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Smart Ways to Trim Higher Education Costs
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In certain circumstances the Federal Need Analysis Methodology uses a simplified needs test to calculate the Expected Family Contribution (EFC). This simplified formula ignores assets, thereby increasing eligibility for financial aid. An applicant qualifies for the simplified needs test if the parents have an adjusted gross income of less than $50,000 and every family member was eligible to file an IRS Form 1040A or 1040EZ (or wasn't required to file a Federal income tax return).
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SIDEBAR
Ivy League Schools are Generous, Too
here are plenty of ways to diminish out-of-pocket college costs without diminishing the quality of a student's education. Since you or the student must apply for aid every year, you can try some of these strategies even if you didn't know about them when the current academic year began.
The fact is the people who may need financial aid most aren't the ones who get it. The people who get the most financial aid are the ones who know who and how to ask for it.
I call it the top 10 strategies for squeezing out a few extra dollars. It's broken down by the five ways to increase needs-based aid and five ways to get aid regardless of income.
Five strategies for needs-based aid
Let's start with the five strategies to increase needs-based aid, in which colleges provide financial assistance based on a family's ability to pay.
1. Qualify for the Simplified Needs Test
If your family's adjusted gross income (AGI) is less than $50,000 and you file the 1040-EZ or 1040A, all family assets are excluded from the federal aid formula, and you qualify under the Simplified Needs Test (SNT). This is helpful for those with either income from investments or earned income, so long as the total in the base year does not exceed $50,000.
Most wage earners unknowingly disqualify themselves from the SNT simply by itemizing deductions. Don't itemize just to save a few hundred dollars in taxes and wind up losing thousands in college aid.
2. Negotiate with the school
Colleges can, and do, increase their initial offers of aid. No government regulations prevent this. All have their own unregulated money. Many colleges expect you to negotiate and don't give their best offers initially.
3. Plan your taxes and aid applications together
Colleges look at your family's tax return in the student's senior year of high school or "base" year. Many schools request the documents directly from the Internal Revenue Service. The key item is gross income, line 31. So try to make line 31 as small as possible. How?
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Negotiate employee benefits (like free parking and transportation) in lieu of the usual pay raise. (Or, for that matter, defer the raise until after December 31.)
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Report the income of siblings on their individual, separate returns. That will lower the household's AGI.
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If you need the cash, borrow against appreciated assets. Don't sell assets and incur a capital gain in the base year.
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Pay taxes and other deductible items like medical bills in the base year.
Most of the new college credits and deductions recently enacted by Congress are phased out at specific income levels. Reducing your income by deferring compensation, forming a corporation, and investing for growth rather than income are individual decisions that warrant a meeting with a planner.
4. Use creditors to your advantage
Aid forms do not consider unsecured loans as debts. Convert these loans to second debts. If you have debts that are being paid off under an agreement, but without collateral, convert these loans to debt secured by collateral. Many colleges will only consider secured debt as "real" debt. Some creditors will reduce the payout in return for such security.
While your assets are tied up, if you plan to pay the debt, you may qualify your child for more aid by officially increasing your liabilities. A good example of this might be to convert your credit card debt to a home equity loan (which is typically a good strategy anyway). You'll save on interest, improve your credit rating and help aid qualification.
5. Contribute early to pension plans
Assets held in a pension plan are excluded from the aid formula. Make these pension contributions before the base year.
Five strategies for non-needs aid
1. Choose the right major
Business majors have a four times better chance of getting scholarships that aren't based on financial status than do agricultural majors. Similarly, biology majors get help 16 times more often than architects, and those in the health field more than twice as much as students majoring in a foreign language. Peterson's College Money Handbook, 1997 came up with only four schools that give no-need grants for international studies, compared with 240 that favor the fine arts.
The largest number of no-need scholarships are offered to those seeking to become journalists.
2. Consider religious and cultural affiliations when choosing a school
Students with certain non-career pursuits can get no-need scholarships directly from colleges. Religious involvement, community service and the illusive "leadership" factor are among them. But don't discount playing the trombone or rodeo arts. In fact, the more obscure the interests the less the competition in applying for a grant, scholarship or work program.
3. Use the family ties factor to your advantage
Use your family's ties to a college or university to your advantage. Schools may offer financial aid more readily to the children or relatives of alumni, particularly if the alumni have been regular donors over the years. If straight-out cash isn't in the cards, check on employment opportunities for your student. It can be office work or cafeteria duty; either way it helps pay the bills.
Another alternative is to work for the college of your student's choice. Those staff tuition grants can be impressive. Several hundred colleges waive tuition entirely for the offspring of any staff member.
4. Is your student athletic?
Athletic scholarships are most plentiful for male baseball hopefuls. Both men and women have a chance with basketball scholarships. Saginaw Valley State University in Michigan gives bowling scholarships, but only to male students.
It's better to run track, play golf or football than to perfect your sailing skills. But, if you love to sail you may receive a grant if you attend Southern Methodist University in the most nautical of our states, Texas.
5. Play off a college's desire for diversity
There are 70 or so colleges that will waive tuition completely for minority students. But beyond just race, many ethnic groups offer special scholarships or competitive awards to students from their ethnic backgrounds. Use your lineage to your advantage. 
How much will I need to save for my kids' education?
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Illustration by Terry Allen Copyright 1998 Microsoft Corporation