Our friend and colleague, Lynn O'Shaughnessy, opines on why saving for college -- or for anything, for that matter -- is a good thing. To top it off, having saved some money for education beyond high school, you won't necessarily be penalized in terms of securing financial aid from your college of choice.

There are some links included, courtesy of U.S. News & World Report (the folks with those silly rankings), to be taken with the requisite grain of salt, hopefully spurring some more in-depth research into what truly is the "best" college for you or or child, at a price you can actually afford.

Be sure to visit Lynn's blog, The College Solution, for more insight into the college application and admission process.

Why Saving for College Won't Kill Your Chances for Financial Aid

By  Lynn O'Shaughnessy 

Is your family going to qualify for financial aid?

Many families I talk to assume that they won't qualify for financial aid. Why are so many parents pessimistic about their chances for financial assistance? I think a lot of them assume that the money they've squirreled away in their college savings accounts will kill their chances.

I find it ironic that when parents have small children, they feel good about setting aside money for college. When the college years loom, however, some parents begin viewing their college accounts as hand grenades that could explode at any minute.

[Read about best value colleges.]

It's been my experience that it's typically dads who get stressed out about how colleges will treat these accounts for financial aid purposes. Some fathers whom I've talked with have become embittered about this issue. They are especially incensed at the possibility that families that didn't set aside money for college will hog all the aid.

If that's what you're worried about, here's my advice: Relax.

Families who save for college are rarely hurt in student financial aid considerations. In fact, it's been estimated that fewer than 4 percent of families who fill out financial aid applications are penalized for their savings.

[Read 10 Tips for Getting More Financial Aid.]

Here are the two biggest reasons why saving money shouldn't hurt your financial aid chances:

1. Colleges don't care how much you saved for retirement. The Free Application for Federal Student Aid (FAFSA), which anyone applying for financial aid will complete, doesn't even inquire about retirement accounts. Private colleges that use CSS/Financial Aid PROFILE, also don't penalize parents for their retirement savings.

[Read how the easier FAFSA inspires hope for more financial aid.]

2. Parents can also shelter plenty of money outside retirement accounts. It might not seem like it, but colleges don't want to strip you of all of your available cash. The financial aid formulas will also let you shield a big chunk of your non-retirement money.

How much you can shield from the FAFSA formula depends on the age of the oldest parent. The older the parent, the more you can shelter.

Let's say the oldest parent is 52. The family would be able to shield $55,500 in 529 savings plan money, as well as any other cash laying around in taxable accounts such as savings and brokerage accounts. 

Oldest Parent Asset Allowance
45 $46,600
47 $48,900
50 $52,900
52 $55,500
55 $60,200
58 $65,300
60 $69,200
62 $73,200
65+ $80,300

Using an example should make it easier to see how this allowance would work. Let's assume that a family has $100,000 in non-retirement assets, including $25,000 in a 529 savings plan, and the oldest parent is 55.

The family would get to shield $60,200 from the FAFSA formula, which would leave $39,800 unprotected. In calculating the family's financial need, the FAFSA methodology wouldn't expect the parents to sink all of that money into college. Consequently, the $39,800 in assets would be assessed at a parental rate of 5.46 percent. When you do the math, the child's eligibility for need-based aid would only drop by $2,173 even though the family had $100,000 in the bank.

Knowing this, would you rather be a family who saved nothing for college or the family who has $100,000? Obviously, it's a no brainer.

[Get more tips on paying for college.]

So what's the bottom line? Saving for college will hardly ever hurt your chances of financial aid.

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In this era of escalating college costs, parents (and kids) should sock away as much as they can -- using the 529 as the centerpiece of their college savings plan.

Regardless of the treatment of 529 Plans under both FAFSA and CSS Profile (SEE http://www.finaid.org/savings/loophole.phtml), 529s are the vehicle of choice (New York has a great 529 Plan, by the way) for college savings, providing, along with the opportunity to amass a considerable college nest egg, myriad tax advantages, from tax-free distributions to deductions from the State Income Tax.

Of course, most of us cannot afford to rely on savings alone, or the generosity of the financial aid office, when it comes to paying for college, where six figures is quickly becoming the norm for a four year stint.

That's why a prudent plan to search out and apply for scholarship and grant money, outside the college realm and not necessarily within the purview of either the FAFSA or the CSS Profile, must be an integral part of every college-bound student's mantra. There is money out there for college, if you know where to look for it, and are willing to invest the time to apply.

Parents and students are encouraged to read The College Whisperer's posts as appear in this blog, for a greater appreciation of the many resources available to help get into and pay for college.

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Plan. Prepare. Prevail!

The views and opinions expressed in this blog are solely those of The College Whisperer, the authors of referenced articles and websites, and such guest bloggers as may appear.
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