Question: We are not a wealthy family and should ordinarily qualify for a lot of need-based financial aid, but we recently came into an inheritance of over $200,000. This is a one-time thing and, although we’re very grateful for the extra money, we’re afraid that it could have a huge impact on our son’s college financial aid, if we put this money into a bank account where it is considered an asset in financial aid formulas. (He is in 10th grade right now and planning to apply to some of the top colleges that have excellent need-based financial aid policies.) A casual acquaintance has suggested to us that we “hide” this money by investing in something like an antique car, jewelry, fine art, even a Steinway piano. While these ‘investments” won’t be liquid and do carry some risk, it seems that—if chosen wisely—we could sell such items for a profit (or at least recoup our expenditure) once our son has finished college, and he could hopefully land a big grant to attend one of his first-choice colleges.
Is this a strategy that we can use to avoid losing out on financial aid due to our windfall? And if it is, why don’t more families try this (or maybe they do)?
Your “casual acquaintance’ is correct. It would be possible to hide your new-found fortune from the prying eyes of financial aid officials, if you use it for the purchases you’ve named above or for any big-ticket item besides real estate.
So why don’t more folks take this approach?
For many, there’s the risk factor. For instance, even if classic Corvettes are a hot commodity right now, can you count on unloading yours in six years when your son is out of school and you need the dough? Ditto Picasso prints, grand pianos, and diamond tiaras. (But, personally, I’d go for the car … preferably a red ’58 convertible :) ). Thus many families opt to stash their cash where it is more liquid and where the return on their investment is more predictable. Moreover, if your son’s financial aid ends up being insufficient for all the costs you need to cover, you may need to take out a loan since your disposable cash will be .., well ... indisposed (And if you make the sale before your son finishes college, you’ll need to report the income to the IRS, so it will show up on financial aid forms, too.)
In addition, if a family already qualifies for little or no need-based financial aid, then having this “extra’ money won’t affect their scholarship odds. (This sounds like it's not true in your case, but it probably keeps some people from trying this tack.)
Finally, there’s the Karma consideration. Many parents would contend that money that falls from the sky right about when Junior is heading off to college was probably intended to be used for college. By putting your $200K in your son’s college fund and forgoing some of the grants for which he might otherwise be eligible, you would be freeing up financial-aid dollars for another child who wasn’t so fortunate.
Anyway, good luck with your decision, and drive that 'Vette carefully (but don’t wear the tiara when the top's down). ;-)