As a financial adviser I had a rule for my clients – pay yourself first.
Exactly what does that mean?
It means no one without your last name will care as much about your money as you. Not your financial adviser, church, friends, or lawyer. When it came to considering whether or not to pick up the tap for that pricey university, I always reminded folks someone will lend the kids money for college but nobody will lend you money to retire. Borrowing money from retirement to pay for college reeks of the inevitability of having to move in with your children later. Or worse, bankruptcy.
That’s why I was perplexed when a neighbor recently told me of his plan to make his kids go independent when applying for college. In essence, force the children to establish a separate residence, claim poverty, and go to work before heading to school. His rationale was that he could save a bundle of money while the kids qualified for Pell Grants (maximum of $5,400 for 2012) and financial aid.
Sounds too good to be true? Well that depends on who you ask. Various internet sites contain a bevy of information on how to accomplish this. Most of which I found was inaccurate when it came to dealing with the Internal Revenue Service, 529 College Savings Plans regulations, and ethics.
The independent student status rarely applies to the recent high school graduate. Loans are secured through a FASFA (Free Application for Federal Student Aid). In total, there are ten questions to which answering ‘yes’ to just one will qualify for the aid. For a list of qualifying questions, see the FASFA web site at http://www.fafsa.ed.gov.
The reason it’s so difficult to qualify for FAFSA assistance rests in the fact that most questions center around already being a parent, married, in the military, or over the age of 24. There may be special circumstances in the lives of your children that allow for application to FAFSA but the standards are hardly generous.
All of which takes me back to my perplexing situation. While my oldest is still a few years from college and has a decent nest egg saved in his 529 plan, I highly doubt he will qualify via FAFSA. I guess, unlike my misguided neighbor, I will not be throwing out the kids at 18.
That’s a pretty good thing. At 18 they are still very vulnerable to outside influences and need support.
I will just apologize, in advance, for all the loans they will have to apply for to make it through a four year college. After all, dad has to retire sometime.
Robert Watkins is former investment professional and partner. His career spanned 25 years as a financial services and consulting advocate. Robert lives with his family in Glen Mills, Pa., and is a frequent contributor to Yahoo! News and Finance.