How Not to Blow It With Student Financial Aid

What do last year's bonus, your kids' straight As and the money grandma socked away for their education have in common?

They can all hurt your chances of landing financial aid.

After handing out lots of free money to families at the height of the recession, colleges are tightening their criteria for aid. They're looking much more closely at the financials parents lay on the table—and it's all too easy to make a misstep that costs your family thousands of dollars a year in assistance. More than ever, you need to know what colleges want to see and how to make yourself look as deserving as possible.

It takes a lot of work to cover all the bases of financial aid. But putting in the effort can save you a heap of money up front—and keep your child from becoming yet another heavily indebted college graduate.

Here's a look at the some of the biggest mistakes families make in the aid process, and the best ways to steer clear of them.

Earning too much at the wrong time.

Many parents wait until late junior year or early senior year to start thinking seriously about college. But by then, you may have blown your best chance to position yourself for the most aid.

Why? Your "base income year" is already well under way.

The Free Application for Federal Student Aid, which determines your eligibility for federal help and aid from many schools, is based on your family's tax return for the year before the child enrolls in college. In other words, if your child plans to start college in fall 2013, schools will look at your return for 2012—the base income year.

Many people don't realize this, and don't take any steps to adjust their income, the biggest factor in determining aid. Experts urge families to get an early start and keep their earnings as low as possible during that year.

For instance, ...

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