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Dec. 23, 2020, 3:43 p.m. EST

To get the most college financial aid for your child, take these steps during sophomore year of high school

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By Howard Gold

As high-school seniors finalize their college applications, parents are sweating over the dreaded Free Application for Federal Financial Aid (FAFSA) form and financial aid applications from the colleges themselves.

Unfortunately, many have probably missed their best chance to position themselves for the best financial aid deals.

Hey, it’s not your fault. And we’re here to help, not judge. Because most parents don’t know that the year most important to determining how much financial aid colleges will give your child is actually two years before he or she enters those hallowed halls.

So, if your child (like mine) is a high school sophomore and will be a college freshman in fall 2023, 2021 is the year colleges will use to calculate how much financial aid he or she will get. For us, it’s showtime!

It’s called the “prior prior year” (PPY) and “is a template, the first base income year they’re going to be looking at,” said Kalman A. Chany, founder and president of Campus Consultants Inc., a New York City-based advisory firm that specializes in financial aid. “No one’s going to be telling you in 10th grade at the high school or the colleges you should be thinking about this now if you want to get the most money.”

Actually, Chany told me in a telephone interview, “they’re really taking two snapshots in most cases.” One is the panoramic view of income through a whole calendar year—the prior prior year. The other is the value of your assets, which they measure whenever you file your FAFSA form.

So, the key is to do whatever you can to minimize your income in that PPY, which will be 2021 for families whose children enter college in fall 2023, and try to lower your financial net worth before you file that FAFSA form. (There are complicated rules about valuing assets we’ll get into in a future column.)

That means if you can accelerate income into what’s left of 2020, you can reduce your income for 2021 and improve your child’s chances of getting financial aid. Counterintuitively, paying more taxes next year might help your child get more from the colleges.

“The higher the taxes you pay during a base income year, the lower your family contribution will be,” writes Chany in the 2021 edition of his book, “Paying for College,” published by The Princeton Review. That’s because colleges consider federal income tax payments an expense for financial-aid purposes. But you must balance tax planning with financial aid planning, so please consult your tax adviser.

If you have the wherewithal—a big “if” these days–here are five things you can do to lower your income in the all-important 2021 base income year:

Chany stressed that COVID has changed things so much even people making substantial income shouldn’t give up on getting financial aid. “Because it’s now such a deep buyer’s market, people who previously would have been denied aid may well qualify for assistance,” he told me. That’s a rare bit of good news at a time parents aren’t finding very much to celebrate.

Also read: Early decision is good for colleges, but is it good for you?

And: How to use a Moneyball strategy for college applications and find excellent schools that are undervalued

Howard R. Gold is a MarketWatch columnist. Follow him on Twitter @howardrgold1. No-Nonsense College appears monthly .

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