I frequently write about financial aid, especially at this time of the year, but I am not a financial aid expert. People have contacted me with financial aid questions ranging from divorce settlements to residency status to the impact severance packages will have on their financial aid forms.

I am happy to connect them to professionals who deal with these topics on a daily basis. One of my financial aid gurus is Drew Waterbury of Ocean Advisors,, in Charlotte, N.C.

He says that he often speaks to parents who, upon completing the FAFSA form, realize their Expected Family Contribution (EFC) is too high to make need-based college aid realistic. Unfortunately, many families wait until January of the student’s senior year before asking him for options, but by then it’s too late for many strategies that can have a big impact on reducing the cost of college.

Waterbury says the key to saving for any goal is to start early and to know your options. Ideally, planning how to save can be done in such a way to be very tax efficient, thereby allowing more of your money to grow.

Three tips from Drew Waterbury:

• Create a “tax scholarship.” Many self-employed parents are not aware they can create “tax scholarships” by hiring their children for a legitimate need.

Shifting the income from the parent’s higher tax bracket to the student’s lower tax bracket will reduce the parent’s taxable income. By combining an IRA with the standard income tax deduction, this strategy could have moved $11,600 tax free into the child’s name in 2013.

Assuming the parents had shifted the income to their child and also assuming a combined tax bracket of 35 percent (state and federal), that parent would have saved $4,060 in taxes. If a family does this over successive years with multiple children, it can have a significant tax savings that can be used to pay for college expenses.

• Don’t leave money on the table. Families often overlook savings options in the years leading up to college. Balances in IRAs and 401(k)s are not included on the FAFSA form. With a little budget tweaking, people can add more or even max out their 401(k) contributions.

Because insurance cash values are also excluded from the form, in some cases moving savings into a fixed annuity or other insurance product might make sense, especially if the need for insurance exists.

• Spend down the student’s custodial account. Many parents subsidize the student’s expenses during the teen years (cars, insurance, computers, SAT/ACT prep courses, etc.). Any assets in the student’s name will be assessed at 20 percent. Instead of the parents paying for the insurance or other expenses from their savings, which will be assessed at 5.64 percent on the FAFSA form, why not have the student cover the costs with the student’s custodial account, thereby reducing the EFC?

Lee Bierer is an independent college adviser based in Charlotte, N.C. Visit her website at