Your EFC might be higher in 2016

[8filltheheart]

http://www.forbes.com/sites/troyonink/2015/06/30/2016-2017-college-financial-aid-formula-penalizes-middle-class-8000/

 

If you had a child entering college four years ago the asset protection allowance for a 45 year-old married parent was $41,300 for the 2012-2013 academic year. The recent update published in the Federal Register for the 2016-2017 academic year (when rising high school seniors will enter college), is only $6,300 (a paltry $3,600 if the parent is single).

 

That means the amount the government allows you to have saved without your savings impacting your child’s college aid eligibility has dropped a whopping 85% or $35,000 in just a four years.

According to what I read on CC, that is not even the full picture. It may also lead to reduced state grant $$.

 

http://talk.collegeconfidential.com/financial-aid-scholarships/1789580-2016-2017-college-financial-aid-formula-penalizes-middle-class-8-000.html#latest

[creekland]

Well... thanks for the morning bit of good news.   :glare:

 

Before I look into it more I think I'll just be thankful that two of my three will be done (since middle son's fifth year is tuition free and he plans to remain an RA to keep his room free).

 

I'm sure it will all get balanced out by youngest son's FAFSA though.  Time will tell.

[G5052]

Yes, I saw this today in one of my college faculty e-loops.

 

At the state community colleges I work for, there is concern that it may reduce our student numbers yet more at a time when the state has cut back their funding.  It wasn't a good year for us with across-the-board flat or declining enrollment at every community college in the system.  One of the colleges I work for hired me to teach in a new area in April of 2014.  I went through the whole process and got on the schedule, and then they pulled the class in August and again in January because of low enrollment.

 

Now they're putting me into yet another area for the fall, and I'm wondering if that will go. Thankfully I have other grant-funded work at that school, but it is maddening. Do I have work, or don't I?

 

And it's sad. The reality is that it is getting harder and harder for certain folks to go to college.

[8filltheheart]

Just seems to affirm the disincentive to save mentality and have everyone living in constant crisis mode.

[Teachin'Mine]

I also don't think that the protected asset amount should have been lowered and so significantly at that.  The amount in savings or investments above the protected amount is taken at 5.64% for the parent contribution.  The maximum amount per year will be just under 2K per year.  Not a good change.

 

Here's a Forbes article from last February, so obviously they refer to the higher limits for protected assets, but it does a good job explaining how various assets are considered for both the FAFSA and CSS Profile.   Definitely something for all high school parents to read so they can plan accordingly. 

 

http://www.forbes.com/sites/troyonink/2014/02/14/how-assets-hurt-college-aid-eligibility-on-fafsa-and-css-profile/

[bettyandbob]

Why should anyone bother to be responsible about saving.

[JanetC]

Why should anyone bother to be responsible about saving.

 

Reason #1: The FAFSA formula takes just over 20% of your savings over four years. The FAFSA formula takes 5.64 percent of your savings per year. If you start with 10,000 in savings, earn no interest, and take out 5.64 percent of the account per year for four years, you still have about 7900 left

 

Reason #2: Your income level is generally the largest factor in your EFC. If you don't have the savings to fund the EFC portion based on income level, then it will come from a drastic cutback in lifestyle or from a loan.

[creekland]

Why should anyone bother to be responsible about saving.

 

I believe FAFSA counts on you saving for college based upon your income level - whether you do or not.

 

If you do, you have a better chance at being able to meet your EFC.  If you don't, meeting it will be very difficult.

[Carol in Cal.]

There are several places to save that don't play into the FAFSA calculation at all.  

[idnib]

Sigh....

 

I like hanging out on the college board because you guys rock, but it does leave me in fear of what will happen in the next 7-11 years.

[regentrude]

There are several places to save that don't play into the FAFSA calculation at all.  

 

Would you mind elaborating? Anything besides retirement?

 

[8filltheheart]

There are several places to save that don't play into the FAFSA calculation at all.

True, but according to the link provided by TeachinMine:

Assets that aren’t in retirement accounts — balances in checking, savings, CDs, brokerage accounts, money market, investment real estate, stocks, bonds, mutual funds, ETFs, commodities and 529 college savings and prepaid plans—do get included in the EFC formulas.Trust funds must be reported regardless of whether or not the funds are currently available to you or your child. On the FAFSA, if only interest or principal will be available, the present value should be calculated by the trust officer and reported accordingly.

Parents’ total reportable assets will vary depending upon the EFC methodology, and from the reportable asset value a savings (emergency reserve) allowance of about $30,000 to $50,000 is subtracted to arrive at an available asset value. Parents are expected to use up to 5.64% (Federal) and 5% (Institutional and Consensus), of those available assets each year on college.

Except now that emergency reserve allowance has been dramatically reduced.

[Carol in Cal.]

Would you mind elaborating? Anything besides retirement?

 

I'm sorry, I'm running off and don't have time to go into it but the article that was linked up above covers this very well.

[JanetC]

Some things like home equity are not on FAFSA but are on PROFILE. You have a lot more shelter options if you don't apply to PROFILE schools (PROFILE schools include the most competitive schools and the ones popular with higher income brackets).

 

The FAFSA formula is public domain, you can read it in detail and find what is and isn't covered.

 

But, the PROFILE is privately owned and administered (and interpreted differently by different schools), so it's a bit trickier to tease out exactly which assets where cost you the most in financial aid. Forbes is actually pretty good for general information on the PROFILE, but YMMV much more with PROFILE schools than with FAFSA ones.

[regentrude]

I'm sorry, I'm running off and don't have time to go into it but the article that was linked up above covers this very well.

 

I read the article, and it says

 

Assets that aren’t in retirement accounts — balances in checking, savings, CDs, brokerage accounts, money market, investment real estate, stocks, bonds, mutual funds, ETFs, commodities and 529 college savings and prepaid plans—do get included in the EFC formulas

 

So what, besides retirement savings  is not included?

Retirement accounts are nice for saving for retirement, but they are not good vehicles for emergency/general funds, since you can't get at the money before retirement age, or only with a penalty.

[JanetC]

I read the article, and it says

 

 

So what, besides retirement savings  is not included?

Retirement accounts are nice for saving for retirement, but they are not good vehicles for emergency/general funds, since you can't get at the money before retirement age, or only with a penalty.

 

Examples of things FAFSA does not ask for include home equity of your residence, the value of a business with fewer than 100 employees, and the assets of a noncustodial parent (assuming you still trust your ex enough to manage the college nest egg!).

 

Examples of asset management strategies:

 

http://www.forbes.com/sites/troyonink/2015/05/31/coordinating-529-plan-withdrawals-with-the-american-opportunity-tax-credit/

 

http://www.forbes.com/sites/troyonink/2015/04/30/tax-strategy-for-college-wipes-out-26000-a-year-in-capital-gains/

 

(If you're in an income bracket where the second one makes sense to you, please pay a qualified financial adviser to walk you through it!)

 

Another common one is if using outside assets from someone like a grandparent is to have grandma give a gift to the PARENTS and not to the CHILD, since the parents' assets are counted towards EFC at 5.64 percent but a dependent child's assets are counted towards EFC at 50 percent.

[maize]

I read the article, and it says

 

 

So what, besides retirement savings  is not included?

Retirement accounts are nice for saving for retirement, but they are not good vehicles for emergency/general funds, since you can't get at the money before retirement age, or only with a penalty.

 

One thing people can do if they haven't already is max out the Roth IRA option. A couple making (if the numbers I looked up are accurate) less than $183,000 if filing jointly are eligible to contribute up to $5,500 each per year (so total $11,000 per year). There are different income limits for single etc., and people over age 50 can contribute up to $6,500 per year. 

 

Roths can be used as an emergency fund--wouldn't want to do it for small emergencies, but this is where our major emergency fund is. As long as the account has been open at least 5 years, contributions (not earnings) can be deducted at any time without penalty. 

[BlsdMama]

Time to consider working on paying down the house as a savings plan?

 

I want back to work part time this year (very minimal income) and dh just applied for a promotion. We're fearful this will greatly affect us. Successful wage earners must be punished. :(

 

My best hope is that Christian is graduating early and the university will be generous with two kids going there.

[regentrude]

Examples of things FAFSA does not ask for include home equity of your residence, the value of a business with fewer than 100 employees, and the assets of a noncustodial parent (assuming you still trust your ex enough to manage the college nest egg!).

 

Examples of asset management strategies:

 

http://www.forbes.com/sites/troyonink/2015/05/31/coordinating-529-plan-withdrawals-with-the-american-opportunity-tax-credit/

 

http://www.forbes.com/sites/troyonink/2015/04/30/tax-strategy-for-college-wipes-out-26000-a-year-in-capital-gains/

 

(If you're in an income bracket where the second one makes sense to you, please pay a qualified financial adviser to walk you through it!)

 

Another common one is if using outside assets from someone like a grandparent is to have grandma give a gift to the PARENTS and not to the CHILD, since the parents' assets are counted towards EFC at 5.64 percent but a dependent child's assets are counted towards EFC at 50 percent.

 

Thanks. I guess I was not clear with my question. I was responding to the poster who said "There are several places to save that don't play into the FAFSA calculation at all. " (Bolded emphasis mine). So, my question was about ways to save that won't affect the FAFSA, other than the obvious retirement accounts.

I realize that home equity does not affect FAFSA, but paying off the mortgage does not leave me with savings or liquidity.

[Tsuga]

I read the article, and it says

 

 

So what, besides retirement savings  is not included?

Retirement accounts are nice for saving for retirement, but they are not good vehicles for emergency/general funds, since you can't get at the money before retirement age, or only with a penalty.

 

I sent you a PM.

[JanetC]

Thanks. I guess I was not clear with my question. I was responding to the poster who said "There are several places to save that don't play into the FAFSA calculation at all. " (Bolded emphasis mine).

Minimizing taxes can aid your liquidity. For example, if you use the strategy of paying 4000 out of non-529 assets and qualify for the 2500 tax break, that 2500 you didn't send to Uncle Sam is still sitting in your emergency fund in your bank account.

 

There isn't really anything like a savings account (safe, low maintenance) that is ignored by the FAFSA. Owning a business with less than 100 employees is an asset not counted on the FAFSA, but you do have the work of running said business and it's not liquid.

[regentrude]

Minimizing taxes can aid your liquidity. For example, if you use the strategy of paying 4000 out of non-529 assets and qualify for the 2500 tax break, that 2500 you didn't send to Uncle Sam is still sitting in your emergency fund in your bank account.

 

 

Thanks. We're already doing that; DH is pretty much on top of the tax optimization thing.

[Sebastian (a lady)]

The frustration I have is that we aren't looking at four years of tapping into savings. We have two kids close then another one. So we have more like nine years, assuming no one needs an extra year of school.

 

My reward for saving will be to owe more.

 

Frankly this makes no sense when people are also being told to make sure they have several months of an emergency fund. The new amount is about a month in the high rent areas we've lived in.

[Joules]

My FAFSA EFC was already unaffordable, so it shouldn't affect me. It merit aid or cash pay here.

 

It's frustrating that they made such a drastic change. Usually these things phase in slowly. Everyone here is trying to plan so carefully to make college work and then Wham!

 

I've felt this way with colleges that change their requirements for homeschool applications each year. I'm trying to hit a moving target.

[Teachin'Mine]

Just be aware that on the CSS, some schools require a supplemental question asking details about vehicles owned - make, model, year, etc.  I would imagine that a car for the graduating student would be fine, but the high priced classic collectibles might be considered assets. 

[Arcadia]

Boats and jewelry are also not counted.

My grandparents days of keeping gold bars in the bank :lol:

 

I know quite a few neighbors who would still be paying their 30 year fixed mortgage when their firstborn finish high school. Guess it would make sense for them to downpay more into mortgage principal then keep money (like an annual salary worth) in savings for emergency.

 

ETA:

Start a family business while kids are in high school in preparation for retirement. My niece worked awhile for her dad (paternal cousin) when she couldn't find employment. My hubby was self employed for a few years.

[Caroline]

There you go Regentrude, buy yourself a boat and a 68 Camaro. Hide the diamonds in one of them.😜

I wonder if you could get an electron microscope. I don't have much use for a classic car or a boat, but I could have some fun with a transmission electron microscope, scanning electron microscope, ion mill...

[regentrude]

I wonder if you could get an electron microscope. I don't have much use for a classic car or a boat, but I could have some fun with a transmission electron microscope, scanning electron microscope, ion mill...

 

The electron microscope DD was trained on this week cost 1.6 million. If I had this kind of money needing to be hidden, college cost would be of no concern :-)

 

But I'm a theorist. Lab equipment and fun don't come in the same sentence for me. You can't really hide many assets by stocking up on good quality pencils.

[regentrude]

Just be aware that on the CSS, some schools require a supplemental question asking details about vehicles owned - make, model, year, etc.  I would imagine that a car for the graduating student would be fine, but the high priced classic collectibles might be considered assets. 

 

Yep. The CSS for DD wanted to know all those details about our vehicles. I assume that the school would not ask if they did not consider cars as assets in their financial aid calculation.

[regentrude]

True, but perhaps your garage is in need of a lift and a few more tools or small construction vehicles to give your son practical experience with handyman items. Or your kitchen is ready to remodel. And you might time an RV purchase. Maybe a toyhauler with 4 wheelers for everyone is in your future when you tire of your boat and jetskis. Or maybe you would like to put some spare cash into wine.

 

Sure. One can always schedule planned purchases strategically. If somebody wants to remodel the kitchen anyway, timing the remodel so the bill is paid before the FASFA is filled out makes sense.

OTOH, this only works if the funds used for this are not required liquidity for paying college cost and other expenses. I would assume that many posters here who have savings won't be in a situation to spend those funds on purchases where all or a large portion of the money is not recoverable if it were suddenly needed. You can't rip out your countertops to pay medical bills or a higher than expected college bill. You can sell the RV, but would probably do so at a loss.

So, while this may work to some degree, it does not solve the problem of a liquid emergency fund.

 

 

 

[regentrude]

Looked a little more into this, and the methodology with which they came up with the decrease is interesting. I had not been aware that this is not that somebody has decided to lower the amount of protected assets; apparently there is a fixed formula that relates predicted income growth and predicted growth of social security benefits. (Did you all know that? I admit I did not.)

It is all because social security benefits have been growing at a higher rate than income. This narrowed the gap, and the formula concludes that this means we need fewer savings.

This is such a ridiculous methodology if it comes to the conclusion that stagnating incomes mean we need to save less. Because, that makes total sense, right?

[idnib]

True, but perhaps your garage is in need of a lift and a few more tools or small construction vehicles to give your son practical experience with handyman items. Or your kitchen is ready to remodel. And you might time an RV purchase. Maybe a toyhauler with 4 wheelers for everyone is in your future when you tire of your boat and jetskis. Or maybe you would like to put some spare cash into wine.

 

So the high price of college is actually driving the national economy, not hindering it?  ;)

[8filltheheart]

 

This is such a ridiculous methodology if it comes to the conclusion that stagnating incomes mean we need to save less. Because, that makes total sense, right?

Complete sense. Our economy is rock solid and social security is well-vested. What's not logical?

[Pawz4me]

True, but perhaps your garage is in need of a lift and a few more tools or small construction vehicles to give your son practical experience with handyman items. Or your kitchen is ready to remodel. And you might time an RV purchase. Maybe a toyhauler with 4 wheelers for everyone is in your future when you tire of your boat and jetskis. Or maybe you would like to put some spare cash into wine.

 

FYI -- We listed our RV as an asset on the CSS Profile.

[Caroline]

The electron microscope DD was trained on this week cost 1.6 million. If I had this kind of money needing to be hidden, college cost would be of no concern :-)

 

But I'm a theorist. Lab equipment and fun don't come in the same sentence for me. You can't really hide many assets by stocking up on good quality pencils.

I think some people are just trying to hide money, even if it is no concern.

 

I am a materials scientist, and I love playing around on electron microscopes. I still remember the first time I got to "drive" one myself.

[at the beach]

FAFSA is for determining federal aid. If you get into a need-met school, most look at the CSS to determine what your need is, and they look at all assets. People who have a high EFC that's unaffordable would not necessarily get more money from colleges if they had a low EFC. People with a low EFC are often gapped. One group I do see this impacting is low-income families who have some small savings or assets. They will be able to shield less of those savings or assets. EFC will increase and possibly push them outside of the range to qualify for a Pell or reduce the amount of the Pell they receive.