Small Business Owners Can Save Thousands On College Costs


by Reecy Aresty - Date: 2007-04-12 - Word Count: 395 Share This!

College and college-bound families should be looking into a unique opportunity to save tens of thousands of dollars on college costs for school year 2007-2008.

For the very first time, there's a loophole in the 2007-2008 Free Application for Federal Student Aid, (FAFSA). As a result, families who own and control a small business and who are only required to complete the FAFSA, have a rare opportunity to capitalize on a financial aid bonanza!

I direct your attention to a provision in the Higher Education Reconciliation Act of 2005 (S. 9132), which was approved by the Senate on Dec. 31, 2005, by the House on Feb. 2, 2006, and signed into law by President Bush on Feb. 8, 2006, that states, "The net value of small businesses with not more than 100 full-time equivalent employees is excluded from the definition of assets."

Accordingly, small business owners (parents, not students), or those who can legally set up a small business under the federal guidelines, will reap huge rewards in the form of untold thousands in financial aid previously unobtainable!

It is highly advisable to set up a C or S Corporation, LLC, or at the very least, obtain an Employer Identification Number (EIN) for a Schedule C business. In that way, the small business will have its own individual tax status. However, I recommend that a tax advisor be consulted before choosing any particular corporate entity.

529 Plan owners can benefit as well

In the financial aid formulas, students have no asset protection allowance, which means that for every dollar a student has, they lose 20 cents per year in financial aid. Parents fare far better and only lose 5.6% per year over their allowance which increases with age. Now that both 529 Pre-paid Tuition and 529 Savings Plans are considered parent assets. I recommend the following:

For 529 Plan owners, it's a bit more complex. Those parents who own one can legally transfer the entire account value into a similar plan owned by their small business entity, but need to be aware of the downside. The transfer could trigger a taxable event, but only on the gains in the 529 Savings Plan. Once the transfer has taken place, if the beneficiary is ever changed, it could also result in a taxable event. Nonetheless, the strategy makes perfectly good sense, as the benefits far outweigh any modest income tax consequences. Go for it!


Related Tags: small business, parents, college, federal, financial aid, tuition, llc, 529, c corp

Reecy Aresty has been a financial advisor since 1977, and is founder and president of College Assistance, Inc., located in Boca Raton, Florida. He is the author of "How To Pay For College Without Going Broke," an invaluable, critically acclaimed, parent/student manual, (updated from its previous edition, "Getting Into College And Paying for It!"). Arguably the most revealing book ever written on college admissions and financial aid, it is also the only book of its kind available in Spanish. For the past 28 years, Reecy has helped thousands of families send their kids to the college of their choice for less than they ever dreamed possible. For more information on admissions & financial aid, and to checkout the best college book on the market today, please visit Paylessforcollege.com

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