Some financial methods used to increase the chance of receiving need-based aid for college are risky and not recommended despite some consultants’ advice, according to the Boston University Financial Assistance Office.
To finance a college education, some advisers suggest parents consolidate bank accounts under one name — a move that appeals to universities that may give more need-based aid to an account with other expenses, according to a Jan. 27 New York Times article.
But advisers who recommend this consolidating course of action are not taking into account financial implications behind the decision, said BU Financial Assistance Office Director Christine McGuire.
“We’re not trying to hide it from anybody,” she said. “It’s just not appropriate advice to be given because of the tax implications.”
Students who reorganize their bank account information to receive more need-based aid after filling out the Free Application for Federal Student Aid must be careful in potentially presenting false information, McGuire said.
“You’ve done what makes sense tax-wise,” she said. “Now, you’re trying to do what makes sense financial-aid-wise. If you fill out the FAFSA and hand it in and then reorganize your assets, you haven’t shown everything that’s in your name. That’s fraud.”
But if applicants reorganize their finances too close to a university’s financial aid application deadline, it will ask about recent family financial behavior, said MyCollegeCounselor.com Director Bari Norman. Norman’s company, a college consulting service, helps students prepare for the college search and application processes.
“They want to free up income and move things around in an ethical way, which is fine, but sometimes, you need to make those movements earlier than you might think,” Norman said.
Of approximately 16,000 BU undergraduates, only about half applied for financial aid this past year, according to the Enrollment Planning and Retention Office website.
When determining the amount of need-based aid a student should receive, the Financial Assistance Office reviews several factors, McGuire said.
The FAFSA, a federal form that determines how much a family can contribute to a college-bound student’s higher education, and College Profile, a College Board financial aid application, help calculate how much a family can pay for one year of college, she said.
These forms detail a family’s financial situation, including any accounts in the applicant’s name. Financial aid offices will generally weigh greater value accounts in applicants’ names because they expect students will contribute about one-third of their assets to their education, McGuire said.
“It gets counted more heavily if it’s in your name, because it’s your education,” she said. “We are trying to decide who needs aid and who doesn’t. If you have money in your name, you have a resource that someone else might not have.”
Accounts in parents and relatives’ names are valued at a lower rate because they presumably have other financial obligations within the household, McGuire said.
Many parents put money in accounts under their children’s names for tax reasons or income purposes when the student is young, McGuire said. When a family starts thinking about financing a college education, she said parents remove the child’s name from the accounts so the money is assessed at a lower value under another family name for financial aid.
“It’s an area of specialized knowledge,” Norman said. “People often are very quick to ask about scholarships when they are not very attuned to the resources under their nose. [Shifting financial resources is] not a part of the regular dialogue when it comes to financial aid.”
Norman, a former Barnard College and Columbia University admissions officer, said she understands why financial aid offices do not explicitly tell students about asset reorganization and said she wants applicants to communicate more with the offices.
“They aren’t trying to withhold information, but at the same time, their job is trying to help make this work for families so that their children can attend college,” she said. “They are not financial services offering restructuring or reorganizing advice. Parents really need to be familiar with their overall finances.”
With state and private institutions’ tuition constantly rising, financial aid awards tend to largely influence students’ decisions on where to get their higher education.
“Cost is one of the biggest issues in higher education,” Norman said. “So financial aid plays a significant role in being able to maintain and open up access to students from all backgrounds.”
Common mistakes students have when filling out required financial aid documents include missing the application deadline and submitting forms with a name, date of birth and social security number that do not match federal files, McGuire said. These errors delay the application’s review, reducing the amount of available aid.
McGuire said some applicants wait too long to seek financial aid information or they do not ask for assistance, which can lower the amount of money they will eventually get.
“This information is not secret, but it’s complicated, so it takes some time for people to really understand what we are doing,” she said. “Despite BU’s size, our office is looking at every single application. If parents come to see us because they feel that the report does not accurately represent their assets . . . we will certainly revisit and make changes in awards.”