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Optimize Your Finances To Receive Maximum Financial Aid

Optimize Your Finances To Receive Maximum Financial Aid

Annually on October 1, parents whose children plan to attend college for the following year begin to complete the Free Application for Federal Student Aid (FAFSA®) form for federal financial aid. Those who will pay for a child's education within the next couple of years may benefit from advanced financial planning. Students may qualify for need-based financial aid by shifting family assets or income before filing FAFSA by employing specific strategies today. Discuss these options with your spouse and child to determine if they might be helpful in your situation.


Your family's current assets and past income determine your family's expected family contribution (EFC) or need-based financial aid.

Current Assets: These are the available funds on your bank, investment, and other financial statements from 1-2 months immediately prior to filing FAFSA.

Past income: The parents' adjusted gross income reported to the IRS from the two years leading up to the school year provides the second part of the basis of EFC.  For example, FAFSA looks at income reported on the 2020 tax return for the 2022-23 school year. [1]. 

Historically, most schools offered need-based financial aid only to families with below-average income and assets. Today, however, policies are changing to help attract talented students who would otherwise be unable to afford the sticker price of a private school. It is common for private schools to provide need-based assistance to middle-class (and even upper-middle-class) families. Also, a person's EFC is split evenly among all family members who will attend college. Therefore, the following information could help many people:

  • Anyone who may attend a highly selective school or private school
  • Middle-class families with multiple students in college at once, and
  • Families with below-average income or wealth.


All students submit a FAFSA when applying for financial aid. However, some colleges also require a supplemental form called the College Scholarship Service Profile. The CSS Profile looks more deeply into the family finances, looking at assets belonging to other siblings, disregarding "paper" losses within a family-owned business, counting 529 accounts for the benefit of the student, but owned by others (e.g., grandparents, friends). 

Lowering Reportable Assets

The FAFSA and CSS ask for information about the family's current assets but not about all assets or liabilities. Notably, FAFSA and CSS do not count the following:

  • Value of your primary residence, or debt on primary residence[2]
  • Value of retirement accounts
  • Balances on credit cards, personal loans, and any other "unsecured" debt
  • Personal possessions and household goods, such as clothing, furniture, electronics, cars, appliances
  • 529 account balances owned by others[3] for which the student is beneficiary

Because the FAFSA and CSS do not count all types of assets or liabilities, look for opportunities to shift value away from "reportable" assets into "non-reportable" assets. Below are some examples. Be sure to talk to your advisor to make sure that these (or other) moves are in your overall best interests financially. And be sure to have this conversation early enough for investment, bank, or other statements to be up-to-date when you file the FAFSA/CSS.

  • Make extra payments on credit cards, personal loans, or other unsecured debt to lower your "countable" bank account balances. (FAFSA and CSS)
  • Make extra paymentson debt secured by your primary home (primary or secondary mortgage, home equity line of credit) to lower your "countable" bank account balance.  (FAFSA only; potentially helpful for some schools that require CSS)
  • Reduce credit card usage for a couple of months before you file FAFSA; wait until after filing to resume to lower your bank account by up to the typical amount you usually charge per month. (FAFSA and CSS)
  • Wait to take on additional debt (HELOC, personal loans, etc.) until after filing FAFSA. (FAFSA and CSS, usually)
  • Wait to accept gifts from grandparents, friends who may be helping you pay for college until after filing FAFSA. (Then spend it before filing for the subsequent FAFSA and CSS filing year. (FAFSA and CSS)
  • Prepay for things you will genuinely need in the next year, such as clothes, a computer, or even rent for the school year (if allowed). (FAFSA and CSS)
  • Gift cash to friends or family, who will then donate to a 529 account for your student. Importantly, ask them to wait until you file FAFSA to contribute to the 529 account if it is either parent- or student-owned. (FAFSA only.)
  • DO NOT accidentally report assets you don't have to. Remember, you do not need to report the value of retirement accounts, primary residence, personal property, or the value of or assets belonging to any business you own. (Unless the company employs 100 or more people or is a C Corporation.) (FAFSA and CSS, except that CSS counts the value of a business.)

Lowering Reportable Income

Recall that FAFSA and CSS look at "prior, prior" tax year information to determine household income. Talk to your advisor now to affect student aid for the 2023-24 school year.

There are different strategies for lowering reportable parent income than for reportable student income.

Lowering Reportable Parent Income

  • Control realized capital gains and losses (FAFSA and CSS)
  • Look at investment strategy (looking for total return through capital gains vs. income/dividends, preference for funds without potentially significant passthrough gains) (FAFSA and CSS)
  • Control deductible small business expenses, expenditures, accounting techniques (FAFSA primarily)
  • Control exercise of non-qualified stock options (FAFSA and CSS)[4]

Lowering Reportable Student Income

Financial assistance to a student from a non-parent benefactor (NPB) such as a grandparent, aunt/uncle, friend, or other benefactor is counted as unearned student "income." For example, if an NPB pays for rent, utilities, tuition, fees, the value of that aid is considered "income."

There are two ways for NPBs to assist students without torpedoing financial aid eligibility.

  • Gift to student indirectly, by gifting to the student's parent.  (FAFSA only.)
  • Wait to give. Save up your generosity until after January 1 of the student's Sophomore year (assuming graduation in four years). Why? Because of the two-year delay in reporting income, the student will graduate before the income would show up on a FAFSA. So, for example, for a student who graduates in the spring of 2025, any income the student receives after January 1, 2023 (second half of sophomore year) is irrelevant.

(For CSS, waiting to give does NOT apply to help only for direct assistance such as paying rent, utilities, clothing, tuition, fees, etc.)

Note: for added benefit, make sure the student or parent uses any aid a couple of months before filing FAFSA, as there is NOT a two-year delay for reporting the value of cash, savings, checking, or investments on the FAFSA and CSS.

If Your Situation Changes

If a family's financial situation changes significantly and indefinitely – job loss, divorce, etc. – you should talk to the Financial Aid Office at your student's (prospective) school and ask them about refiguring your EFC on an individual basis using current numbers. In this case, current income (instead of past income) will become a factor; consider adapting and adopting some of the strategies above for current income, even if the student is a Junior or Senior.

Changes Ahead

The U.S. Department of Education is currently overhauling the FAFSA. Some of the changes that are on the way (but not here yet) include:

  • The "Student Aid Index" will replace the "Expected Family Contribution."
  • Parents with multiple children in college will no longer receive a "discount."
  • Income protection allowances increased.
  • Cash support and other types of income will no longer be reportable on the FAFSA, including funds from a grandparent-owned 529 plan.
  • Changes to the Federal Pell Grant will make more students eligible.
  • Rules for divorced parents and child dependency based on IRS rules.
  • Changes to the financial aid appeals process.
  • Learn more about FAFSA simplification here.

Practical Takeaway

Some of the strategies are easier to implement than others. Before making a difficult change, estimate if adjusting your income or assets will meaningfully improve your chances to receive financial aid. For example, if one is attending a school with no support for well-off families, there is little point in making changes if one is in the "1%." Therefore, start by making a rough estimate of your baseline EFC, then ask the financial aid officer whether you are anywhere near a cutoff point for need-based financial aid. If so, work with your financial advisor to develop a reasonable plan that fits into your overall financial picture.

If you want help optimizing your income or assets for your child's college education, schedule a free consultation with the Hurlow Wealth Management Group today. College planning is just one of the many services included in our proprietary financial planning process we offer to our clients. For nearly two decades, the Hurlow Wealth Management Group’s team of CERTIFIED FINANCIAL PLANNERS™ based in Bloomington and Indianapolis, Indiana, have assisted clients in 25 states through education and other financial planning issues. Our clients tell us that working together helps them find clarity, confidence and feel comfortable knowing that they have the resources to provide for their family. Click here to schedule an introductory call to see if our services are right for you. 

[1] If a family's finances have meaningfully deteriorated since the tax year reported on the FAFSA, it is possible to have a special review of your current income. For example, if there was a job loss, death, or divorce. Talk to your school's financial aid office.[2] The CSS Profile counts these assets, but schools vary in how they count this value.
[3] Counted by CSS Profile
[4] The reportable value is just the spread between the exercise price and FMV if the option or grant is vested and in the money, not the entire FMV value.

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