After years of saving for college, we have what appears to be too much income and too much non-retirement $ sitting out there when it comes to FAFSA calculations to qualify for any need-based financial aid - -even though the money we have designated for our sons' education sits in UTMA's or 529's with us as custodians vs in our kids' names .
Despite having been laid-off last year, my severance, unemployment, & income received prior to the layoff made our tax return for 2011 look as if we actually did BETTER than the previous year, and bumped-up our FAFSA EFC for this coming fall even higher (into the $50-60k range).
We will try filing a special circumstance appeal to the university our older son attends, as I am still unemployed, but not sure what our chances are, due to the large amount we have saved for both kids' education.
So we have been looking for legal ways to reduce some of that college money from a FAFSA standpoint. We recently attended a workshop & met with the planner running it to discuss our options. While I am obviously wary of tieing-up any money we have saved that we may well need to live on while I am still unemployed, he raised 2 possible alternatives to keeping/placing any $ in 529's (even under OUR vs kids' names) to at least shelter portions of the college $ from FAFSA calculations:
(1) Our younger son is a high school Junior, and so will hopefully graduate college 5 years from now. The planner suggested my wife purchase a 5-year annuity now (I believe he called it a SPIA) with the money we have saved/earmarked for him, and take out loans in the meantime to pay for college. After 5 years, my wife will be 59 & 1/2 and can withdraw the annuity $ and earnings (without any early surrender, etc charges) & pay-off the loan balance. Of course we'd be liable for loan/interest payments over that time, but hopefully the lowered EFC & any need-based financial aid received as a result would more than offset that.
(2) Shorter-term, if we just wanted to "hide" money from the FAFSA "snapshot", we could buy a life insurance policy with a "return-of-premium" rider to be able to withdraw the money penalty-free in as little as a year or so. There'd be no growth as with an annuity, but, should anything happen to the policyholder, we'd have enough $ to cover college expenses, and could also see some college financial aid by lowering our EFC.
I've always been a straight-forward saver/investor, so both those options are new to me. I'd like some opinions as to both the legality of such moves, as well as potential pitfalls involved. For example, I always thought when discussing annuities, one had to be wary of various up-front charges, fees, etc that could eat into its value/returns. But the planner assured me there were none (although he would be "paid" for such advice by the annuity company - - so where's that $ come from?). I also would need to know if that would be an allowable move/use of the money currently either in a UTMA, or planned to be moved to a UTMA-529.
Anything we can legally do to help us cut college expenses is worth considering, and we're hoping members of this Forum have heard them all before & can offer up suggestions, warnings, or confirmation as to what might work or what to look out for.
Thank you very much in advance for your help!