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How to Get Most Financial Aid for College

With the tax deadline still more than a month away, many of us are still focused on getting our returns filed. But now also happens to be a great time to apply for financial aid for your child's college education.

Early Show Financial Contributor Ray Martin shared some insider tips with Early Show co-anchor Maggie Rodriguez on how to get a leg up on that dreaded FAFSA form.

Martin walked a parent through three options, including pre-paid education arrangements, 529 plans and a Roth IRA, and also suggested which is better for her situation.

"I have to fill out the FAFSA in March (for financial aid) for my son who is going to college this fall and wanted to know if there are any financial moves I should be considering to increase the federal aid he could receive."

If you are preparing to submit the FAFSA this year, there are some financial moves you can make now that could help to increase the potential amount of financial aid for your student this year.

According to Martin, there are no silver bullets here. Unless your income is very low and/or you have a lot of students in college at the same time, don't expect any moves to result in loads of free money (such as scholarships, grants, etc.) But make a few moves and you could see increased federal student loans and work study programs.

Here are a few things to consider for parents getting ready to file the FAFSA for a financial aid award for this year:

Use savings to pay down debt, make additional mortgage payments, contribute to an IRA or buy items such as computers, a car, etc. The federal methodology does not consider consumer debt, the amount of retirement accounts, mortgage on your primary home or recent purchases of a car or computer. But some of the money you have in savings is expected to be used towards the family's contribution.

Move money from student's name to a 529 plan or to your account. Money held in the student's name is treated especially harshly, with over a third of it required to be used towards education costs. But assets held in 529 accounts are treated as parent's assets where only 5.6 percent is required to be used towards college costs. If you own any 529 plan accounts, consider owning these in the grandparents name (with the student as the beneficiary) - grandparent-owned 529 plan accounts are not includable assets for financial aid purposes.

Enroll in education courses at same time student is applying for college. If you are planning to go back to school for additional education, then timing your enrollment in the same year your student is applying for federal aid could help. Be prepared to provide lots of proof of your enrollment to a financial aid administrator and to go through a special review for your circumstances to qualify.

File your tax returns now: before you file the FAFSA for the 2010 award year prepare and file your 2009 tax return. Doing so will allow using the actual figures for income and tax liability instead of having to make estimates, which could be too high.

File your FAFSA early: in an effort to distribute financial aid funds fairly, financial aid administrators will distribute funds on a first come basis - and when the aid is distributed, there is no more available until the next year. Although the deadline to file the FAFSA is June 30, you'll want to get your application filed as soon as possible as early application increases your chances for aid, so get this done by the end of February.

According to Martin, it can pay to make a few financial moves in the calendar year before the year you submit the FAFSA.

Basically this involves strategies that can reduce your income and includable assets. But doing this takes planning and foresight so you'll need to think and plan ahead as making a few well timed financial moves can help to decrease your expected family contribution and increase your student's eligibility for some federal financial aid programs such as federal loans and work study programs.

Financial strategies to make this year that could increase financial aid when you file the FAFSA again next year can include:

Minimize Income: be careful when selling investments in taxable accounts - realized capital gain is included income. Avoid taking taxable withdrawals from retirement accounts and exercising stock options. Also, defer any bonus income until next year, if possible.

Hold off on making gifts of money to the student: ask family members to hold off on making monetary gifts directly to the student. Instead, make gifts after graduation, which the student can then use towards paying off student loans, etc.

Deplete student's assets first. If you feel that the student's assets should be used towards education costs (wasn't that the purpose of these savings in the first place?) then use up all of the students assets towards college costs this year, before using any of the parents assets.

Contribute to retirement accounts. Since assets in retirement accounts are not includable, making the maximum contributions to 401(k) accounts this year can reduce your savings outside retirement accounts (remember: savings outside retirement accounts are includable assets).

Martin's favorite article on the Web for parents and students who want to know about financial planning and the FAFSA:

And his favorite book on the subject:
"Anna Leider and Robert Leider, Don't Miss Out: The Ambitious Student's Guide to Financial Aid," 21st edition, Octameron Associates, Alexandria, Virginia, October 2004.

If you think you're earning too much to get financial aid, think again.
Check out to see how just about anyone can get financial assistance.

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