Ask Terry Questions Regular Savings account a problem for college bound child?

Regular Savings account a problem for college bound child?

By Terry Savage on January 27, 2020 | College Savings / Student Loans

Hi Terry. You were just on WGN AM radio and said something about having a custodial savings account for a child which will hurt when dealing with federal financial aid for college. My son is 17 (Junior in high school). We have a 529 Plan (we did when he was born but haven’t put any money it it — has about $3,000). He also has a savings account that I am the main person (custodial I guess).

Should we convert the savings account to a regular savings account just in his name?
Will then this savings account hinder him in getting more federal financial aid?
What about the 529 plan – will it hinder him in getting more federal financial aid?

And, if we take out a loan to help him with college, what kind of loan would be best for us (parent plus loan?) ? I am not sure of any of this stuff.

Terry Says

OK, you really need to do your homework NOW! I wish you’d order my book (see link at my website) because it will tell you EVERYTHING you need to know about this process. And you must do it right now!

1. ANY account in your child’s name (except a 529) will weigh far more heavily against your family in the financial aid process! You need to get the money out of that account NOW. In the fall of your child’s SERNIOR year you will file the FAFSA form and you have to show all assets. You don’t want that account to show up there! Legally, you should spend that on his needs — a new computer, etc. But if it’s too much money you’ll have to figure out a way to move it!

2. Please read the chapter on FAFSA — or search my columns because I write on every fall — for details on that process.

3. Money in a 529 plan counts far less against you in the FAFSA process. That’s where you should have saved money.
4. RIGHT NOW — set up a meeting with his high school guidance officer to learn more. Yes, they’re busy in spring with acceptances and issues with seniors. But get an appointment and discuss costs, opportunities if you can’t afford the schools he wants, etc. And any scholarship opportunities if he is athletic (or musical, or any other talent). Your guidance counselor will know his grades, abilities, and it’s important to get ahead of this issue –perhaps taking additional courses over the fummer.
5. Finally, DON’T TAKE OUT PARENT PLUS LOANS IF YOU CAN POSSIBLY AVOID IT. They are the highest rate loan, carry a 4% fee on top of the high rate, and you’ll never get out from under. Believe me on this!

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