Does a 529 plan affect financial aid?

[MarkT]

short YouTube video:

[katilac]

Thanks, I will be sharing this. Maybe people will pay more attention than they do when I'm talking  :001_rolleyes:

[kokotg]

I think the "most schools use the FAFSA" is a huge disclaimer here. As far as I can tell, pretty much any school that meets 100% of demonstrated need uses CSS, too, and that makes a very big difference. SavingforCollege.com is a for profit site that makes money off of 529s, isn't it?

Edited March 2, 2018 by kokotg

[MarkT]

I think the "most schools use the FAFSA" is a huge disclaimer here. As far as I can tell, pretty much any school that meets 100% of demonstrated need uses CSS, too, and that makes a very big difference. SavingforCollege.com is a for profit site that makes money off of 529s, isn't it?

There are not that many colleges that actually require the CSS.  Your statement is probably correct for some private colleges.  

How does the CSS handle parent 529s?

update:

found this

https://talk.collegeconfidential.com/financial-aid-scholarships/2021504-css-form-should-you-include-the-funds-in-your-childs-529-account-under-student-resources.html

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The video is factual. 

[kokotg]

There are not that many colleges that actually require the CSS.  Your statement is probably correct for some private colleges.  

How does the CSS handle parent 529s?

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The video is factual. 

 

I'm not saying it isn't factual, I'm just saying that from what I've seen in researching financial aid the EFC on the FAFSA really doesn't mean much of anything because there aren't any colleges that will give you aid to fill in the gap between your federal EFC and their cost. Any that do meet need use their own formulas. I'd love it if our EFC according to FAFSA meant something, but it really doesn't seem to. 

 

I think (but I'm definitely not sure) that the way it works for CSS schools is that whatever's in the 529 will be treated as an asset for the first year, but then when you take the money out it will be considered income or gift money or whatever for the student and count against them the next year. There's a lot of talk online about waiting to withdraw until after you've filed for FA fall of Junior year so that it won't be counted against you. 

 

I'm certainly not suggesting people not save for college, but I am saying that "except for CSS schools" is a pretty major thing if you're counting on substantial need based aid because all the schools that offer the best need based aid are CSS schools.

[regentrude]

I am scratching my head why somebody produces a video that presents a series of written statements in moving format with underlying music, when the same info could be read much faster if it were presented at once in written form. Do "millennials" really prefer to obtain information in this format?

The video does not say anything new.

Edited March 2, 2018 by regentrude

[kokotg]

If anyone DOES know for sure how distributions from parent held 529s are treated by CSS schools, btw, I'd love to hear! I've been googling for forever, and I can't figure it out. 

[katilac]

I am scratching my head why somebody produces a video that presents a series of written statements in moving format with underlying music, when the same info could be read much faster if it were presented at once in written form. Do "millennials" really prefer to obtain information in this format?

The video does not say anything new.

 

It's not aimed at millennials, it's aimed at parents thinking about paying for college. I'm aware that millennials can be defined as old as 34, but the target audience is older for the most part. 

 

And yes, a lot of people will watch a quick video that comes across their feed as opposed to looking for and reading the information. Some people are really not aware that they should be seeking out the information in the first place; they just have vague ideas about saving for college and whether that is good/worth it.  

 

I think the "most schools use the FAFSA" is a huge disclaimer here. As far as I can tell, pretty much any school that meets 100% of demonstrated need uses CSS, too, and that makes a very big difference. SavingforCollege.com is a for profit site that makes money off of 529s, isn't it?

 

Well, it's a true disclaimer: most schools do use the FAFSA. It's a quite small percentage that uses CSS, and a smaller percentage still that meets need. Plus, the CSS exists to get a deep look at your financials; if the income and investments and such are there, it's not going to make a tremendous difference if you save for college or not. They expect you to save, and that's part of what defines need, whether you actually saved or not. I'm not saying you can't get some extra dollars here or there by timing things right, but the school has a very good idea of what you can pay once you fill out that CSS. 

[PinkyandtheBrains.]

If anyone DOES know for sure how distributions from parent held 529s are treated by CSS schools, btw, I'd love to hear! I've been googling for forever, and I can't figure it out. 

 

 

It varies by schools. They each have their own method for determining how to distribute aid. 

[Tsuga]

If anyone DOES know for sure how distributions from parent held 529s are treated by CSS schools, btw, I'd love to hear! I've been googling for forever, and I can't figure it out. 

 

Depends on the school. That's just a shared form. It's not a public or common system for aid. Every school has its own system. Actually, many schools have multiple systems. The CSS is just the database they use to collect data. Then every foundation, department, etc. can take that data and use it however they want to distribute money. 

 

Also, and this is critical and we really need as a nation to wrap our heads around this... unless you think that you are eligible for substantial need aid in the form of Pell Grants (300% of poverty line maximum), state need grants (usually adjusted to fill the gap in high COL states), your "aid" is going to be in non-forgivable, higher-interest loans. You aren't generally punished for saving unless you were saving through true hardship. You are just maximizing compound interest.

[kokotg]

Depends on the school. That's just a shared form. It's not a public or common system for aid. Every school has its own system. Actually, many schools have multiple systems. The CSS is just the database they use to collect data. Then every foundation, department, etc. can take that data and use it however they want to distribute money. 

 

Also, and this is critical and we really need as a nation to wrap our heads around this... unless you think that you are eligible for substantial need aid in the form of Pell Grants (300% of poverty line maximum), state need grants (usually adjusted to fill the gap in high COL states), your "aid" is going to be in non-forgivable, higher-interest loans. You aren't generally punished for saving unless you were saving through true hardship. You are just maximizing compound interest.

 

In our situation, we're looking very narrowly at schools that meet 100% of demonstrated need (either without loans or with modest federal loans only) or at our state universities where tuition is covered with lottery money and we'd be paying "only" room/board/fees/etc. If he can get into a 100% need school, he can go. Otherwise, state public school. Maybe we're just a little....niche, but the FAFSA vs CSS and how CSS schools look at things like 529 withdrawals makes a HUGE difference for us. It's too late for me to do much about what we've done so far (oldest is a junior), but looking ahead to how to plan for future years (and future kids)...it's frustrating how opaque the process is. But if I harp on CSS schools, it's because there's absolutely no way we could even consider a private school that doesn't have generous need based aid and that means we're only looking at CSS schools and in-state public schools. 

[katilac]

In our situation, we're looking very narrowly at schools that meet 100% of demonstrated need (either without loans or with modest federal loans only) or at our state universities where tuition is covered with lottery money and we'd be paying "only" room/board/fees/etc. If he can get into a 100% need school, he can go. Otherwise, state public school. Maybe we're just a little....niche, but the FAFSA vs CSS and how CSS schools look at things like 529 withdrawals makes a HUGE difference for us. It's too late for me to do much about what we've done so far (oldest is a junior), but looking ahead to how to plan for future years (and future kids)...it's frustrating how opaque the process is. But if I harp on CSS schools, it's because there's absolutely no way we could even consider a private school that doesn't have generous need based aid and that means we're only looking at CSS schools and in-state public schools. 

 

If he has the stats to get into a needs-met school, then he has the stats to be in the running for some amazing scholarships at OOS schools. Some are competitive, some are automatic. I would absolutely take a second look at potential scholarship schools. 

 

Schools each have their own definition of what "need" means. And it can be higher than your EFC.

[kokotg]

If he has the stats to get into a needs-met school, then he has the stats to be in the running for some amazing scholarships at OOS schools. Some are competitive, some are automatic. I would absolutely take a second look at potential scholarship schools. 

 

Schools each have their own definition of what "need" means. And it can be higher than your EFC.

 

And he might also get nice merit aid at in-state schools, some of which are quite good, and that would make them hard to turn down...

 

(and, honestly, I don't have much sense of what selective colleges he has a shot at yet. I find it really hard to figure out given his fairly unorthodox hodge podge homeschool transcript (and no SAT scores other than the one he took in 9th grade. he takes it again next week)).

 

I've run net price calculators at a whole slew of 100% need met schools and our EFC is all over the map, but almost invariably significantly higher than our FAFSA EFC (except at Harvard. All he needs to do is get into Harvard and he's all set ;) ), which is why I'm so concerned with how different schools look at different assets...a few thousand would make a big difference. 

 

SaveSave

Edited March 3, 2018 by kokotg

[katilac]

 (except at Harvard. All he needs to do is get into Harvard and he's all set ;) )

 

Problem solved  :laugh:

[Tsuga]

In our situation, we're looking very narrowly at schools that meet 100% of demonstrated need (either without loans or with modest federal loans only) or at our state universities where tuition is covered with lottery money and we'd be paying "only" room/board/fees/etc. If he can get into a 100% need school, he can go. Otherwise, state public school. Maybe we're just a little....niche, but the FAFSA vs CSS and how CSS schools look at things like 529 withdrawals makes a HUGE difference for us. It's too late for me to do much about what we've done so far (oldest is a junior), but looking ahead to how to plan for future years (and future kids)...it's frustrating how opaque the process is. But if I harp on CSS schools, it's because there's absolutely no way we could even consider a private school that doesn't have generous need based aid and that means we're only looking at CSS schools and in-state public schools. 

 

It doesn't sound niche to me. We're in the same boat.

 

However, I don't see how even knowing the formula would work against you, unless you want to "game" the system.

 

If you save, the most they can take from those savings (in addition to your income contribution, which is based on income), is your savings which you'd planned to spend, correct?

 

Is it possible that the formula would somehow assume that if you'd saved you had secret assets, and therefore require more than you had actually saved?

 

If not, what is the loss? You have as much as you can possibly save, and put it in, and see what they can cover. It seems to me that saving will always bring you out ahead in terms of educational cost security.

 

Unless you're bummed that other non-savers with a similar income are getting more? I think that's unavoidable for all of us who pay in to the system. But also, the non-savers are most likely not getting more grant aid. They would just be offered more debt.

[Corraleno]

I think (but I'm definitely not sure) that the way it works for CSS schools is that whatever's in the 529 will be treated as an asset for the first year, but then when you take the money out it will be considered income or gift money or whatever for the student and count against them the next year. There's a lot of talk online about waiting to withdraw until after you've filed for FA fall of Junior year so that it won't be counted against you.

I think that only applies when the 529 is owned by someone other than the parent or student. If it's owned by the parent or student it's considered an asset and distributions are not considered income to the student. But if it's owned by a grandparent, for example, then the 529 itself doesn't show up on the FAFSA as an asset, but the distribution does count as untaxed income to the student. That's why they recommend waiting to use nonparent-owned 529 money until junior & senior years, since that prevents the distributions from counting as income (since FAFSA uses prior-prior tax years). Does that make sense?

 

ETA: This link might help

[kokotg]

I think that only applies when the 529 is owned by someone other than the parent or student. If it's owned by the parent or student it's considered an asset and distributions are not considered income to the student. But if it's owned by a grandparent, for example, then the 529 itself doesn't show up on the FAFSA as an asset, but the distribution does count as untaxed income to the student. That's why they recommend waiting to use nonparent-owned 529 money until junior & senior years, since that prevents the distributions from counting as income (since FAFSA uses prior-prior tax years). Does that make sense?

 

ETA: This link might help

 

Everything I can find only talks about the FAFSA, though! Although, the more I think about it, it doesn't seem like it would make much sense to count withdrawals from a parents 529 as income since they already counted it as an asset the year before. But I don't necessarily trust the formulas to make sense....I guess I'd just feel better if I saw something that didn't add the "most schools only use the FAFSA caveat," since that makes it sound like the CSS makes a difference. 

Edited March 3, 2018 by kokotg

[8filltheheart]

Everything I can find only talks about the FAFSA, though! Although, the more I think about it, it doesn't seem like it would make much sense to count withdrawals from a parents 529 as income since they already counted it as an asset the year before. But I don't necessarily trust the formulas to make sense....I guess I'd just feel better if I saw something that didn't add the "most schools only use the FAFSA caveat," since that makes it sound like the CSS makes a difference.

Ask your question on the CC FA forum. Someone there can probably answer your question. (There are several accountants who post there as well as a FA officer. When no one else can answer, one of them will usually try to help clarify.)

[kokotg]

It doesn't sound niche to me. We're in the same boat.

 

However, I don't see how even knowing the formula would work against you, unless you want to "game" the system.

 

If you save, the most they can take from those savings (in addition to your income contribution, which is based on income), is your savings which you'd planned to spend, correct?

 

Is it possible that the formula would somehow assume that if you'd saved you had secret assets, and therefore require more than you had actually saved?

 

If not, what is the loss? You have as much as you can possibly save, and put it in, and see what they can cover. It seems to me that saving will always bring you out ahead in terms of educational cost security.

 

Unless you're bummed that other non-savers with a similar income are getting more? I think that's unavoidable for all of us who pay in to the system. But also, the non-savers are most likely not getting more grant aid. They would just be offered more debt.

 

It's possible the close relationship with net price calculators I've developed lately has left me tense and suspicious ;) . 

[RootAnn]

This comes into play with my nieces & nephews because almost all of them have 529s owned by a non-parent relative of which they are the beneficiary. I have two nieces in college & both have been drawing on their 529s the whole time. One filled out the FAFSA last fall and received some grant aid for this, her freshman year. I have no idea how drawing on her 529 will affect those loans next year (or will it be her junior year since it is prior-prior)?

The older niece didn't fill out the FAFSA, I don't think.

I think that only applies when the 529 is owned by someone other than the parent or student. If it's owned by the parent or student it's considered an asset and distributions are not considered income to the student. But if it's owned by a grandparent, for example, then the 529 itself doesn't show up on the FAFSA as an asset, but the distribution does count as untaxed income to the student. That's why they recommend waiting to use nonparent-owned 529 money until junior & senior years, since that prevents the distributions from counting as income (since FAFSA uses prior-prior tax years). Does that make sense?

ETA: This link might help