Does FAFSA punish the frugal?

[MarkT]

I have a friend and his wife who have been "under-employed" since the 2007-8 bust.  They have been frugal in the previous years when income was higher so they do have some savings/investments and a house (with mortgage).  They had children later in life and are approaching retirement age (less than a decade away).

 

They have a rising Junior in HS.

 

Would FAFSA expect them to contribute a large percent of their savings toward college?

 

(they never had high income - they went from middle-middle to the low end of lower-middle)

 

 

Edited May 26, 2017 by MarkT

[regentrude]

No. Income is considered much more for the parental contribution than assets. Parental assets beyond the free allowance are "taxed" at a rate of about 6% for the FAFSA.

 

And assets in retirement funds do not count towards parental assets for the FAFSA. The FAFSA does not consider the home as an asset either.

 

Low income and a lot of assets in retirement funds means the FAFSA will calculate a small parental contribution.

Edited May 26, 2017 by regentrude

[8filltheheart]

They can work through the FAFSA worksheet and see exactly what % of what is factored in:

https://studentaid.ed.gov/sa/sites/default/files/2016-17-efc-formula.pdf

[teachermom2834]

No, not in my opinion. They will expect a small percentage of what is in the non-retirement savings. Those with high current income have the highest EFC.

 

PROFILE schools may consider the retirement savings and home equity but FAFSA does not.

[Crimson Wife]

No, the FAFSA punishes those who live in a high COL area because it looks at gross income rather than net purchasing power of that income. My DH was finalist for a job one time in Houston where the salary was half of what he was making in San Francisco but the COL was 1/4 so it would have effectively doubled our purchasing power. Yet the FAFSA rewards the family living in a low COL area because there is no adjusting the gross income for regional variations in COL.

[JanetC]

1. Savings is assessed at 5 to 6 percent.

2. Savings in IRS-approved retirement vehicles (401K, IRA, etc) is not assessed at all.

3. The FAFSA does not consider equity in the primary home, only in other real estate. The Profile schools may assess home equity.

 

The College Board EFC estimator gives a rough idea as to how the FAFSA EFC compares to the Profile EFC.

 

https://bigfuture.collegeboard.org/pay-for-college/paying-your-share/expected-family-contribution-calculator

 

4. Your EFC is NOT your price. You need to run the Net Price Calculator at each college website to know your price. Most colleges do NOT meet full need, and those that do meet full need often recalculate that need as higher than what the standard formulas return.

[Reefgazer]

In my opinion, yes, it does.  Savings in this country is generally discouraged, IMO.

[JanetC]

In my opinion, yes, it does. Savings in this country is generally discouraged, IMO.

Opinions don't matter. It's finaid formulas that count.

 

The formulas are wacko in a lot of ways -- Crimson Wife is right that COL is a big one but there are many others. But, in many cases it's available income being calculated unfairly rather than assets. I'd even say most cases for FAFSA schools.

[Lori D.]

I LOVE the people on this board! :) All of the responses in this thread address important aspects to your question!

 

 

As 8FillTheHeart said, the first thing to do is to work through the formula to find your estimated EFC. 

 

As regentrude and JanetC said, savings that are in a retirement fund are protected -- those savings are NOT included in the FAFSA calculations until the parents retire. (Note: if the student goes to a school requiring the CSS Profile, as teachermom2834 said, then those retirement savings funds may be considered.)

 

If most of the OP's friends' savings are in a retirement fund, and if they can hold off for 5 years before retiring (so that their DD will be done or have only 1 year of college to go), those funds will not come in to play with FAFSA. From our own experience, our EFC jumped to dizzyingly unattainable heights when DH retired and all of the retirement savings funds "came out into the open" -- but, delaying retirement was just not an option here, and sadly, the timing of it was right at the beginning of our DSs' college years.

 

FAFSA does NOT take into account the retirement needs, or family size, or, as Crimson Wife pointed out, the cost of living. So those are problems unique to every family to have to work out.

 

Again, from 8FillTheHeart's link to the EFC worksheet, you'll note that non-retirement savings are all calculated at the same rate -- the percent of savings used as part of the EFC equation does not change due to level of income.

 

So, if most of the OP's friends' savings are not "hidden" in retirement funds, but are straight up savings and assets, then, as reefgazer said, this can feel like being punished for saving. While everyone has non-retirement savings/investments/assets assessed at the same rate, those who have $250,000 in savings/investments/assets will be expected to contribute a much larger amount (5%-6% of $250,000 = $12,500-$15,000)  of that savings to the EFC than those who have $2500 in savings and assets (5%-6% of $2500 = $125-$150).

 

MarkT: Due to the age of your friends' daughter (rising 11th grader), NOW would be the ideal time for your friends to see a financial advisor who specializes in college financial aid and planning, because the window of opportunity for shifting any assets around to maximize benefit to the family in lowering the EFC is rapidly closing -- the new FAFSA looks at financials that are from the 2 years prior to the student entering college.

 

I am not affiliated in any way with the Hefar Group (in AZ and southern CA), but they have provided helpful information to several people I know through FREE college financial aid advice and planning. Hefar's hope is that by providing help and good will through the free information, that when it comes time for retirement planning and investing that you will then choose to go with their services.

 

For a very rough estimate of EFC based only on income check out this 2017-2018 EFC and Adjusted Gross Income chart by Tony Onink in a Forbes article. Or, if you can't get into the Forbes article, the 2015-2016 chart is reproduced in this Road2College article.

 

Also, as JanetC said, you can calculate your EFC at College Board's Big Future website with their EFC calculator. And again, as JanetC said, the EFC does NOT represent what to expect to pay for college -- the total cost of attendance differs from college to college, AND, not all colleges meet 100% of Financial Need.

 

There are actually up to THREE places in the college costs equation OTHER THAN EFC where parents may be expected to pay, because even colleges that address 100% of Need are going to do so through a Financial Aid package that includes LOANS, and if the family does not accept the loans, the family is responsible to cover the amount that would have been covered by the loans:

 

COA - EFC = Need

(Cost of Attendance) subtract (Estimated Family Contribution) = Financial Need 

 

COA = Cost of Attendance (from the college: the costs to go to college)

The total cost of attending the specific college which comes from:

- tuition

- fees

- books

- room & board

- transportation costs

- supply costs

- personal expenses

 

EFC = Estimated Family Contribution (from FAFSA: what gov't thinks you should pay for college)

Families pay for this amount through the following sources, with the first 4 IN ORDER of how FAFSA most heavily weights them in the EFC equation:

1. student income

2. student savings and assets

3. parent income

4. parent savings and assets 

- private parent loan 

 

Financial Need (the difference between COA and EFC)

Colleges meet between 60%-100%** of this Financial Need by offering a Financial Aid PACKAGE made up of:

- federal/state grants

- federal work study

- scholarships

- federal student loans *

- federal parent plus loans *

 

* = families do NOT have to accept these loans, BUT... if families do NOT accept the loans, this amount of the Financial Need package is expected to come from additional student and/or parent income/savings/assets

 

** = if the college package does not cover 100% of the Financial Need, whatever is not covered through the financial aid package offered by the college must be covered by the family, which comes from:

- additional student income/savings/assets

- additional parent income/savings/assets

- additional parent private loans

Edited May 26, 2017 by Lori D.

[HTRMom]

So when I look at the FAFSA worksheet linked above, and it adjusts assets by a factor of 0.12, but you're saying 5-6%, does that get further reduced somehow by another multiplier?

 

Anyway, I do find it ridiculous for the price of college to depend on how much you make and how much you've saved. If it is 6%, that's a quarter of your savings to educate one child, plus much of your current income for four years. Also I see that college cost is dramatically reduced by having kids close enough in age to go at the same time, so I'm glad I have 3 kids in 4 years and will have to contribute 5% of my savings and much of my income for 7 years rather than 12. Apparently my middle child will be effectively free as far as FAFSA is concerned. Of course, things could look very different in 15 years.

 

I went to a school that claimed to meet 100% need and my FAFSA was 0. I graduated with $60k in debt.

 

 

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[Julie of KY]

 

 

If most of the OP's friends' savings are in a retirement fund, and if they can hold off for 5 years before retiring (so that their DD will be done or have only 1 year of college to go), those funds will not come in to play with FAFSA. From our own experience, our EFC jumped to dizzyingly unattainable heights when DH retired and all of the retirement savings funds "came out into the open" -- but, delaying retirement was just not an option here, and sadly, the timing of it was right at the beginning of our DSs' college years.

 

 

Lori D - Do you know how retirement accounts are counted once you are retired? I assumed it was simply the income you took out of it for the year and not the entire account as assets.

[regentrude]

So when I look at the FAFSA worksheet linked above, and it adjusts assets by a factor of 0.12, but you're saying 5-6%, does that get further reduced somehow by another multiplier?

 

If you go further down the worksheet in line 26, it says to calculate parent' asset contribution using table A6.

In table A6, it lists how parental contrubition is calculated.

In the highest asset bracket of $32,201 or more:  $8,706 + 47% of AAI over $32,200

 

So there is another factor of 0.47.

 

0.47*0.12=5.64%

[Lori D.]

Lori D - Do you know how retirement accounts are counted once you are retired? I assumed it was simply the income you took out of it for the year and not the entire account as assets.

 

Julie, for us, we had 2 things going on: one was contributions (from both DH and from DH's employer) to the state pension fund. Now that DH is retired and receiving a monthly amount from the pension FAFSA considers that to be monthly income -- FAFSA does NOT look on the total pension contributions as a big savings amount that we could draw on, because we can't -- the pension is our version of Social Security.

 

HOWEVER, the other big thing we had going while DH was working was contributions to a deferred compensation program -- money into an interest-bearing savings fund that could not be touched until retirement, and was "hidden" as income until retirement. Once retired, that deferred income is no longer deferred ("hidden"), but is an active amount of money. So, upon DH's retirement, all of the deferred compensation income had to be put immediately into an investment fund to avoid being taxed at a lump sum rate. Due to tax laws, those funds could not be rolled over into a Roth or other retirement fund. So now we have that deferred income as a "pot of gold" (in the eyes of FAFSA) that must be declared on the FAFSA as savings / investment / assets. Because FAFSA cannot take into account extenuating circumstances (that this IS our retirement savings and pension supplement, and that DH will not get Social Security because he was paying into a pension) -- our EFC skyrocketed.

 

You will need to check with your retirement accounts people to find out how FAFSA will view your particular retirement funds, and how best to handle your retirement funds and paying for college. Good luck, Julie! Warmest regards, Lori D.

Edited May 27, 2017 by Lori D.

[JanetC]

My 5 to 6 percent range is based on: The 5.64 percent regentrude references can be a little less, because some of your total savings is deducted on the FAFSA before that 5.64 is calculated. It can also be a little more than 5.64 if a (usually Profile) school puts some of your excluded money back into the mix or if a school decides to assess savings at a higher rate based on their own internal formulas.

[SamanthaCarter]

We need higher education price transparency!

 

 

Sent from my iPhone using Tapatalk

[katilac]

In my opinion, yes, it does.  Savings in this country is generally discouraged, IMO.

 

It really doesn't, though. Some savings are shielded, and then it's a certain percentage. It's a formula. 

 

 

Anyway, I do find it ridiculous for the price of college to depend on how much you make and how much you've saved. If it is 6%, that's a quarter of your savings to educate one child, plus much of your current income for four years.  

 

 

It's not 6%, or whatever percent, of all of your savings. A certain amount of regular savings is shielded, and retirement accounts are shielded. I don't know what else you would base getting grants on? 

 

We need higher education price transparency!

 

 

I have my annoyances with the whole college system, but I actually find that prices are pretty transparent. Do your FASFA and then go the school's net price calculator, and you will have a pretty good idea of what that school will cost. You will know if you are getting any federal money, and you will have a rough idea of what the college might offer in grants. 

[teachermom2834]

No, the FAFSA punishes those who live in a high COL area because it looks at gross income rather than net purchasing power of that income. My DH was finalist for a job one time in Houston where the salary was half of what he was making in San Francisco but the COL was 1/4 so it would have effectively doubled our purchasing power. Yet the FAFSA rewards the family living in a low COL area because there is no adjusting the gross income for regional variations in COL.

this definitely. We live in a low COL area. Our EFC is laughable as is. One of the first thoughts I had when I saw the number was how crazy it would be for someone with a higher COL. That is a very unfair component of it for sure.

[katilac]

In my opinion, yes, it does.  Savings in this country is generally discouraged, IMO.

 

 

To address this a bit further, I played around with net price calculators quite a bit when oldest dd was in the hunt. I took away all of savings, I added ten thousand dollars and more to our savings. The net difference was actually quite negligible! 

 

This is the important thing to remember: They expect you to pay from past, present, and future as needed. So savings, income, and loans. Your number is roughly the same whether you actually saved or not; people do not benefit from spending all their money!! If you and I both have an income of $50,000 then our bottom line is going to look very much the same, even if I have $15,000 in savings and you have nothing. 

 

True story. Try it yourself! I know it made me feel better to know we didn't save for no reason, lol. 

[Lori D.]

HTRMom: While I totally understand your frustration, gently, there are a few misconceptions here.

 

 

... I do find it ridiculous for the price of college to depend on how much you make and how much you've saved...

 

The price of college is set by each college, not by your income or savings -- see my above post for the full list of college costs, but that includes things like tuition + books/supplies + room & board (if living away from home while going to college). Those costs are set by the college and don't change, regardless of your income and/or savings.

 

What can change is how MUCH of that cost the individual family may have to pay out of pocket. Yes, some of that is out of a family's control, such as the EFC number, but some of that cost IS determined by things a family DOES have some control over:

 

- choice of college (some colleges are significantly more than others, with tuition ranging from $8,000/year to $60,000/year)

- amount of credits the student can transfer in (which could reduce total stay at college by 1-4 semesters, which then reduces the total cost of college)

- whether or not the student lives at home while attending college (room & board can run $8,000-10,000/year for a dorm room and meal plan)

- student ability to work while attending college to contribute towards costs

- student's grades/work ethic in high school college to increase change at merit scholarships

 

 

...Also I see that college cost is dramatically reduced by having kids close enough in age to go at the same time, so I'm glad I have 3 kids in 4 years and will have to contribute 5% of my savings and much of my income for 7 years rather than 12. Apparently my middle child will be effectively free as far as FAFSA is concerned. Of course, things could look very different in 15 years...

 

Yes, how the EFC is calculated and college costs certainly might look different in 15 years. However, right now, it's not likely to work this way, as a lot will depend on what schools / degree programs your children choose, and those factors I listed above.

 

Sounds like your children are still young...? You might need to start preparing mentally and financially for the worst -- by the time your children are ready for college, you may need to use all of your savings AND still take out loans to get 3 kids through college, even if it only takes each of them 4 years to get that degree (because an increasing amount of students are needing to take 4.5 years, 5 years, even 6 years to complete a 4-year degree). :(

 

There are also a lot of alternatives you might want to check out, even way in advance of college, just to get an idea of what options might be workable for your family. Check out the thread: "s/o: Cautionary Tale: High Costs of College -- a brainstorming $$ ideas thread!"

 

 

I went to a school that claimed to meet 100% need and my FAFSA was 0. I graduated with $60k in debt.

 

A school that meets 100% need does so with a financial aid package that is a combination of:

+federal work study

+ federal & state grants

+ scholarships

+ LOANS

 

So when a school says it meets financial need, it does NOT mean that all of the need that is met will be with FREE money (grants, scholarships). Or that the need will be met with money you don't pay back, like work study which is money in exchange for labor. LOANS are money that have to be paid back, and loans are almost ALWAYS part of a financial aid package. 

 

Of course, a student has the ability to accept/reject any part of the financial aid package (it's not an all-or-nothing package), so the student can refuse the loans portion, accept the the grants/scholarships, and then choose to find some other alternative (additional student income/assets or additional parent income/assets) to cover the part of the financial need package that would have been covered by loans.

 

But, not every family can come up with additional funds to cover what would have been covered by the loans, so the choice in that case becomes either accept the loans, or withdraw for a semester or a year and work/save to come up with the additional funds. Another potential downside to withdrawing to work/earn college funds is the loss of any school-awarded scholarships...

 

 

Wishing you the BEST of luck when it's time for your students' college journeys! Warmest regards, Lori D.

Edited May 27, 2017 by Lori D.

[MerryAtHope]

Would FAFSA expect them to contribute a large percent of their savings toward college?

 

Others have addressed parent savings, but I thought I'd mention the student's assets/savings. The student rate is much higher (they will expect 20% of the student's assets to go toward college expenses). That can add up pretty fast, depending on what kinds of accounts (if any) the student might have.

[frogger]

Others have addressed parent savings, but I thought I'd mention the student's assets/savings. The student rate is much higher (they will expect 20% of the student's assets to go toward college expenses). That can add up pretty fast, depending on what kinds of accounts (if any) the student might have.

So if you put money in your child's savings account it would raise EFC than if you put that money in your own savings account? Well, it wouldn't be EFC then but student contribution but the point is if you as a parent are saving to help your child go to college then you should keep the money until it is time to pay the bill?.

[MarkT]

So if you put money in your child's savings account it would raise EFC than if you put that money in your own savings account? Well, it wouldn't be EFC then but student contribution but the point is if you as a parent are saving to help your child go to college then you should keep the money until it is time to pay the bill?.

A grandparent owned 529 for the student used in the student's Senior year of college would be even better.

[creekland]

I just wanted to address the "cashing out retirement funds" bit.  YES, that raises ones EFC a TON, BUT... check with the colleges and file an appeal explaining the situation.  We have most of our retirement funds in real estate and had a man come to us offering us a price we couldn't refuse on one of them.  We sold it.  This raised our income for that year significantly and made it look like we could be full pay for both boys in college.  If we had done that, there go the retirement savings.  Needless to say, that couldn't happen.  We needed to reinvest.

 

Both colleges adjusted our EFC with the appeal and numbers were far more affordable.  If they hadn't, our boys would have skipped a year due to the finances.  We're thankful.  I can't promise that with all colleges, but it's worth a try.  My kids were an upcoming junior and incoming freshman at the time.

[Lori D.]

Financing college... the place that is between a rock and a hard place, in the neighborhood of Tartarus, and down the block from Niflhel, and a process administrated by Shiva in his destroyer avatar...   :laugh:   :crying:   :cursing:   :zombiechase:

Edited May 27, 2017 by Lori D.

[Lori D.]

So if you put money in your child's savings account it would raise EFC than if you put that money in your own savings account? Well, it wouldn't be EFC then but student contribution but the point is if you as a parent are saving to help your child go to college then you should keep the money until it is time to pay the bill?.

 

Yes, the order of importance in calculating the EFC (and the order of highest percent down to lowest percent of expectation of where money will come from) is:

 

1. student income

2. student savings and assets

3. parent income

4. parent savings and assets

 

And, as MarkT suggested, even better if the educational savings account is in a grandparent's name or other trustworthy relative whose income and assets will not show up in the financial aid equations. But, you REALLY have to have a trustworthy person for this option...

Edited May 27, 2017 by Lori D.

[frogger]

Isn't putting the educational savings account in someone else's name a little unethical?. I'm not saying it's illegal I know grandparents can open their own accounts etc but it does seem like hiding something if I give money to someone else to hold in an account for my child. I have no problem saving my own money in my own account until I need it for a huge EFC that I'm expected to pay but if I put money into an account under someone else's name, that seems funny. Sorry, I'm struggling with the college game. Getting credit for "service" hours that we used to do just to help out and trying to look poor because I'm expected to pay something I can't really afford. This isn't my usual way of doing things.

[frogger]

But thank you. I'm finding this forum really helpful. I should probably just sit down and fill out a FAFSA even though it's early.

[Julie of KY]

Isn't putting the educational savings account in someone else's name a little unethical?. I'm not saying it's illegal I know grandparents can open their own accounts etc but it does seem like hiding something if I give money to someone else to hold in an account for my child. I have no problem saving my own money in my own account until I need it for a huge EFC that I'm expected to pay but if I put money into an account under someone else's name, that seems funny. Sorry, I'm struggling with the college game. Getting credit for "service" hours that we used to do just to help out and trying to look poor because I'm expected to pay something I can't really afford. This isn't my usual way of doing things.

 

Yes, I would say that putting YOUR money in someone else's name to hold for you is unethical in trying to play the college finances game. I don't remember if it was the FAFSA or the PROFILE, but it asked this exact question - are any of YOUR assets in someone else's name, whether it be parental assets or student assets.

 

If a grandparent opens a 529 in your student's name then that's great, and it's money that colleges can't see until it's reported on future income taxes. It is the grandparent's money and they have the option to reclaim that money as their own at any time so it isn't guaranteed that the student will ever see that money.

[Lori D.]

Isn't putting the educational savings account in someone else's name a little unethical?. I'm not saying it's illegal I know grandparents can open their own accounts etc but it does seem like hiding something if I give money to someone else to hold in an account for my child. I have no problem saving my own money in my own account until I need it for a huge EFC that I'm expected to pay but if I put money into an account under someone else's name, that seems funny. Sorry, I'm struggling with the college game. Getting credit for "service" hours that we used to do just to help out and trying to look poor because I'm expected to pay something I can't really afford. This isn't my usual way of doing things.

 

Hmmm... Well, if you're asking my opinion ;), I would say that esp. if it is a grandparent or relative or even a "like-family friend" who *wants* to help, that could actually seem prideful to refuse to accept their offer  to set up an Educational Savings Account in their name for your student -- esp. because anyone can contribute to that Educational Savings Account (a bit like a "Go Fund Me" thing). I do agree that aggressively shuffling resources could feel questionable...

 

And, as katilac mentioned above, if you only have moderate savings and income, it's not likely to make a significant difference in the EFC number anyways.

 

 

Not quite sure what you mean about getting "credit" for service hours for things you do just to help out...? Do you mean as a school credit on a transcript? Not sure how that would work, or that I've heard of anyone doing something like that...

 

And I guess if you mean stopping to help a stranded motorist or helping someone move or making a meal for a family with a loved one in the hospital... I wouldn't have thought to count those things as community service hours either.

 

However, if you mean tracking community service / volunteering hours of a regular activity (such as weekly tutoring of others after school at the library, or monthly time at the local animal shelter or nursing home, or regularly helping out at the local food pantry) -- yes indeed, you DO want to track that and put it on the student's extracurricular activities list -- because some scholarships have XX amount of volunteer / community service hours as a requirement of eligibility, and you're going to need documentation of the student's volunteering.

 

You certainly could choose to view that as "just normal helping out", but, JMO, I think you'd be doing a disservice to your student by not tracking those regular, scheduled, "formal" volunteering hours and shorting the student on the possibility of a scholarship that they really are eligible for just because you choose to not declare the eligibility -- sort of like choosing to not declare charitable contributions on your taxes. You certainly can do that, but you also have to decide if that is being the most responsible steward of resources... a call that everyone has to make for themselves. :)

 

 

But thank you. I'm finding this forum really helpful. I should probably just sit down and fill out a FAFSA even though it's early.

 

No need to fill out FAFSA unless someone in your family will be attending college starting in the fall and needs to go through the financial aid process.

 

Instead, if you want to start getting an idea of what to expect as far as college costs and your finances:

 

1. figure out your EFC, either through the worksheet linked above by 8FillTheHeart, or via the EFC calculator at College Board linked above by JanetC

 

2. and, as JanetC said above, go the Net Price Calculator at EACH college website your student might attend to find out what your student might be offered in the way of financial aid at THAT school, to get a clearer picture of what the cost would be to your family to attend each of those colleges (because the amount WILL vary from school to school)

 

From there, if the cost is going to be beyond your family's means, you can start thinking about alternatives (see the thread I linked above:  "s/o: Cautionary Tale: High Costs of College -- a brainstorming $$ ideas thread!").

 

BEST of luck as you begin researching financial aid and college costs! Warmest regards, Lori D.

[MerryAtHope]

Isn't putting the educational savings account in someone else's name a little unethical?

 

Grandparents often want to help and make a gift to a student--and if it's going to be a large gift, it would be much better for them to open a 529 for the student than to just give money directly to parents or student.

[JanetC]

Grandparents often want to help and make a gift to a student--and if it's going to be a large gift, it would be much better for them to open a 529 for the student than to just give money directly to parents or student.

529 plans have both an owner and a beneficiary. The beneficiary is the student for whom the funds are withdrawn. Many 529 plans have state income tax benefit to the owner, so grandparent is owner. Unfortunately, that's the worst hit in terms of financial aid formulas if the goal was to ease mom and dad's costs. Money paid on student's behalf by grandparents doesn't change what the formulas say mom and dad and student should pay from their own funds before qualifying for financial aid.

 

That's why if the 529 is less than a year's worth of expenses (after aid), its recommended that the funds be spent after senior year financial aid is calculated.

 

The Profile is now clever and asks about funds saved for the student by anyone, not just the parents.

[frogger]

This is more general info as we don't really have enough saved up to make much of a difference. He will be a work his way through kid mostly or most likely go to a place with merit aid. The sad part I see is that the kid working to get him or herself through college and saving up seems to get hit worse than if it were handed to him by parents or grandparents. 

 

 

[regentrude]

Instead of paying for a grand child's college tuition, which would have to be reported on the Profile, grandparents can plan to pay off the grand child's student loans. This will not negatively affect EFC/financial aid.

[MarkT]

Isn't putting the educational savings account in someone else's name a little unethical?. I'm not saying it's illegal I know grandparents can open their own accounts etc but it does seem like hiding something if I give money to someone else to hold in an account for my child. I have no problem saving my own money in my own account until I need it for a huge EFC that I'm expected to pay but if I put money into an account under someone else's name, that seems funny. Sorry, I'm struggling with the college game. Getting credit for "service" hours that we used to do just to help out and trying to look poor because I'm expected to pay something I can't really afford. This isn't my usual way of doing things.

My mother created 529s for all the grand kids with her money perfectly ethical.  Besides the future college student parent could ask the grandparents to set up a 529 in lieu of a possible future inheritance (assumes that the grandparent has the funds available).

[JanetC]

Instead of paying for a grand child's college tuition, which would have to be reported on the Profile, grandparents can plan to pay off the grand child's student loans. This will not negatively affect EFC/financial aid.

Can you use 529 funds though? I didn't think so.

[JanetC]

This is more general info as we don't really have enough saved up to make much of a difference. He will be a work his way through kid mostly or most likely go to a place with merit aid. The sad part I see is that the kid working to get him or herself through college and saving up seems to get hit worse than if it were handed to him by parents or grandparents.

Have you run any EFC or NPC calculators? What sort of grades/scores/accomplishments does the child have to get merit aid?

 

Most kids cannot pay their own way through four-year college. It's just too expensive, and the hours of work required to earn enough to make a dent in it can make it impossible to do well academically.

 

The most economical path for a self-funded kid is community college, but statistically a lot of kids get lost there and never finish a four year degree.

 

And yes, for financial aid purposes, the child should consider giving excess income to the parents to save for him in their name rather than his own after about 5 to 6K in his own name.

[winterbaby]

Most kids cannot pay their own way through four-year college.

 

Not in four years they can't. And not if they are paying for the lifestyle components of a traditional "college experience" (dorm room or separate apartment, etc). The points made in the cautionary tales thread linked above, about not getting attached to that experience, are absolutely key IMO.

 

I have heard that merit aid is accessible to a range of students if they target schools where they are top of the range. But I have also heard that at many colleges if you get outside scholarships, they take away grants, forcing you to borrow anyway.

 

I suspect a student may be less likely to get lost in community college if they are a strong student using it as part of a financial game plan, compared to students who might be there because they are academically weak or have no plan. Someone on the other thread even suggested having the child actually pursue a CC-trained technical vocation and use the resulting income to save for a BA. Very worth considering, for some people.

[Hilltopmom]

529 plans have both an owner and a beneficiary. The beneficiary is the student for whom the funds are withdrawn. Many 529 plans have state income tax benefit to the owner, so grandparent is owner. Unfortunately, that's the worst hit in terms of financial aid formulas if the goal was to ease mom and dad's costs. Money paid on student's behalf by grandparents doesn't change what the formulas say mom and dad and student should pay from their own funds before qualifying for financial aid.

 

That's why if the 529 is less than a year's worth of expenses (after aid), its recommended that the funds be spent after senior year financial aid is calculated.

 

The Profile is now clever and asks about funds saved for the student by anyone, not just the parents.

Then you just need to hope that the grandparent doesn't pass away before giving the 529 funds to the kid, or grandma doesn't get mad at your family for some imagined slight & decide to give the $ to someone else, or just not give it to your kid after promising it to them for years & making a big deal out of how she was saving for college for them....

Just sayin'

[MarkT]

The most economical path for a self-funded kid is community college, but statistically a lot of kids get lost there and never finish a four year degree.

 

 

IMHO CC failure is due to a lack of parental/mentor support/guidance. Typically the failed student comes from a background where nobody went to college. The parents also have to convince the student that college is a step up from high school and serious study habits need to be utilized.

 

Also due to open enrollment, some CC students attempt a field of study that they are just not capable of doing,

[MarkT]

Then you just need to hope that the grandparent doesn't pass away before giving the 529 funds to the kid, or grandma doesn't get mad at your family for some imagined slight & decide to give the $ to someone else, or just not give it to your kid after promising it to them for years & making a big deal out of how she was saving for college for them....

Just sayin'

Hopefully a 529 covers the death of the owner before college starts - not sure.

[JanetC]

I have heard that merit aid is accessible to a range of students if they target schools where they are top of the range. But I have also heard that at many colleges if you get outside scholarships, they take away grants, forcing you to borrow anyway.

 

The easiest merit aid to get is the kind that makes a private school "just a little" more expensive than your in state option or "just a little" less expensive than the competition down the street.

 

Merit aid can be a great deal for a family with some means, but not enough money to pay as much as the financial aid formulas say. But the lower you need your price tag to be, the higher the stats you need and the narrower the list of schools you can consider for merit aid. Sometimes the financial aid formulas get it somewhat close to right and need based aid is the better strategy. Other times lowering the total price tag is the only option.

 

Carefully assessing budget and the appropriate level of loans, learning how the financial aid formulas work, calculating your EFC, learning to read the tea leaves at collegedata.com and College Scorecard, and running NPCs are all part of a confusing, time consuming, and essential process.

[Reefgazer]

If your kid works a summer job, virtually all of that is applied to college costs.  If the parents have savings in non-retirement and non-housing, that is counted against you.  If we really wanted to encourage savings, we would tax consumption; savings in non-approved vehicles (retirement and housing) is generally counted against you, to some degree.

It really doesn't, though. Some savings are shielded, and then it's a certain percentage. It's a formula. 

 

 

It's not 6%, or whatever percent, of all of your savings. A certain amount of regular savings is shielded, and retirement accounts are shielded. I don't know what else you would base getting grants on? 

 

 

I have my annoyances with the whole college system, but I actually find that prices are pretty transparent. Do your FASFA and then go the school's net price calculator, and you will have a pretty good idea of what that school will cost. You will know if you are getting any federal money, and you will have a rough idea of what the college might offer in grants. 

 

[katilac]

But thank you. I'm finding this forum really helpful. I should probably just sit down and fill out a FAFSA even though it's early.

 

Here's the link to the FASFA 4caster: https://fafsa.ed.gov/FAFSA/app/f4cForm?execution=e1s1

 

 

Also due to open enrollment, some CC students attempt a field of study that they are just not capable of doing,

 

At our CCs, admission to the school itself is open enrollment, but lots of programs are by selection. So anyone can be enrolled, but not just anyone can get into the physical therapy assistant program. I think this is pretty common, maybe others can chime in? 

 

ETA that I think most CC students who falter do so well before they get to the specifics of their program, when they realize that they aren't prepared for the prereqs, or can't manage school and work. 

Edited May 27, 2017 by katilac

[Renai]

About the expectation of parents/students taking out loans, do colleges taken into account that parents may have student loans of their own to pay? There's just no way more could be taken out here.

[katilac]

About the expectation of parents/students taking out loans, do colleges taken into account that parents may have student loans of their own to pay? There's just no way more could be taken out here.

 

If it's a school that uses the CSS profile, they may or may not choose to take that into consideration. For the vast majority of schools, no, it will not matter.

[Janeway]

I have a friend and his wife who have been "under-employed" since the 2007-8 bust.  They have been frugal in the previous years when income was higher so they do have some savings/investments and a house (with mortgage).  They had children later in life and are approaching retirement age (less than a decade away).

 

They have a rising Junior in HS.

 

Would FAFSA expect them to contribute a large percent of their savings toward college?

 

(they never had high income - they went from middle-middle to the low end of lower-middle)

They can invest the money in a way to not have to be declared on the FAFSA. This would include any retirement funds. I know there are other ways, but, you could google articles to find exactly what kinds of investments are protected. Since they still have a mortgage, they might wish to consider placing their savings in to the mortgage and pay that down. I think there is also a portion of savings that is not counted. The first..whatever thousands of dollars. 

[Lori D.]

Most kids cannot pay their own way through four-year college. It's just too expensive, and the hours of work required to earn enough to make a dent in it can make it impossible to do well academically.

 

The most economical path for a self-funded kid is community college, but statistically a lot of kids get lost there and never finish a four year degree.

 

JanetC makes great points! :) I'll just add that the completion statistics for students starting at a 4-year university aren't so hot either:

- 30% of college and university students drop out after their first year

- 70% of Americans study at a 4-year college, but less than 2/3 will graduate

- 60% of college dropouts had no help from parents in paying for tuition

(from College Atlas)

 

According to the statistics in this Moneybox article, key to completing a 4-year degree seems to be the ability to start right after high school AND be a full-time student for the duration of working on the degree. In contrast, older students, but especially part-time students splitting their time between school and working, drop out of completing the degree in much larger numbers.

 

MarkT and Winterbaby have some good thoughts about how to make completion of community college AND going on to a university more viable.

 

Locally, I'm seeing a lot of students start at the CC or university right after high school, but they are going into it really not sure *what* they want to do. And with entry level jobs being fairly plentiful, it's easy to slide out of the CC or the university and just work full time, as they try and figure things out. And then a lot of homeschool grads we know are marrying young and starting families, within 3-4 years of graduating high school, which will make going back to a community college or university even tougher, as they juggle working full time + family.

Edited May 27, 2017 by Lori D.

[Lori D.]

About the expectation of parents/students taking out loans, do colleges taken into account that parents may have student loans of their own to pay? There's just no way more could be taken out here.

 

:grouphug:  Renai, the only thing I'm seeing about this is that if, on your income tax return, you take the tax deduction for the student loan interest that you are already paying on, that slightly lowers your adjusted gross income, which may slightly decrease your EFC. Alas, I don't think there's much help in that. :(

 

Otherwise, all you can do is talk with the school and show them that you have extenuating financial circumstances, and see if they can work with you. I know several other families on these boards have said they have gone to the college to discuss their financial hardship situations due to divorce/lack of child support, or had a "hidden" financial burden due to care of elderly parents or another child with chronic health expenses, and to request more aid, so it's not an impossibility.

 

Or, start looking at alternatives. One option that would be a tough one, and not for everyone, is to work for 5-6 years after high school, squirrel away money as much as possible, and then apply for college once the student turns 24 and the parent's financials no longer show up on the FAFSA, and be eligible for Federal grant money. I know 2 brothers (NOT my sons, lol) who have done this, and it worked very well for them. BUT, it was also because they had a lot of family support so they could move in and out of home as needed, AND neither of them had a clue as to what they wanted to do, so spending money aimlessly attending college right after high school would not have worked for them -- they had to take some time out and work to get things figured out. They also reduced overall college costs by attending the community college first and knocking out 2 years of the gen. ed credits cheaply and then transferred to the local university.

 

 

I think more and more, colleges are going to start seeing "second generation" debt problems -- parents still paying on their own student debt and unable to take on second generation debt of their children's college costs on top of that. Another factor that is just going to escalate this runaway college costs/student debt problem our country has...  :eek:

Edited May 27, 2017 by Lori D.

[Lori D.]

...I have heard that merit aid is accessible to a range of students if they target schools where they are top of the range. But I have also heard that at many colleges if you get outside scholarships, they take away grants, forcing you to borrow anyway...

 

Yes, this can be true in certain circumstances:

 

Federal rules concerning "over-award situations" require the school to reduce the financial aid package when the sum of financial aid from all sources exceeds the school's cost of education by more than $300. — FinAid article: "Outside Scholarship Policies"

 

The article goes on to say that the college's offer of scholarships, work study, and FSEOG grant money are what get cut (PELL grants cannot be cut). And, I'm sure it's in the school's best interests to see that loans are the last area to be cut, while the school's scholarships are the first thing to be pulled and reallocated to another student, which makes the school's financial aid statistics look good, as the school is overall offering aid to more students this way.

 

However, some things to note:

 

Outside scholarships make up only about 4% of the total amount of financial aid out there.

 

And most outside scholarships are pretty small -- a few hundred dollars up to about $2500. And not all schools offer financial aid packages that cover 100% of need, so the financial aid package + outside scholarships is not always going to exceed the school's total cost.

 

You can check on all of the universities you're interested in to see what percent they offer to cover, in advance of applying for outside scholarships.

 

Also, while some schools automatically reduce financial aid packages by the amount of outside scholarships, many universities allow stacking of scholarships (allow you to add outside scholarships to their own offer of scholarships).

 

What you want to be especially careful of with outside scholarships is that they don't end up displacing *renewable* inside scholarships. Because most outside scholarships are small, 1-time awards, while many inside freshman scholarships are good for up to 4 years. But if you get dropped from the renewal inside scholarship in the freshman year due to having an outside scholarship, you are not going to be able to get that renewable inside scholarship later on in college, after the 1-year outside scholarship is finished. :(

Edited May 27, 2017 by Lori D.

[Crimson Wife]

Hopefully a 529 covers the death of the owner before college starts - not sure.

 

My late grandma set up a 529 for me to help with graduate school expenses ages ago. After she passed, my dad became the owner. I used it to pay for my 2nd bachelor's (which was fortunately relatively inexpensive since I only needed 35 credits for the major and nothing more).