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Eight Financial Aid Moves to Make Now
by Kimberly Lankford

College costs continue to rise at a rapid pace. The average cost of one year at a private college topped $20,000 in 2004, a 6% increase over last year. The price tag for four-year private colleges rose even faster, up 10.5% to $5,132, according to the College Board.

But there's some good news: A record $122 billion in financial aid is available to students and their families this year, an 11% increase since 2003.

Almost 60% of undergraduate students receive some form of financial aid, and nearly 70% pay less than $8,000 in tuition and fees.

But students and their parents will need to do some maneuvering to get this money, and now is the perfect time of year to take action.

Here are some steps you should take before the end of the year to improve your chances of getting aid and to make the most of valuable tax benefits for college savings -- whether your child is in high school or still in diapers.

For parents of high school students

If your child is a junior in high school, you have until the end of the year to improve your financial aid picture. Financial aid forms ask you to report information from the calendar year before your child applies for aid, which starts on January 1 of your child's junior year. Any money you spend before then won't be counted in the aid calculations.

If you're close to the cut-off for receiving aid, consider spending money in your child's custodial accounts before the end of the year. Financial aid officers expect children to contribute 35% of their assets each year for college costs but only expect parents to kick in 5.6%. You can spend custodial-account money on almost anything that benefits your child.

Don't waste money on things you don't need, but if you're planning on buying some education related items anyway, consider using your child's account rather than your own money. Before you make this effort, though, first run your numbers through the Expected Family Contribution calculator to see how much of a difference it can make in your potential aid award.

Save aggressively in your flexible spending account at work.

Contributions to flex plans are subtracted from your taxable income and lower the income amount you would report on federal financial aid forms. (Many private colleges, however, ask for this information on their Profile financial aid applications.)

Calculate how much you should contribute to your flex plan.

If your child is a high school senior, you have a busy year ahead of you.

You can't submit your Free Application for Federal Student Aid (FAFSA) before January 1 of your child's senior year, but you should start getting everything ready now so you can hand it in as soon as possible.

Keep in mind that some aid is awarded on a first-come first-served basis.

The form will ask for information from your 2004 taxes, but you don't have to wait until you file your tax return -- you can estimate the figures before then. See the Department of Education's FAFSA Web site for more details about the information you'll need to gather. Fill in the forms even if you think you have too much money to qualify for aid -- you might be surprised by the results, especially if your child attends an expensive private college.

For more information about the timeline for financial aid applications, see the College Board's Financial Aid Calendar.

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