The family’s EFC had been reduced from $19,168 to $16,066.
Using the same calculations as above, Hood College will help with 78% of the family’s OPTIMIZED need or $28,839. But, Hood College would not assist with 22% of their NEED which in this case would be $8,134 (.22 x $36,974) — and 25% of the help they provide will be in loans or work-study representing $7,210.
Total out of pocket expense after reallocation would be:
Optimized EFC $16,066 plus unmet NEED of $8,134 plus Self Help Aid or $7,210 for a total out of pocket of: $31,410.
Without EFC Optimization and reallocation, the family had an out-of-pocket projection of $33,225. This strategy would save the family $1,815 per year with a projected 4-year savings of $7,260.
Of particular note, in this case, the family had two children in college simultaneously. If the other student selected a college with similar NEED response and Aid allocation, the total savings would be approximately twice as much at $14,520.
REMEMBER: any reallocation strategy should consider the likely impact based on historical data representing a college or university’s response to NEED. The costs, penalties, opportunity costs and other factors should also be determined and discussed prior to implementation.
Summary of proper planning and implementation
Our robust reporting ability provides both the financial professional and the family the tools necessary to both calculate the opportunity and the impact of allocation strategies for the purpose of financial aid improvement.
Successful reallocation strategies typically use assets not considered in financial aid eligibility. When a competitive rate of return, security and predictability are desired features, insurance products, such as annuities and cash value life insurance contracts, are well-suited for this purpose.
Properly structured, a cash value life insurance contract could increase financial aid eligibility as illustrated and simultaneously provide a modest return on the entire principal as well while adding the additional benefit of liquidity, control and death benefit, further insulating the family from the impact of lost income due to the death of a parent who was anticipated to be contributing to the college funding from future income.
An annuity — properly-structured and including a careful evaluation of costs and restrictions — can provide a greater opportunity for growth, but may reduce liquidity. The achievement of the goal improved financial aid eligibility, however, would be assured in either the case using cash value life insurance or an annuity.
