Moving Money to Increase Financial Aid Often Unnecessary

This is the time of year when those who sell financial or insurance products come out of the woodwork, and use college funding as a tool to get people in the door.  Your student may even receive a special “invitation” to meet in a hotel ballroom, where they do a hard sell in the back of the room after telling you that if you don’t get proper help, you will be “living in a van down by the river”… (remember the SNL spoof with Chris Farley playing Matt Foley, Motivational Speaker?)

A typical point of vulnerability if money in the child’s name, or home equity.  Sometimes they tell you that a student should never have money in their name and that the you need to move your child’s money into an annuity.

When you attend a seminar or workshop on college funding or financial aid, research the company or individual conducting it and determine if they are truly an authority on the subject. Look at their website. What degrees, credentials, designations, and licenses do they hold? Have they disclosed their "primary" service? Ask what services beside college funding they have for sale. You may find their primary business to be annuity and life insurance sales, not college funding.

When your consultation shifts to a discussion of moving money, beware of terms like loophole, liquid annuity, guaranteed return-of-premium, or penalty-free. Due to the treatment of parent and student assets in the financial aid formulas, the concept of moving (or repositioning) money in order to qualify for more financial aid has been around for some time. There are mixed views concerning this practice among financial aid administrators and college funding professionals.

The types of annuities often recommended by "always-move-the-money" proponents are designed to "hide the money" with the intention all the while of using it for short-term college expenses. This contradicts the spirit of the law whereby such assets have traditionally been protected from financial aid assessments. As a result, more and more colleges are now asking about annuities (and even life insurance) on financial aid applications.

It's important to note that income is weighted far more heavily than assets in determining financial aid eligibility. While there are exceptions, parent income – not asset value - is often the limiting factor in qualifying for financial aid.

Annuities and life insurance should have a strong position in a balanced portfolio, although I recommend repositioning existing funds only when this provides a clear benefit to the integrity of your overall financial profile. And finally, while I strongly recommend that families understand how the financial aid system works, I discourage anyone to "work the system."

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