One of the hardest parts about sending a kid to college is figuring out how to pay for it, and now, there is another complicated dynamic involved in the process. There are insurance agents in guidance counselor’s clothing, roping people into buying annuities that they don’t need.
According to Forbes, there seems to be a trend of insurance agents taking advantage of people who are in the beginning stages of sorting out their finances in preparation for paying for college. One of the most important parts of doing this is filing a Free Application for Federal Student Aid (FAFSA) to determine how much federal aid a student can get in the forms of grants and federal loans.
There are a number of different financial details that an applicant must disclose on his or her FAFSA, like assets, savings, and yearly earnings. What some insurance agents are doing is advising parents and students to buy annuities or life insurance policies, since these are not reported on a FAFSA — and in theory would make them eligible for more federal aid.
One of the major issues with this, according to Forbes, is that the FAFSA is not the only application for aid. The College Scholarship Service Profile (CSS Profile) does require that annuities be disclosed on the application.
There is another reason that the purchase of annuities and life insurance are not a smart way to increase a student’s eligibility for federal aid is that in some cases, it does not matter where the money, savings, or assets are. There are a number of reasons that a student may be ineligible for aid.
This isn’t to say that annuities are all bad. In fact, people who do own annuities show loyalty to them — 93% of people who reported say that they still own their first annuity. Additionally, many people come to own an annuity through a personal injury settlement, and others buy annuities to help manage their money in retirement.
The point here is that annuities are not inherently bad or good, but they need to be bought with the right understanding, for the right purpose, and for the right reasons — and that those applying for college financial aid need to stay informed about the process when it comes to their loans.