The Smartest Way for High-Earners to Fund College Without Impacting Financial Aid

You’ve worked hard to build a successful career. Long shifts, student loans, missed family dinners. But now, as you start planning for your child’s college, you’re faced with a new challenge:

How do you pay for college… without negatively impacting your eligibility for financial aid?

It’s a common dilemma for high earners, especially medical professionals. You make too much to qualify for most need-based financial aid, but not enough to write six-figure tuition checks like it’s no big deal.

So here’s the good news: there’s a smarter way to approach this. One that doesn’t involve overpaying by utilizing smart planning strategies.

Let’s walk through the strategies that can help you fund your child’s education while preserving your financial flexibility and (surprisingly) boosting your financial aid eligibility.

“We Make Too Much… But Not Enough”

If you’ve ever run your numbers through the FAFSA calculator, you know how brutal it can feel. You input your income and assets, and it spits out an Expected Family Contribution (EFC) that looks more like a luxury car price tag.

You’re not alone. Households making $250k+ often get zero need-based aid on paper - but that doesn’t mean there’s no room for strategy. In fact, how you hold and move your money could be the difference between a $0 and a $20,000 aid package.

Let’s unpack how the system works - and how to use that knowledge to your advantage.

Not All Dollars Are Treated Equally

To understand financial aid planning, you have to understand what colleges actually look at.

The FAFSA (Free Application for Federal Student Aid) uses a formula to determine how much your family is expected to contribute. Here’s what it considers:

• Parent income (heavily weighted)

• Parent assets (moderately weighted)

• Student income and assets (heavily penalized)

• Household size and number of students in college

Notice what’s missing?

👉 Your retirement savings.

👉 Your home equity (for FAFSA-based schools - some private colleges that use CSS Profile do count it).

This is where things get interesting. Because the difference between assets in a brokerage account and assets in a 401(k) can mean thousands in lost or gained aid, even if your net worth doesn’t change.

Strategy 1: Positioning Assets

One of the biggest mistakes high-income families make is keeping too many investable assets in the “wrong” places.

For example:

• A $100k brokerage account in your name? FAFSA might assess 5.64% of that each year toward your expected contribution.

• That same $100k in a 401(k) or Roth IRA? Ignored.

The trick isn’t to hide money - it’s to align your savings with the financial aid formula.

What You Can Do:

• Max out retirement contributions in the years leading up to college. Even if you don’t “need” to save more for retirement, it shelters funds from aid calculations.

• Avoid putting savings in your child’s name (e.g., custodial accounts like UGMA/UTMA). Student assets are assessed at a whopping 20%.

• If possible, shift taxable savings to your name, not your child’s, and prioritize asset types the FAFSA ignores.

A skilled financial planner can help with this reshuffling without tripping tax consequences or liquidity issues.

Strategy 2: The Grandparent-Owned 529 - Now Even Better

Until recently, using a grandparent-owned 529 plan required careful timing. That’s because any distributions used to pay for college counted as “student income” on the FAFSA - and since FAFSA looks back two years, that could unexpectedly reduce aid in later years.

But thanks to the FAFSA Simplification Act, that issue is gone.

What Changed:

Starting with the 2024–2025 academic year, the FAFSA no longer asks about cash support received by the student. That means distributions from a grandparent-owned 529 plan are now completely invisible - not reported as assets, and not counted as income.

What This Means for You:

If a grandparent wants to help pay for college, they can use a 529 from day one without worrying about aid consequences. This removes a major barrier and gives your family more flexibility:

• You can use parent-owned 529s in parallel, drawing down both accounts strategically.

• If your own financial plan is stretched thin, grandparent contributions can fill the gap without hurting aid eligibility.

• It also opens up a smart estate planning angle - grandparents reduce their taxable estate while helping fund education.

The key? Coordination. Families should still communicate openly to avoid overfunding or misalignment across accounts. But now, with the FAFSA change, there’s less complexity and more opportunity to get help from extended family without penalties.

Strategy 3: Understand “Need-Based” Doesn’t Mean “Low Income”

Even families making $300k+ can qualify for need-based aid - at the right schools.

Some elite private colleges have sky-high sticker prices but generous aid formulas. A family earning $275,000 with two kids in college could still qualify for tens of thousands in grants - if they play their cards right.

The key? Knowing which schools use which formula.

• FAFSA-only schools: Tend to ignore home equity and retirement accounts.

• CSS Profile schools: May count more types of assets, but often give larger aid packages.

Understanding these formulas helps you choose colleges that actually reward your financial strategy.

And let’s not forget merit aid - another avenue that’s not based on need but can be substantial, especially if your student is strong academically or brings something unique to the table.

Strategy 4: Watch Your Income Timing

If you’re self-employed, have a side business, or are due for a big bonus - timing is everything.

Because FAFSA looks at your tax return from two years prior, the income you report in your child’s sophomore year of high school affects the aid they receive in their freshman year of college.

That means:

• Deferring income or bonuses until after key FAFSA years could pay off.

• Bunching deductions or business expenses earlier might help.

• Selling appreciated assets? Watch the capital gains - they count as income.

This is another area where a coordinated plan (involving your CPA and financial planner) can save real money.

Strategy 5: Don’t Let Perception Stop You

Here’s something we see all the time:

“We won’t qualify anyway, so what’s the point?”

And sometimes… they’re right. But often, they’re not.

Even if you don’t qualify for federal aid, you might still get institutional grants - especially from private colleges. And these awards often use their own formulas and discretion.

Submitting the FAFSA and CSS Profile, even if you think you won’t get anything, can open the door to:

• Institutional aid

• Scholarships that require a completed FAFSA

• Emergency aid in future years

• Federal loans (which require the FAFSA even if you don’t plan to use them)

You don’t get what you don’t ask for.

Bonus: Don’t Sabotage Yourself With Emotion

When it comes to paying for college, high earners often make fear-based or pride-based decisions:

• “I don’t want my kid to have debt.”

• “I can afford it - I should pay.”

• “More expensive is better.”

And those are noble sentiments.

But if overpaying derails your retirement plan, triggers higher taxes, or reduces your family’s flexibility for decades… is that really the best legacy?

There’s no award for “parent who overpaid the most.”

Being strategic with aid isn’t about gaming the system - it’s about using the tools available to make smart, values-based decisions.

Final Thoughts: Be the Surgeon With the Scalpel, Not the Sledgehammer

Medical professionals are used to high-stakes decision-making. You don’t rush into procedures without imaging. You don’t pick treatments without reviewing history.

So why fund college without a plan?

There are ways to give your child the best education possible without detrimentally impacting your own finances or blindly leaving aid on the table.

The smartest high earners don’t just ask “Can I afford this?”

They ask: “What’s the most efficient way to do this - without wasting money or opportunity?”

If that’s you, now’s the time to get your plan in place. Because the earlier you act, the more options you’ll have when the acceptance letters start rolling in.

At Outside The Box Financial Planning, LLC, we help high-earning families make strategic decisions that protect both college dreams and long-term financial security.

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