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by Randall F. Rothstein, CPA, PFS, CCPS
Certified Public Accountant
Accredited Personal Financial Specialist
Certified College Planning Specialist

In this article, we're going to talk about two families - the Blues and the Greens.

Both families started out with roughly the same financial situation, and their children applied to the same colleges since they both had B averages and 1,100 on their SAT's. However, that is where the similarities end.

The Blues started to think about the college funding process around December of their daughter, Ashley's, senior year of high school. John and Michelle Blue had a combined income of $60,000; $40,000 in savings, a home worth approximately $150,000, and a rental property worth $60,000. They had also put $20,000 in savings into Ashley's name because their accountant told them they would save money on taxes.

They waited until January and filled out the financial aid forms themselves. They got their Student Aid Report (this is what the government sends you after you file a financial aid form) back around the middle of February.

Much to their surprise, this complicated report told them the following things: (1) They had made several mistakes in filling out the financial aid forms and now needed to re-file a new set of forms with the corrected information; (2) It also said their family contribution (the minimum amount they would have to pay at any school) was $18,000.

John and Michelle stared at the report in amazement. John exclaimed, "You mean to tell me that two average folks making a modest income with very little savings have to pay this much? Where in the world do they expect us to get all this money from? We're already up to our eyeballs in bills, and our savings were supposed to be for retirement -- how in the world are we going to send Ashley to college?"

What the Blues weren't aware of was that financial aid is awarded on a first come, first served basis. Since they had to re-submit the financial aid forms, they lost valuable time and ended up losing a lot of college funding.

Around April, Ashley started getting award letters back from the colleges she had applied to. She got her first one back from Philadelphia University, and said to her parents, "This can't be! The government report said we would have to pay $18,000, but this award letter says we have to come up with $20,800. But that's not the worst of it! The money they did offer us is almost all loans with the exception of a $500 grant -- how in the world are you guys ever going to be able to afford to send me to college?"

Ashley got the rest of her award letters from the other schools. Unfortunately, most of them were just as bad as Philadelphia University. The Blues had a tough decision to make -- should they tell Ashley they couldn't afford to pay for her college education, or should they sacrifice. They decided to use their life's savings to pay for the first year, and then they would take out a home equity loan to help pay for years 2, 3, and 4.

The story of the Greens turned out a lot differently.

They also had a combined income of $60,000, savings of $40,000, a home worth $150,000, and a rental property. However, they decided to take control of the process.

Mr. Green decided to use a local college-funding expert, a Certified Public Accountant and an Accredited Financial Consultant, who explained the process to him and his wife and told him how to increase his eligibility for financial aid.

The first thing he showed the Greens was how to set up their savings and investments in the most favorable terms legally allowable before filling out the financial aid forms. The consultant not only showed the Greens how to lower their Expected Family Contribution (EFC) but also explained tax strategies to lower tax liability on their tax return.

The next thing the college funding expert showed them was how to properly value their home for the financial aid forms. He explained that the government uses a special formula called the "Housing Index Multiplier" which is based on the year you purchased your home, and the purchase price. Most people have no earthly idea what this formula is, and end up over-valuing their home, which hurts their eligibility for funding.

The next thing the expert showed the Greens was which schools their son, Jason, had the best shot of getting money from. He explained how some schools have a lot of money to give out while others have virtually nothing. The expert said "You must know which schools can give you the most money before you apply - not after. This way you won't be surprised at the end of the year."

The forth thing the expert did for them was to fill out all the financial forms. The Greens were amazed when he told them that over 90% of all forms go in with errors or inconsistencies. He went on to say, "If your form goes in wrong, you may have to re-submit it again and you will lose thousands in funding."

David and Jamie Green wondered whether all of this planning would pay off.

The first good sign was when they received their Student Aid Report. It said their family contribution was only $8,000. This was $10,000 less than what the Blues had to pay -- all because the Greens took control of the process before they filed their forms.

They also discovered that their forms went in "error-free" so they wouldn't have to re-submit any forms.

But the best was yet to come.

Their son, Jason, started to get his award letters back from the colleges he applied to. He had also applied to Philadelphia University. Except, unlike Ashley, Philadelphia University said he would only have to pay the amount of his family contribution, and they would cover all expenses above and beyond that. He also received mostly grant money and only one loan.

Jason also started receiving award letters from the rest of the schools, and the monies offered were almost exactly what the expert told him to expect. David and Jamie had an easy decision to make. All they had to do was come up with their family contribution, and most of the schools covered the rest of the expenses.

Jason ended up going to Philadelphia University, and his parents didn't have to spend their life's savings or mortgage their house to the hilt to do it.

The Greens lived happily ever after.

What was the difference between these two families?

On the surface, they both looked the same. They had similar incomes, assets, and both students had similar grades and SAT scores. The only difference was that the Greens took control of the process instead of sitting back and hoping for the best. Don't put yourself or your family in the same position as the Blues! Please kept in mind that only about one in one thousand financial professionals are experts in college planning.

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