Understanding financial aid

[swimmermom3]

A point that I would like to mention will not apply to all but is critical for some.  Suppose you have inherited a share in your family's mountain cabin or lake cottage. Because this property is not your primary residence, it is an asset.  And it is probably an asset that you are not going to sell.

 

Modest fishing shacks purchased by grandpa can be quite valuable today because of their location--despite however primitive the facilities themselves are.  I have known several people who have been surprised that owning a partial share in a seasonal shack suddenly gives them an asset that appears large on paper.

 

Also, while the value of your home is not entered into the FAFSA, it may be considered by a college that requests additional financial information. 

 

Let me add that those who qualify (married filing jointly, earning < $181K annually, etc.) should consider using your Roth IRA as a savings vehicle for college when your kids are young.  You can withdraw your contributions without penalty (withdrawing earnings/interest is another matter).  Since the IRA is a retirement account, FAFSA is not looking at it, although the CSS profile will.  And if your kid earns sufficient merit or financial aid, you can just let that money grow in your Roth. There is no one size fits all situation for all families, but the Roth may work for some--as it did for us.

 

Jane, I have run about two dozen NPC calculations at this point, and they more often than not asked for the value of our home, the purchase price, how long we had owned the home and what our mortgage balance is. So even if it isn't on the FAFSA, many schools will take it into consideration?

 

About the Roth IRA, dh has one that is not his primary retirement account.  We could tap the contributions in that?

 

I have had a couple of dark moments since I started running those NPCs. I am trying to logically sort out in my head the need to have saved $360,000 to send 3 kids to college, the need to have saved for retirement, the need to own a considerable chunk of my home, and why, oh why, did we decide that one of us staying home with the kids was a good idea?  Or, why did I have to go to grad school when we had young kids? What was I thinking?

 

 

[creekland]

Jane, I have run about two dozen NPC calculations at this point, and they more often than not asked for the value of our home, the purchase price, how long we had owned the home and what our mortgage balance is. So even if it isn't on the FAFSA, many schools will take it into consideration?

 

 

My guess is these are schools that use the CSS Profile.  That asks for all these details and more.  (URoc is a CSS school as are many other top schools or schools that tend to meet aid better.)

[Granny_Weatherwax]

 

I have had a couple of dark moments since I started running those NPCs. I am trying to logically sort out in my head the need to have saved $360,000 to send 3 kids to college, the need to have saved for retirement, the need to own a considerable chunk of my home, and why, oh why, did we decide that one of us staying home with the kids was a good idea?  Or, why did I have to go to grad school when we had young kids? What was I thinking?

 

Me too.  :banghead: :blink: :001_unsure:

 

All of our life choices have become suspect.  It's not a good feeling.

[Jane in NC]

My son applied to six colleges, two were CSS only schools, one used CSS for early decision, the others used FAFSA.  As I recall, two of the FAFSA schools had a supplementary form that asked about home value and non-college tuition expenses for other family members.

 

Regarding tapping a Roth:  I am not a financial advisor, but I enjoy playing one on the Internet.  :laugh:  It is my understanding that the beauty of the Roth is that one can tap contributions that the owner made at any time (hence they are one of those things that people eyeballing early retirement love).  Additionally, I believe that you can also tap your earnings/interest penalty free when those funds are being used for higher ed.  This may also be true for traditional IRAs--but I would be careful as to what is a "qualified" expenditure.  I haven't read those IRS documents in a while but I did a lot of "what if" calculations when The Boy was a high school student. 

 

Roths are not usually recommended as college saving vehicles since contributions are limited to $5500--viewed as insufficient savings to fund that $200K education.  But my idea was that the Roth could be part of a college savings plan.

[8filltheheart]

 

I have had a couple of dark moments since I started running those NPCs. I am trying to logically sort out in my head the need to have saved $360,000 to send 3 kids to college, the need to have saved for retirement, the need to own a considerable chunk of my home, and why, oh why, did we decide that one of us staying home with the kids was a good idea?  Or, why did I have to go to grad school when we had young kids? What was I thinking?

 

 

Me too.  :banghead: :blink: :001_unsure:

 

All of our life choices have become suspect.  It's not a good feeling.

 

I absolutely refuse even to contemplate these POV.  I would not change homeschooling, having each and every one of our children, and living within our means.  Not for one second.  

 

What I do refuse to buy into is the idea that it is the name of the 4 college that is the almighty goal.  I refuse to accept the concept that kids deserve to attend a dream school at the expense of family---size, daily living, activities, and parental retirement. Forget it.  We didn't get married and raise our family to be held in bondage to some ideology that views "selective college" as supreme importance.  Most people graduate from avg universities and go on to successful careers.  Futures are not destroyed by less expensive regional schools.  We love our kids, but their college aspirations are low down on the totem pole of importance in our lives.  Attending college, yes, we will do all that is possible.  Sacrificing our familial values, no way.

[FaithManor]

My son applied to six colleges, two were CSS only schools, one used CSS for early decision, the others used FAFSA.  As I recall, two of the FAFSA schools had a supplementary form that asked about home value and non-college tuition expenses for other family members.

 

Regarding tapping a Roth:  I am not a financial advisor, but I enjoy playing one on the Internet.  :laugh:  It is my understanding that the beauty of the Roth is that one can tap contributions that the owner made at any time (hence they are one of those things that people eyeballing early retirement love).  Additionally, I believe that you can also tap your earnings/interest penalty free when those funds are being used for higher ed.  This may also be true for traditional IRAs--but I would be careful as to what is a "qualified" expenditure.  I haven't read those IRS documents in a while but I did a lot of "what if" calculations when The Boy was a high school student. 

 

Roths are not usually recommended as college saving vehicles since contributions are limited to $5500--viewed as insufficient savings to fund that $200K education.  But my idea was that the Roth could be part of a college savings plan.

And in some cases, one can borrow from your 401K and pay yourself back with interest through payroll deduction. By the time we have two in at once, we will do this. Yes, we won't make as much interest as if the principle had remained invested. But, the difference between what would have been made, vs. the interest on parent plus loans is big enough that borrowing from ourselves is a much better option. We have to do this because our 529 tanked very, very badly in the housing bubble burst and that was when we had to cash out for dd's education so we ended up using what was left for her which meant nothing was left for the boys. We lost principle, it was a very, very bad year. And no, all of that loss did not help out our EFC since none of the schools she applied to accepted the CSS and given the sheer number of families begging for appeals from that financial chaos (Michigan was ridiculously hard hit), no one could do anything for us.

 

So, it's something to check into if you have a 401K with a nice balance. You can borrow up to half if your plan is set up for it. Not all employers have such plans. We are fortunate that dh's employer does.

[Jane in NC]

I absolutely refuse even to contemplate these POV.  I would not change homeschooling, having each and every one of our children, and living within our means.  Not for one second.  

 

What I do refuse to buy into is the idea that it is the name of the 4 college that is the almighty goal.  I refuse to accept the concept that kids deserve to attend a dream school at the expense of family---size, daily living, activities, and parental retirement. Forget it.  We didn't get married and raise our family to be held in bondage to some ideology that views "selective college" as supreme importance.  Most people graduate from avg universities and go on to successful careers.  Futures are not destroyed by less expensive regional schools.  We love our kids, but their college aspirations are low down on the totem pole of importance in our lives.  Attending college, yes, we will do all that is possible.  Sacrificing our familial values, no way.

 

Right but many families struggle to afford in state tuition for four years for multiple children!  That is one reason I mention the Roth as savings vehicle.  It may not yield enough for Selective U, but if a parent saves $5000 for ten years, those funds can put a dent into the in state tuition bill, supplemented by a student's savings and earnings, etc.  Also, most parents contribute to college costs in a "pay as you go" manner, i.e. they don't have four years of tuition, room and board, etc. saved.  My husband earns bonuses, for example.  Bonuses were earmarked for college fees when my son was a student; but bonuses are not guaranteed so I had to have a few tricks in my back pocket just in case. 

 

I think that family values or what Nan and I call family culture are at play here.  Some families do not fund college, period.  Others may offer instate tuition or its equivalent, or insist that a student attend CC first.  I believe that each student needs to be considered separately because of his or her needs and goals, but some families are more democratic in offering X dollars per student.  We have known families in which older sibs assist younger with funding their educations because Mom and Dad helped the older but could not assist the younger.  I don't think this is a sacrifice of family values; I think it is rather noble.

 

Anyway, what you say about select schools, some parents in my neck of the woods say about UNC-CH or NCSU.  They want their kids to continue to live at home while a student, not considering for example that the regional uni does not offer engineering as a major.

 

Family cultures vary, that is a given.  I also think that you and I would agree that horrendous debt is just that--horrendous. 

 

Ultimately though I think that college--even those in state schools--may require some creative thinking on the part of parents and students.  EL mentioned her scholarships upthread, scholarships that were not obvious from her Google searches.  Most of us have more up our sleeves than tossing money in savings.

 

[8filltheheart]

I don't disagree with you, Jane, but less expensive regional schools do not have to be local or even in-state.  There are low cost schools and there are lower ranked schools which actively recruit strong students and give a lot of merit $$.  Many kids turn up their noses at the schools b/c they think they are "too good for them" or that "they worked hard and deserve better."   

 

This link has a wide range of schools: http://talk.collegeconfidential.com/financial-aid-scholarships/1678964-links-to-popular-threads-on-scholarships-and-lower-cost-colleges.html#latest

[FaithManor]

Also, another thing that can help is if a motivated student can manage a BS in three years. Now, there are definitely majors, engineering, performance, nursing, and teaching for which this is impossible. However, her major was criminal justice and it had a lot of scheduling flexibility at her school. She took 15 credit hours her first and second semester, 3 during the spring term, 3 during the summer, and then increased to 6 during the following summer term. She ended up completing her major in 3 years saving the cost of the 4th year.

 

So, that is something to consider for student for whom academics come easily and the major is flexible. The cost of tuition, room and board at say Michigan State University is in the mid 20,000's, so that's a lot of money saved if there aren't enough grants and scholarships to cover it. Some schools also cut a break on tuition for summer terms in order to keep their classes filled. That's another savings. If living on campus, applying for the summer RA job is good too as so many students leave campus that some institutions have a hard time finding someone to be "in charge" of those that stay. The RA stipend can be applied directly to next year's bill.

 

It would be good if we all posted any creative options we've heard that might work.

 

 

[Jane in NC]

I don't disagree with you, Jane, but less expensive regional schools do not have to be local or even in-state.  There are low cost schools and there are lower ranked schools which actively recruit strong students and give a lot of merit $$.  Many kids turn up their noses at the schools b/c they think they are "too good for them" or that "they worked hard and deserve better."   

 

This link has a wide range of schools: http://talk.collegeconfidential.com/financial-aid-scholarships/1678964-links-to-popular-threads-on-scholarships-and-lower-cost-colleges.html#latest

 

Not dismissing this at all, 8!  I think this is where parents as guidance counselors play an important role. 

 

I am not sure if it is the kids who turn up their noses; I have known a number of parents who promote their alma mater or a uni with a sports team they admire.  Shrug.

 

Not my worry though.

 

[FaithManor]

Oh, and I was referring to our honorary daughter. Our DHD! LOL, our dd was the medic with the recent addition of a chemistry degree.

[Pawz4me]

My son applied to six colleges, two were CSS only schools, one used CSS for early decision, the others used FAFSA.  As I recall, two of the FAFSA schools had a supplementary form that asked about home value and non-college tuition expenses for other family members.

 

Regarding tapping a Roth:  I am not a financial advisor, but I enjoy playing one on the Internet.  :laugh:  It is my understanding that the beauty of the Roth is that one can tap contributions that the owner made at any time (hence they are one of those things that people eyeballing early retirement love).  Additionally, I believe that you can also tap your earnings/interest penalty free when those funds are being used for higher ed.  This may also be true for traditional IRAs--but I would be careful as to what is a "qualified" expenditure.  I haven't read those IRS documents in a while but I did a lot of "what if" calculations when The Boy was a high school student. 

 

Roths are not usually recommended as college saving vehicles since contributions are limited to $5500--viewed as insufficient savings to fund that $200K education.  But my idea was that the Roth could be part of a college savings plan.

 

According to our financial adviser it's very possible to tap retirement accounts to cover college expenses (and many other things) prior to age 59 1/2 w/o incurring penalties.  He went over it with us a few years ago, so time has made my memory fuzzy, plus I tend to get slightly cross eyed and tune out the specifics of things like that (that's one reason we rely on a financial adviser ;)).  But the very simplistic gist of it was that retirement funds can be tapped but there's a formula that has to be followed in order to avoid incurring penalties.  I'm sorry I can't provide more details.  And I'll add the necessary caveats that the laws governing such things could have changed since we had that conversation with him, and that tapping ones retirement funds to pay for the kids' college may not be a wise long term financial move.

[swimmermom3]

I absolutely refuse even to contemplate these POV.  I would not change homeschooling, having each and every one of our children, and living within our means.  Not for one second.  

 

What I do refuse to buy into is the idea that it is the name of the 4 college that is the almighty goal.  I refuse to accept the concept that kids deserve to attend a dream school at the expense of family---size, daily living, activities, and parental retirement. Forget it.  We didn't get married and raise our family to be held in bondage to some ideology that views "selective college" as supreme importance.  Most people graduate from avg universities and go on to successful careers.  Futures are not destroyed by less expensive regional schools.  We love our kids, but their college aspirations are low down on the totem pole of importance in our lives.  Attending college, yes, we will do all that is possible.  Sacrificing our familial values, no way.

 

I would not exchange the homeschooling or being a stay-at-home mom. I would probably exchange the six years of Catholic school tuition, had I understood that our neighborhood public schools were very good and that the money may have been better spent being put into the college funds.

 

At this point, I am not even thinking about big name schools, I am just thinking about a college that will meet Sailor Dude's educational goals.  I think for people who are new to the process, EFC and NPCs can have a dampening effect. When dh and I were talking about how much of a stretch it would be on our household to pay out the $120,000 over four years for our state school which is not a big name, ds asked how it was that my niece could go to the school. I was at a loss to explain that while my sister and bil may make the same amount of money, they have spent it all and have no assets and that's how they could afford the school. :tongue_smilie:   I think for many middle class families, there is a certain irony in thinking that you are doing the right things to the best of your ability, but for the college application process, they may have been the wrong things. 

 

[Annie G]

 I was at a loss to explain that while my sister and bil may make the same amount of money, they have spent it all and have no assets and that's how they could afford the school. :tongue_smilie:   I think for many middle class families, there is a certain irony in thinking that you are doing the right things to the best of your ability, but for the college application process, they may have been the wrong things. 

 

 

It's quite possible that they have taken out huge loans that they will spend many years paying off. 

[swimmermom3]

I don't disagree with you, Jane, but less expensive regional schools do not have to be local or even in-state.  There are low cost schools and there are lower ranked schools which actively recruit strong students and give a lot of merit $$.  Many kids turn up their noses at the schools b/c they think they are "too good for them" or that "they worked hard and deserve better."   

 

This link has a wide range of schools: http://talk.collegeconfidential.com/financial-aid-scholarships/1678964-links-to-popular-threads-on-scholarships-and-lower-cost-colleges.html#latest

 

I have yet to find low cost schools except for our state u that is downtown and a short commute.  A year there could be accomplished for under five figures. What I have found are schools that cost twice as much, but who are willing to give more aid.  If I weren't on this board and didn't have all this accumulated wisdom to tap, it would be easy to be completely unnerved by the search process and the initial financial number crunching. I think many of us have grown up believing that our state universities (unless we live some place like California) are the most affordable options, so it can be nerve-wracking if you think even that option is out of reach because of EFC. There is something weird to me about running the NPC for fun for Georgetown (no, Eight, not even a remote consideration) and finding it was easier to afford than our state school. 

 

I know we will find a good option for ds, one that we all can live with, with grace, in part because he is the youngest and I plan on returning to work, but we aren't counting on that for at least the first two years.

 

[elegantlion]

Me too.  :banghead: :blink: :001_unsure:

 

All of our life choices have become suspect.  It's not a good feeling.

 

I'll be honest, I'm on the other end financially - we're living a meager existence off student aid (mine) - and it almost feels unfair. I feel like my life was just enough of a failure to get this "glorious" second chance with cost of attendance being covered. I'm grateful, I'll still have loans, but I couldn't borrow money right now for that interest rate. 

 

But somehow my life boat sunk at exactly the right time so that ds will get enough aid to cover tuition and then some. If he had high hopes of out of state or living on campus, I'm not sure we could afford it. 

 

I've been pondering this over the last few months. I see people that did save, had a few setbacks, or people that ARE making good choices and still pulling their hair out to get their kids into the right school for them. It's like if your lifeboat didn't sink then you asked to find your way to shore without a paddle. 

 

I mean, I appreciate the break and plan to make the best of the situation, but the advice to stay broke and own nothing to afford school seems like bad advice for the average person. 

[Laurel-in-CA]

I know we are in the minority, but just so this thread isn't totally, totally depressing -

 

Sometimes it works out ok. Our EFC actually turned out to be something we could pay, using the college's monthly payment plan.  Not easy but doable.  College savings + EFC + maximum subsidized federal student loan made it to about 2/3 of the cost of the college.  The college offered a scholarship that covered the other third.  The terms of that scholarship are such that my son has a chance of keeping the scholarship all four years.  We had to fill out both the CSS and FAFSA.  It can work out ok.  For another son, it worked as follows - we took out a small home equity loan and he took out the federal loan and we paid the rest for the first year.  Then, when we knew there was going to be able to finish school and that his degree was going to lead to a job that let him pay off his loans quickly, living at home, we cosigned for him to take out large loans for the rest.  The school also decided that he was a good bet and found him some scholarships.  (This worked out fine and he is close to paying off his loans at this point.)  Our contribution in his case was most of his first year and whatever his rent would have been after school, if he weren't living at home. (His college savings went to pay for something else, when he thought he was sure he was never going to college. Sigh.)  Middle one's story is a more ordinary cobble something together to pay for a state school story.

 

I know this information doesn't help anyone who is struggling to come up with their EFC, but I thought it might be good to have something in here that isn't entirely doom and gloom for those thinking about these things.

 

Nan

 

And sometimes the school is nicer than you'd expect. Our oldest attended a small non-profit art college. She got a merit scholarship for $2500/year based on her portfolio. However, due to many mishaps her first year, she took 4.5 years to finish. That last semester we were sweating it. Her CalGrant ran out after 4 years, so no help there. But the school unexpectedly continued the merit scholarship for her last semester. With that and being a p/t student and using all the rest of her college savings, she was able to pay for that semester without another loan. We are so relieved to be done with at least one!!

[katilac]

 

At this point, I am not even thinking about big name schools, I am just thinking about a college that will meet Sailor Dude's educational goals.  I think for people who are new to the process, EFC and NPCs can have a dampening effect. When dh and I were talking about how much of a stretch it would be on our household to pay out the $120,000 over four years for our state school which is not a big name, ds asked how it was that my niece could go to the school. I was at a loss to explain that while my sister and bil may make the same amount of money, they have spent it all and have no assets and that's how they could afford the school. :tongue_smilie:   I think for many middle class families, there is a certain irony in thinking that you are doing the right things to the best of your ability, but for the college application process, they may have been the wrong things. 

 

 

The idea that saving money will hurt you is a myth. Of course, you are not going to get aid if you have truly substantial assets, but a nice chunk of savings is protected, depending on the age of the oldest parent. I've linked below to a chart that gives a rough idea of how much is saved. 

 

Income counts far more - they expect you to save, whether you do or not, so it blowing it all does not help. If you and your sis have a roughly equivalent income and number of dependents, then you have a roughly equivalent EFC. I think Annie G is correct, and they have likely taken out large, unsubsidized loans. 

 

Personally, I felt much better when I learned this, lol. 

 

The chart: 

http://www.cbsnews.com/news/a-common-myth-about-college-financial-aid/

[Pawz4me]

The idea that saving money will hurt you is a myth. Of course, you are not going to get aid if you have truly substantial assets, but a nice chunk of savings is protected, depending on the age of the oldest parent. I've linked below to a chart that gives a rough idea of how much is saved. 

 

Income counts far more - they expect you to save, whether you do or not, so it blowing it all does not help. If you and your sis have a roughly equivalent income and number of dependents, then you have a roughly equivalent EFC. I think Annie G is correct, and they have likely taken out large, unsubsidized loans. 

 

Personally, I felt much better when I learned this, lol. 

 

The chart: 

http://www.cbsnews.com/news/a-common-myth-about-college-financial-aid/

 

 

I think whether one views it as a myth or not depends on how much savings one has.  I don't see it as a myth at all.

 

We found ourselves in the totally unexpected situation of my mom passing away two years ago this week from injuries she sustained in a car accident.  Oldest DS was a junior in high school.  Our already very high EFC went to truly stratospheric levels due to our increased assets from the inheritance.  Yes, we were (are) very glad to be able to afford the EFC, but any way you look at it, having those "savings" resulted in our having to pay tremendously more than we otherwise would have.

 

And I don't post that to discourage anyone from saving.  I think the pros of saving every bit you can far outweigh the "hurt."   But I don't think it's true to say that having savings won't hurt you.

[Gwen in VA]

Merit aid rocks. Just sayin'.

 

Reading this thread makes my head spin. I am very thankful that we "merit-aided" our way through the college finance maze. I can't imagine withdrawing money out of our retirement account or taking on loans for each of our four kids. What a strange world we live in!

 

BTW, my father was one of those kids in the 50's who truly worked his way through college. His parents didn't want him to go and didn't spend a dime on his education. He did live at home, but that was the extent of their support. He worked as the sound person at a radio station about ten hours a week earning good money and that paid his way through college.

 

Nowadays "earning good money" for 10 hours a week might pay for the "fees" at our local college!

[Nan in Mass]

Where do you guys all live that you are surrounded by people who go way into debt to send their children to colleges just for the name?

 

I live in an area where it is common for people to send their children to a expensive colleges.  It is common to want to send children to a college like the one they attended.  But  IT HAS NOTHING TO DO WITH THE NAME.  It has to do with the educational opportunities - a particular prof, someone who is particularly good at harp or specializes in the mosses living in the Olympic range; or religion; or specific international opportunities; or research opportunities; or very good job placement in a certain field; or a particular program, like an engineering program that specializes in plastics; or a particular academic structure, like quarters rather than semesters, so they will have a better chance of finishing.  And yes, sometimes they want them to have that oh-so-maligned "college experience".  That experience might mean wanting your children to form a tight pack of diverse friends from all over with common interests so they will have the support of the pack when they are your age, just like you do, or wanting them on a college campus that is close to home so they can continue to stay connected to their siblings, or wanting them to have a particular religeous support group or sports opportunities, or knowing they will need extra support in some way and placing them somewhere that support is offered.  Sometimes the names happen to be "big names".  Sometimes they aren't.  Sometimes the family feels so strongly that they want to give this particular child this particular start in life that they take out those parent plus loans.  Often, the match between the student and the school is so good that the school offers enough merit aid to bring the price down to approximately that of the state flagship.

 

In my area, it is also VERY common to tell your children that as much as you would love to send them to a private school, YOU CAN'T AFFORD IT.  They will have to look at the community college or at the nearby state college, or perhaps the state flagship.  Some people let them apply to some private colleges or out-of-state colleges in addition to their in-state options, just in cast a miracle happens, but warn them that they probably won't be able to afford to go.  There seems to be less surprise involved in the college application process than I see on these boards.  (The surprise usually happens much earlier, when the kids are about in middle school and a neighbor or friend says, "Have you seen how much blank costs now? 60K!")  There seems to be much less resentment on the parents' part.  Sadness, yes, but usually it is more like saying sure, you'd love to drive a Subaru, but you can only afford an older Toyota.

 

Maybe the difference isn't so much a regional difference as a homeschooling one.  Homeschoolers are used to making something impossible happen, like not going to school. : )

 

Nan

[Annie G]

The idea that saving money will hurt you is a myth. Of course, you are not going to get aid if you have truly substantial assets, but a nice chunk of savings is protected, depending on the age of the oldest parent. I've linked below to a chart that gives a rough idea of how much is saved. 

 

Income counts far more - they expect you to save, whether you do or not, so it blowing it all does not help. If you and your sis have a roughly equivalent income and number of dependents, then you have a roughly equivalent EFC. I think Annie G is correct, and they have likely taken out large, unsubsidized loans. 

 

Personally, I felt much better when I learned this, lol. 

 

The chart: 

http://www.cbsnews.com/news/a-common-myth-about-college-financial-aid/

 

I've been told this, but our EFC calculations for 2014 and 2015 don't seem to make sense.   We recently finished our taxes and completed the FAFSA for 2015. Our AGI is 10K less than last year, but I knew I was going to quit my job so I banked about the same amount of cash in our savings account to help us adjust to me not working part time.   We have less cash in our savings than what we should be able to exclude in your chart, but our EFC this year is $21 less than last year. We made $10k less in income but our EFC only went down $21.  Our EFC is in the 20K range, so I'm not talking about either extreme of the wage scale- we aren't low income and we aren't anywhere near the $150k that many people deem 'upper middle class'.  

 

Now, the flip side is that when I started working and started earning money, our EFC went way up, so when I first went back to work and earned 10K the first year, our EFC rose quite a bit over the previous year when I wasn't working. 

 

I'm wondering if part of the formula involves how/who earned the money. The FAFSA asks for a breakdown of how much each parent earned. I wonder if two households each with a $100k income would have the same EFC is one household was a single wage earner and the other was two working parents. 

 

I trust we aren't being penalized for having money in the bank, but on paper it doesn't quite make sense how our EFC has been calculated over the years.  

[Azalea]

The idea that saving money will hurt you is a myth. Of course, you are not going to get aid if you have truly substantial assets, but a nice chunk of savings is protected, depending on the age of the oldest parent. I've linked below to a chart that gives a rough idea of how much is saved. 

 

Income counts far more - they expect you to save, whether you do or not, so it blowing it all does not help. If you and your sis have a roughly equivalent income and number of dependents, then you have a roughly equivalent EFC. I think Annie G is correct, and they have likely taken out large, unsubsidized loans. 

 

Personally, I felt much better when I learned this, lol. 

 

The chart: 

http://www.cbsnews.com/news/a-common-myth-about-college-financial-aid/

 

From the article: Let's take a look at how this asset protection allowance works. Let's assume that the oldest parent is 57 years old, which would entitle a couple to an allowance of $49,300. This would allow the parents to shield up to that amount of their non-retirement assets, including 529 plan holdings. 

 

$49,300. I know that so many boardies have a terribly difficult time getting dinner on the table. But honestly, $49k is probably less than any financial adviser would suggest having in an emergency fund. We are all being told that to survive retirement we are going to need $2 million or so, so to me allowing us to shelter $49k is not generous. And I know that retirement accounts are protected, but there are many, many restrictions (caps and such) that make retirement accounts unattractive or simply unavailable. For instance often the funds offered by employers in 401k's have ridiculously high fees.

[katilac]

From the article: Let's take a look at how this asset protection allowance works. Let's assume that the oldest parent is 57 years old, which would entitle a couple to an allowance of $49,300. This would allow the parents to shield up to that amount of their non-retirement assets, including 529 plan holdings. 

 

$49,300. I know that so many boardies have a terribly difficult time getting dinner on the table. But honestly, $49k is probably less than any financial adviser would suggest having in an emergency fund. We are all being told that to survive retirement we are going to need $2 million or so, so to me allowing us to shelter $49k is not generous. And I know that retirement accounts are protected, but there are many, many restrictions (caps and such) that make retirement accounts unattractive or simply unavailable. For instance often the funds offered by employers in 401k's have ridiculously high fees.

 

But keep in mind that $49,300 does not include a bit of retirement money - you could have a very substantial amount in IRAs and such as well. And if you're making a higher income, have over $49,000 in non-retirement and however much in retirement - then, yeah, I think you should be expecting to pay a substantial chunk of change for college. 

 

There are tons of retirement account options, and you don't have to through your employer. I don't believe that anyone who could be putting money into a retirement account has no way to do so. There are always decisions to be made - to me, paying fees to put money into a retirement account is a no-brainer. The highest of fees do not offset the multitude of advantages. 

 

I wasn't anymore pleased than anyone else to see what a large percentage of our income our projected EFC is going to be, but I've run the numbers again and again, and the fact is paring down our non-retirement assets just does not affect our EFC by corresponding amounts, and having those assets does give us a lot more choices. We may or may not decide that a certain college is worth more money, but she has possibilities that wouldn't be on the table had we not saved. 

 

But the main point I was trying to make in my original response was that, if two families have an equal income and an equal number of dependents, they are going to have a roughly equal EFC. The spendthrifts are not being showered with vast quantities of bonus money. 

 

There are always exceptions, of course, but that is pretty standard. If someone has an odd wrinkle in their finances, colleges can take that into consideration. 

[Azalea]

Here is an example of a cap: 

1. Roth IRA Income Limits for Married Filers (Joint) If you file as married filing joint or as a qualifying widow(er) your income must be less than$181,000 to contribute up to the limit. If your income falls between$181,000 and $191,000 you cannot contribute up to the limit. Your contribution is reduced. If your income exceeds $191,000 you cannot contribute to a Roth IRA.

Once you reach the lowest level of what is considered upper middle class, tax benefits go poof! 

 

 

 

[Annie G]

Ok, I figured out why our EFC numbers are high even though we made less money.  I found this:

 

 But here’s something that might surprise you,  if a parent is currently making contributions (elective deferrals) to a 401k or similar plan, the contributions gets added back to the parents’ AGI before the calculation of net reportable income. In other words, the formula makes no allowance for contributions to a retirement plan while your kids are in school.

 

Dh plans to retire in 4 years so we're socking away as much as we can right now and since we're well over 50, we can even do 'catch up contributions'.   We thought it made sense to dump that into 401k since our income is higher right now and we currently get the deductions for the kids' school costs. But I think it might have been better to keep it in a cash account.  Well at least that explains why we had a lower AGI last year but the same EFC! That was driving me crazy. 

 

 

 

 

[katilac]

Ok, I figured out why our EFC numbers are high even though we made less money.  I found this:

 

 But here’s something that might surprise you,  if a parent is currently making contributions (elective deferrals) to a 401k or similar plan, the contributions gets added back to the parents’ AGI before the calculation of net reportable income. In other words, the formula makes no allowance for contributions to a retirement plan while your kids are in school.

 

 

 

Do you have the link for this? I'd love to read it. 

 

Edited to add: not because I doubt you, lol, but b/c we are making some decisions right now. My comment sounded odd once I read it again! 

[NicksMama-Zack's Mama Too]

Do you have the link for this? I'd love to read it.

 

Edited to add: not because I doubt you, lol, but b/c we are making some decisions right now. My comment sounded odd once I read it again!

I recall having to add our contribution back into our taxable income on the fasfa.

 

Here's an article from 2013 regarding retirement contributions.http://www.thecollegesolution.com/answering-a-dads-financial-aid-question/

[katilac]

 

Here is an example of a cap: 

1. Roth IRA Income Limits for Married Filers (Joint) If you file as married filing joint or as a qualifying widow(er) your income must be less than$181,000 to contribute up to the limit. If your income falls between$181,000 and $191,000 you cannot contribute up to the limit. Your contribution is reduced. If your income exceeds $191,000 you cannot contribute to a Roth IRA.

Once you reach the lowest level of what is considered upper middle class, tax benefits go poof! 

 

 

Regardless of what the tax benefits may or may not be, the money in the retirement is account is still shielded from FASFA, and to a big extent from CSS. Each person has to run the numbers and pick what is most likely to be the biggest benefit for them. I think it's almost certainly to put money into a retirement account, but I'm no expert at incomes at that level, lol. 

 

But, again, if you are making $181,000 or $191,000 in income, you will be expected to make a substantial contribution to your child's education, no matter what you do with your money. Our EFC is full freight at any state school, and we make a whole lot less than that. 

[8filltheheart]

I am pretty sure that the money contributed toward a retirement acct is added back in for that tax yr. 

[katilac]

I recall having to add our contribution back into our taxable income on the fasfa.

 

Here's an article from 2013 regarding retirement contributions.http://www.thecollegesolution.com/answering-a-dads-financial-aid-question/

 

Thanks. 

 

At the end of this link, there's also a good explanation as to why the amount of money that is shielded can change so much from year to year. 

[Annie G]

http://www.forbes.com/sites/troyonink/2013/01/09/save-for-retirement-now-get-more-college-aid-later/

 

I should have linked the article when I posted the paragraph!  

 

 

[*LC]

The idea that saving money will hurt you is a myth. Of course, you are not going to get aid if you have truly substantial assets, but a nice chunk of savings is protected, depending on the age of the oldest parent. I've linked below to a chart that gives a rough idea of how much is saved. 

 

Income counts far more - they expect you to save, whether you do or not, so it blowing it all does not help. If you and your sis have a roughly equivalent income and number of dependents, then you have a roughly equivalent EFC. I think Annie G is correct, and they have likely taken out large, unsubsidized loans. 

 

Personally, I felt much better when I learned this, lol. 

 

The chart: 

http://www.cbsnews.com/news/a-common-myth-about-college-financial-aid/

 

 

From the article: Let's take a look at how this asset protection allowance works. Let's assume that the oldest parent is 57 years old, which would entitle a couple to an allowance of $49,300. This would allow the parents to shield up to that amount of their non-retirement assets, including 529 plan holdings. 

 

$49,300. I know that so many boardies have a terribly difficult time getting dinner on the table. But honestly, $49k is probably less than any financial adviser would suggest having in an emergency fund. We are all being told that to survive retirement we are going to need $2 million or so, so to me allowing us to shelter $49k is not generous. And I know that retirement accounts are protected, but there are many, many restrictions (caps and such) that make retirement accounts unattractive or simply unavailable. For instance often the funds offered by employers in 401k's have ridiculously high fees.

 

Unfortunately, that article is a couple of years old, and the amount of savings you are allowed to allowed to shield from colleges on the FASFA form has gone down not up.

 

Here is part of the chart for the 2015 numbers. You can find the whole chart here  http://ifap.ed.gov/efcformulaguide/attachments/090214EFCFormulaGuide1516.pdf It is the step-by-step worksheet for figuring out EFC

 

Age of older parent as of 12/31/2015

* Allowance if there are two parents

** Allowance if there is only one parent

*Determine the age of the older parent listed in FAFSA/SAR #64 and #68 as of 12/31/2015. If no parent date of birth is provided, use age 45. Allowance if there are two parents** **Use the two parent allowance when the Parents’ Marital Status listed in FAFSA/SAR #59 is “married or remarried†or “unmarried and both parents living together.†

                  * two parents ** one parent

40............... 25,100 ....6,800 

41............... 25,600 .... 6,900

42............... 26,200 .... 7,100

43............... 26,900 .... 7,200

44............... 27,500 .... 7,400

45............... $28,200 .... $7,500

46............... 28,800 .... 7,700

47............... 29,500 .... 7,900

48............... 30,300 .... 8,100

49............... 31,100 .... 8,300

50............... 31,800 .... 8,500

51............... 32,700 .... 8,700

52............... 33,500 .... 8,900

53............... 34,400 .... 9,100

54............... 35,400 .... 9,300

55............... 36,300 .... 9,500

56............... 37,300 .... 9,800

57............... 38,300 .... 10,000

58............... 39,400  ....10,200

59............... 40,500 .... 10,500

60............... 41,700 .... 10,800

61............... 42,900 .... 11,000

62............... 44,100 .... 11,300

63............... 45,400 .... 11,600

64............... 46,700 .... 11,900

65 or over.. 48,100 .... 12,300

 

The 57-year-old who was able to shield 49,300 in non-retirement assets a few years ago is now only allowed to shield 38,300. That is 11,000 less. 

 

If something happens to make that two parent family a one parent family, then only 10,000 is allowed to be shielded, assuming the remaining spouse is 57.

 

I just wanted to put the latest numbers out there, since they are lower than the ones in the older article. That also might have something to do with an EFC changing. 

[JanetC]

@LC - thanks for the link!

The other thing that seems to have changed is the amount of unshielded assets that are expected to be sold to pay for college has gone up to 12 percent per year.  When did that happen?  I've been estimating using the Forbes magazine multiplier of 5.64 percent. 

 

 

ETA: Nevermind, I see the 12 percent of savings gets multiplied by 47% later (table A6) which gives you the 5.64 percent.

[shawthorne44]

Urg!    Am I the only one that is starting to think burying money in the backyard is starting to look like a good idea?  

[Lori D.]

Bumping this, hoping someone will be able to sticky it. 

 

Some while back, I linked this thread in post #5 of the big pinned thread at the top of the high school board that is a compilation of helpful threads: "Transcripts, Credits, NCAA, College Applications, First Time at College, Scholarships/Finacial Aid, Career Exploration -- past threads linked here!"

 

I am hoping to have time next summer to switch all of the college topics in that thread into a thread here on the college board and ask to have it pinned at the top of this board. :) Until then, check out post #5 of that pinned thread on the high school board for info on financial aid/scholarships and other college topics. :)

[JanetC]

Correct me if I'm wrong -

A big difference between the FAFSA and CSS is that the CSS, while being more detailed, does not generate a report indicating family contribution, ability to pay, or what to expect along the lines for grants or loans. It's used for information gathering only. The schools plug this information into their individualized formulae to help generate financial aid packages.

This is correct. However there is a separate EFC estimator on the College Board website that you can reenter your Profile data into. It will give you a guess at your IM EFC, but as you note colleges can and do tweak it.