Structuring Wealth for College
Structuring Wealth for College
By: Mark W. Campbell, Vice President

Over 55 percent of college students receive more than $74 billion in financial aid each year. Families who make less than $50,000 per year are practically guaranteed some financial help for their children. But what if you make more than that? Is there anything that you can do to increase the amount of financial aid for your child?

How are assets owned?
Colleges and the federal government use the Expected Family Contribution (EFC) formula to estimate your ability to pay for your child's education. This amount is subtracted from the annual college cost to determine potential financial aid.

The EFC calculation takes into consideration your family's income, assets, and liabilities. These are weighted differently, depending on the ownership and the type of asset.

As much as 50% of the student's earnings and up to 44% of parental income will be assessed. And 35% of the investable assets in your child's name will be included in the EFC formula, whereas, only 5.6% of your funds will be considered. Consequently, any income tax savings that you may have realized by placing assets in your child's name could end up less than the financial aid reduction.

This means that funds, such as Uniform Gifts to Minors Act accounts will be assessed at the higher rate. On the other hand, Section 529 college savings plans that are in your name will be factored in at 5.6%, or not at all if owned by another relative.

A simple solution would be to spend your child's money. For example, you could buy him or her a new computer or car before you apply for financial aid. For most families though, the situation is more complex. They must review all of their assets to determine which ones are EFC assessable.

Assessable Assets Non-assessable Assets


Life insurance cash value

Checking accounts

Retirement plans

Savings accounts


Money market accounts




US Saving Bonds

Personal items

Educational IRAs

Primary personal residence


Family farms


Siblings' assets

Mutual funds

Limited partnerships



Business ownership (40% of first $85,000)


Other real estate


Installment contracts




Shift assets
You could transfer assets from your child's name to yours. However, if you have set up a Uniform Gifts to Minor Act or Uniform Transfers to Minor Act account, you're out of luck. Once you put funds into those accounts, they belong to your child and cannot be taken back. In addition, you may not be able to justify to the IRS why you shifted the money back to your name as college approaches.

Other accounts that are in your college-bound child's name could be moved to the name of another child. The income will still be taxed at a child's lower rate. But keep in mind that financial aid questionnaires may ask you to reveal assets in other children's names.

Roth IRAs are another option. These accounts:

Reposition debt and get rid of the cash
EFC formulas consider how much cash and income is available for college expenses. It's generally, however, not a good idea to take on more debt with the thought that it may help with financial aid. The cash flow impact could cost you more than you'd gain.

Do you own a cash value life insurance policy or variable annuity? Moving money into these investments would reduce the amount included in the EFC calculations. Or you could convert your child's assessable assets to a life insurance policy or an annuity contract.

Consumer debt, unlike a mortgage, does not work in your favor. Therefore, it may make sense to take out a home equity loan to pay off credit cards. Or if you have extra cash or short-term investments, you may want to use that money to wipe out consumer bills. Less liquid assets will increase your chances of receiving financial aid.

In addition, prepay your mortgage and fund your retirement plans as much as possible. Giving assets to children who no longer live with you will also help reduce the amount in the EFC calculation as well as your taxable estate.

Estate planning backfire
Some investors have set up Crummey Trusts, which allow donors to contribute up to $14,000 per beneficiary each year to the trust without gift tax implications. However, for financial aid purposes, the trust's principal will be treated as a student asset, and trust income will be considered student income. You cannot reverse the ownership. But you can request that the trustee invest trust funds in non-assessable assets, such as life insurance.

Just because you have substantial financial resources does not mean your child should not receive financial aid. With some planning, you can develop a sound strategy that will increase your child's eligibility for financial assistance, which will save you or your child money.

Learn more about calculating your EFC at

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.

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