Personal Finance

Here's how to get more college financial aid, without breaking the rules

Key Points
  • It was recently revealed that some parents have taken the extraordinary step of giving up legal guardianship of their children to someone else — often, a friend or relative— so their income and assets wouldn't be calculated in their children's need-based financial aid packages.
  • You shouldn't do that.
  • There are plenty of above-board strategies to pick up more federal, state and university aid.
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As college costs explode, families are turning more desperate for financial aid.

It was recently revealed that some parents took the extraordinary step of giving up legal guardianship of their children to someone else — often, a friend or relative— so their income and assets wouldn't be calculated in their children's need-based financial aid packages.

You shouldn't do that.

"At best, this is unethical," said Mark Kantrowitz, publisher of SavingForCollege.com. "At worst, these cases may involve fraud and perjury."

The good news: There are plenty of above-board strategies to pick up more federal, state and university aid, Kantrowitz said.

To start, financial aid is calculated based on a family's income for the year before last. So if you're filling out the FAFSA, or Free Application for Federal Student Aid, for the 2020-2021 academic year this October — when the FAFSA season starts — it's your income in 2018 that's considered.

You should try to reduce your income while your child is applying for and attending college, Kantrowitz said.

"Avoid artificially increasing income, such as by realizing capital gains or by taking distributions from retirement plans," he said.

Expecting a bonus at work? Try to defer it, he added.

You can also decrease your reportable assets by using any cash in the bank to pay down debt, such as auto loans and mortgages.

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Negotiating for financial aid

If you have more than one child in college, that will likely boost your financial aid eligibility. "Increasing the number of children in college from one to two is like dividing the parent income in half," Kantrowitz said.

Obviously this isn't always possible. But if you have two children who are close in age, maybe one has the opportunity to skip a grade, Kantrowitz said. Or if you have a child in graduate school, and he or she receives more than half of their financial support from you, you can count that child as still in college, as well.

You want to fill out the FAFSA as soon as possible, Kantrowitz said.

That's because many states award aid on a first-come, first-served basis. And other aid — such as campus-based money — is in limited supply. (Again, application season commences Oct. 1.)

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When you get the financial aid award letter, make sure you understand the differences between scholarships, grants and loans and whether the funds are guaranteed for all four years or if they come with conditions, such as maintaining a certain grade point average.

If you're not happy with the aid you're awarded, don't give up there. Schools are often receptive to appeals for more money.

If there are need-based issues beyond what was noted in the financial aid paperwork, such as an older sibling who moved back home after college or increased health-related expenses, those should be explained to the school and documented, if possible.

Alternatively, if the financial aid packages from other, comparable schools were more generous, that is also worth bringing to the school's attention in an appeal for more merit aid.

"We've had students increase their aid by as much as $120,000," said Zack Perkins, co-founder of CollegeVine, a college admission guidance site. "That initial aid offer is the starting point."

— CNBC's Jessica Dickler contributed to this report.