B of the FAFSA. Gifts to the parents of a dependent student, however, are not reported on the FAFSA due to a quirk in the definition of untaxed income and benefits. (Section 480(b)(7) of the Higher Education Act defines untaxed income and benefits as "cash support or any money paid on the student.s behalf, except, for dependent students, funds provided by the student.s parents". Since this definition is limited to money paid to or on behalf of the student, gifts to the student's parents are excluded.)
• A gift to the student after the student graduates will not affect need-based aid, so long as it is not a completed gift until after the student graduates. (Trust funds, on the other hand, are counted as a student asset and will severely impact aid eligibility.)

Borrow the Money

Education debt is good debt, in that it is an investment in the student's future. Just be careful to avoid borrowing more than you can afford to repay.