Show Me the Money: The Facts About Scholarship Finders
With college tuition skyrocketing, many students are looking for outside help to fund their education. Of course, the first and most reliable place to seek out assistance is through financial aid programs. But if your kids don’t qualify for financial aid, they can always apply for a scholarship. Scholarships are financial gifts that don’t need to be paid back, and are awarded based on certain criteria. There are academic scholarships, religious scholarships, scholarships based on ethnicity–the list goes on and on. With millions of scholarships available in the United States, the chances one fits your child’s qualifications are high. But how can you help your kids find one with their name on it?
The Research Search
Research is the best way to find that special scholarship. Unfortunately, many students don’t have the time to look or just haven’t had much luck in their search. There are services available that do the searching for them. These scholarship finders charge a fee to compare a student’s profile with a database of scholarship opportunities. They often print or email a specialized report that lists all the potential scholarship opportunities available for which a student may qualify, along with information on how to apply, deadlines, etc. The key to getting the most for the money is to be persistent in the scholarship hunt. If your kids do decide to go this route, make sure they utilize the list provided to them by the company, and if some of the scholarships don’t match their qualifications be sure to talk with the company about the discrepancies.
Do-It-Yourself
In addition to paid services, there are also free Internet search engines that can help match students to appropriate scholarships. Collegedata.com offers a search engine that takes the most common eligibility criteria like GPA, gender, residency, ethnicity, religion, and area of study, and matches it to the scholarships in their database. The drawback to relying on this kind of search is that it is often too broad. Students establish their criteria, then wind up with a long list of potential scholarships, many of which will likely be outside their realm of qualifications. Other sites that offer free comprehensive scholarship searches include scholarship-monkey.com, brokescholar.com, and collegeboard.com. For more links to free scholarship search engines head to www.college-scholarships.com and click on “Free College Scholarship and Financial Aid Searches.”
Not-So-Free Money
Though there are legitimate companies that offer these services for a fee, there are a lot of scam artists who claim to have secret information, guarantee your money back, or make other outlandish promises. The Federal Trade Commission recently launched an investigation into these unscrupulous activities and released an alert with information on how to avoid these scams. According to the FTC, the following advertising lines are red flags:
• “The scholarship is guaranteed or your money back.”
• “You can’t get this information anywhere else.”
• “I just need your credit card or bank account number to hold this scholarship.”
• “We’ll do all the work.”
• “The scholarship will cost some money.”
• “You’ve been selected by a ‘national foundation’ to receive a scholarship” or “You’re a finalist” in a contest you never entered.
The FTC suggests parents and students looking into paid scholarship finding services should investigate the organization, get references, and request the offer, services, and policies in writing. To learn more about these scams, visit the ftc.gov/scholarshipscams, and, if you do encounter a scam artist, file a complaint on the FTC website.
If a company is legitimate and does deliver a comprehensive list of scholarships, you have a very good chance of recouping your investment in the service. But it will take a lot of action on your child’s part to find the scholarship and complete the application process. They’re giving your family the map and directions to the rainbow, it’s up to you to find the other side…but there may just be a pot of gold waiting.
The 411 on 529
Are you looking to save for your child’s college education, but you’re concerned about the kind of impact such savings can have on their eligibility for financial aid? If so, read on, because in this article we’re going to share with you a financial plan that enables you to sock away money for your kid’s schooling, while helping to minimize your Estimated Family Contribution (EFC). For those of you who haven’t heard of it before, the EFC is the amount of money financial aid officials believe you should be providing to fund your son or daughter’s college education. Your son or daughter’s financial aid package will be based on the difference between the cost of the college and the EFC. In other words, the larger the difference between the cost of college and the EFC the larger amount of aid a student can be eligible to receive.
The 529 Plan
A 529 plan is a tax-advantaged savings plan that was created to help parents save for their child’s college education. There are two variations of 529 plans: the pre-paid tuition plan and the college savings plan. The tuition plan is often sponsored by your state and enables individuals to purchase units or credits at participating colleges that can then be used for tuition. It locks in the price of tuition at the time you begin the plan, which helps minimize the costs associated with tuition increases and inflation. These plans usually require students to be residents of the state and are meant for public institutions, but recent changes have made them more amenable to those seeking private or out-of-state alternatives. The college savings plan is exactly what its name implies: a savings plan that parents can use to pay for their child’s tuition, room, board, and other education-related expenses. This plan is offered by most states, and parents can invest in any available plan. So you’ll want to look for the state plan that offers the best performance with the lowest fees. According to the Web site savingforcollege.com, New York, Georgia, and Utah have had the top three “best performing 529 college savings plans” over the last three years.
Saving Doesn’t Have to be Taxing
529 plans are known for their tax advantages. These plans enable parents to save for their child’s education without paying tax on the earnings or withdrawals, as long as the withdrawals are used for qualified education-related expenses. State taxes will depend on the state, so check with your local state department of education to learn if you can get a state deduction on your investment.
Financial Aid Impact
Keep in mind that 529 plans can influence your child’s eligibility for financial aid. It is important that the plan is put in the parent’s name, with the child designated as a beneficiary. The goal is to minimize your EFC, and the EFC takes into account 20% of the student’s assets, but only approximately 5.6% of the parent’s. By placing it in your name and not your child’s, you are helping to reduce the EFC.
Things to Look For
There are direct 529 plans that enable investors to do it themselves and save on fees. The alternative are advisor-sold plans which bring in the help of a financial professional. It’s a choice you’ll have to make, though it is beneficial to have an expert in your corner. As for the kind of financial professional you’ll want to hire, as with any kind of financial transaction make sure you ask a lot of questions. Find out what the advisor is going to do for you in relation to college savings, what kinds of strategies they’ll employ, and what experience they have dealing with college financial aid. As for your 529 plan, determine if it’s available from your state or a sponsor. Find out what fees will be charged and penalties assessed for withdrawal. Also ask about investment options and any special benefits for residents of the state. As for limits on the account, the maximum limit can be as much as $320,000 and there are very low contribution minimums. It is highly recommended that you explore your options for financing your child’s college education as early as possible. This will ensure you have enough time for your investment to grow and provide those much
A Taxing Workload
Students who are working in high school to save for college may be putting themselves at a disadvantage when it comes time to apply for financial aid. The Estimated Family Contribution or EFC is a calculation that aid officials use to determine how much parents and students can be expected to provide for tuition. What some families don’t know is that the EFC puts a large emphasis on how much a student earns and saves before attending college.
The Time to Know
The Free Application for Federal Student Aid (FAFSA) wants to know how much students have in the way of assets between a specific period of time prior to attending college. The time a student’s assets become relevant is as early as January 1st of the student’s junior year until December 31st of the senior year of high school. If your child has done any work in that time period and saved money for school, he or she will need to report these assets to determine the ECA.
Working for Financial Aid
The issue that is the most critical to your student’s financial aid package is their level of assets. For parents, there is a portion of assets that are protected from being used to determine the ECA, which is calculated according to age and marital status. This amount is subtracted from the total assets. The percentage of a parent’s protected assets that are used to determine the ECA can be as high as 5.6%. However, student assets have no protection and will be factored in to the ECA at a whopping 20%. In other words, the more assets a student has the less financial aid he or she will receive. Student assets include savings accounts, mutual funds, cash, and other liquid assets. Although this policy seems appropriate given we’re talking about need-based aid, some kids in need who are given money by their grandparents or who work tirelessly to save for school or to pay expenses will see their financial aid package dramatically reduced.
With regard to income, students are given an income protection allowance that enables them to earn up to $3,750 for 2009-2010. Any amount over that allowance will be assessed at 50% for the purposes of determining the ECA. Although students are often encouraged to work if possible, they need to be aware that this income is considered fair game for paying for tuition. Income includes adjusted gross income or total wages, non-taxable income like income credits, public assistance, IRA deductions, retirement distributions, etc.
Declaring Your Independence
One other element to consider is whether or not your son or daughter is dependent or independent. In order to be considered independent a student needs to fall under one of several categories. This includes being 24 years of age or older by December 31st of the year the award is provided, a veteran of the U.S. Armed Forces, married, or a number of other categories. Being independent will alter the way a student can calculate EFC and may provide the student with more aid, since he or she will not be receiving assistance from family. Remember, not being counted as a dependent on a parent’s tax return doesn’t automatically mean a son or daughter is independent. Check with a financial aid officer for more information.
Planning for College
If you are saving for your child’s college education through a tax-advantaged plan like the 529 plan, the good news is changes to the law in 2009-2010 will make it easier for students to qualify for aid. The law currently states that students who own 529 plans must report them as assets, but the new law ensures that both types of 529 plans will be counted as parent assets and will therefore be subject to the lower percentage for calculating the ECA. In addition, 529 plans allow parents to make gifts up to $12,000 per year (per spouse) free of the gift tax. Talk with a financial aid officer for more information on 529 plans and their impact on financial aid. Although we don’t discourage savings or work, parents should keep this in mind when planning for how they will be able to supplem
