ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, July 8, 1996 TAG: 9607080143
SECTION: MONEY PAGE: 6 EDITION: METRO MAG POFF/STAFF
MOST parents ignore the question of paying for a college education until it's too late.
H.S. Johnston Jr., director of financial aid at Radford University, said he's found "a real absence of knowledge of financial aid" by parents.
One of the factors to be aware of is the need to apply early - like right now - for aid beginning in the fall - not this year but of 1997. If you wait until the first of the year, Johnston warned, you will find only loan dollars available instead of scholarships at many large schools. "This is the time of year to think of it."
Nor can parents start too soon to begin saving for college. Johnston, who once talked to high school students about financial aid, more recently has directed his advice to fifth- and sixth-graders and PTAs in middle schools.
He has read that parents average putting away only $500 a year for their children's education. "That won't even buy books and supplies," Johnston said, with the tuition and boarding costs at Radford exceeding $7,000 last year.
Of the 8,600 or so students at Radford University last year, Johnston said, about 5,400 received financial aid.
The percentage of students receiving aid at Radford ranges from 63 percent to 67 percent a year, according to Johnston. The figure remains "pretty constant."
Most of the money comes from the federal or state governments, he said. Direct university aid money "is in the minority."
The Virginia Society of Certified Public Accountants said that nationwide the government provides nearly 70 percent of all educational loans and grants, making the federal government the best place to start seeking aid.
Some loans, such as Parent Loans for Undergraduate Students (PLUS) and unsubsidized Stafford loans, are available to anyone who demonstrates that he or she will be able to repay the debt. But the society said most federal aid is based on demonstrated financial need.
To determine if you qualify for aid based on financial need, you must fill out a financial aid form which requests information about family income and expenses, assets and liabilities, and the number of children currently in college.
This information is used to calculate the expected family contribution, which is the amount that authorities believe your family should be able to pay.
The gap between the "expected family contribution" and the cost of tuition is the amount of aid for which you generally qualify. Some schools don't fill the entire gap.
In recent years, the accountants said, some parents have become concerned that the money they have saved toward their childrens' education may end up hurting their chances for financial aid.
This is not necessarily true, they said, particularly if your income is high. That's because your expected family contribution is based more on your income than on your assets. So, if your income is high, you will be expected to make a sizable contribution to your child's education, even if you have no savings. That makes a savings cushion your best defense.
When it comes to the information on your financial aid form, you must be truthful and accurate. But the CPAs said there are some perfectly legal ways to structure your finances to qualify for more financial aid.
First of all, think twice before you put savings or investments for college expenses in your children's names.
That's because colleges generally expect a family to use no more than 5.6 percent of the parents' assets each year to pay college costs. But the child is expected to use 35 percent of his or her own assets to finance a college education.
Repositioning your savings and investments is another strategy you can use to minimize your wealth as measured by the financial aid system.
For example, when you calculate your net worth, the system recognizes some forms of wealth as assets, but not others. Bank accounts, stocks, bonds and mutual funds count, but the cash you accumulate in qualified retirement funds, insurance and annuities does not. So it pays to save for retirement in sheltered funds.
If you are going to sell some investments for a profit to pay for college, don't sell them in the year before you apply for aid. Even though both the investments and cash qualify as assets, the CPAs said, capital gains show up as income on your return, and financial aid formulas weigh your income much more heavily than your assets.
Instead of selling your stock, you might consider using a margin account because margin loans can be deducted from the total value of your assets.
Your home is another resource you may be able to use to obtain cash for college costs. Home equity loans give you the advantage of deducting the interest you pay on up to $100,000 of home equity debt.
Your retirement plan at work might be another source of college cash, but you should be cautious about withdrawing funds prematurely and risking penalties - as well as diminishing retirement savings you may need later on. But, if you meet certain conditions, you can borrow from many plans and repay the loan while paying interest to yourself.
A college education is like any other major expense: it's nice to pay for it up front but that's not always possible. If you are willing to borrow for a car, which will lose much of its value quickly, borrowing for college may be even more worthwhile.
But remember that, as with financing for a car or house, you must have a strategy for paying off the debt.
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