Who gets more College Financial aid?

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SpaceCommander
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Who gets more College Financial aid?

Post by SpaceCommander »

Looking for some input from someone who might know how the FAFSA works and how the aid is distributed.
Everything else being equal:

Couple #1: Has all investments in retirement accounts (say $500K) and a $300K house paid off. Zero in taxable.

Couple #2: Has same investments in retirement accounts ($500K), rents instead of owns, and has $300K in taxable portfolio.

Both have 800K. Who gets more aid? Or is it a wash? How does the FAFSA take into account the retirement accounts and taxable portfolio (or lack thereof)?
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spotty_dog
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Re: Who gets more College Financial aid?

Post by spotty_dog »

The google tells me that the family's equity in their principal place of residence is not counted, but investments including bank accounts and brokerage accounts are counted.
masteraleph
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Re: Who gets more College Financial aid?

Post by masteraleph »

1 gets more aid, because principal place of residence and retirement accounts* are both off limits for FAFSA. Taxable investments are not.

*Tax deferred contributions are actually added back into your income, so they do count against you there. But the money already in those accounts doesn't get reported.
harikaried
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Re: Who gets more College Financial aid?

Post by harikaried »

Item 13 of this "Top 10 Strategies" says to prepay your mortgage.

http://www.finaid.org/fafsa/maximize.phtml
The Federal need analysis methodology does not consider the equity in the family's primary residence. So to maximize your eligibility for Federal aid, you could use your cash and other included assets to prepay part of your mortgage. Many private colleges and universities, however, do count your home as an asset when allocating institutional funds.
Grt2bOutdoors
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Re: Who gets more College Financial aid?

Post by Grt2bOutdoors »

masteraleph wrote:1 gets more aid, because principal place of residence and retirement accounts* are both off limits for FAFSA. Taxable investments are not.

*Tax deferred contributions are actually added back into your income, so they do count against you there. But the money already in those accounts doesn't get reported.
Except in the institutional methodology, they view home equity as "fair game".

Couple #2 in the OP's example will pay through the nose.

The one thing that annoys me about FAFSA is the inability for them to distinguish between retirement savings which may be composed of both taxable and non-taxable accounts for individuals/couples who have limited pre-tax options, as opposed to individuals/couples who have defined benefit plans available to them. In order to accumulate an equivalent annuity at retirement, couple 1 in my example would need to accumulate far more in a taxable account but then that makes them fair game for FAFSA, whereas couple 2 with multiple pre-tax account availability is able to defer much more and be open to more aid.
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Colorado14
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Re: Who gets more College Financial aid?

Post by Colorado14 »

Keep in mind that private institutions routinely request additional financial information beyond the FAFSA (called the CSS Profile), including information about assets. A friend who works in fin aid at a private college says he receives aps from students whose parents are business owners who report no income but with $1M vacation homes in Vail (or wherever) in addition to primary residence. These assets are considered in the fin aid awarding process.
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Re: Who gets more College Financial aid?

Post by Grt2bOutdoors »

Colorado13 wrote:Keep in mind that private institutions routinely request additional financial information beyond the FAFSA (called the CSS Profile), including information about assets. A friend who works in fin aid at a private college says he receives aps from students whose parents are business owners who report no income but with $1M vacation homes in Vail (or wherever) in addition to primary residence. These assets are considered in the fin aid awarding process.
I'd be interested in hearing if they are asked to list the value of their personal automobiles and other luxury trappings?
I knew of someone who had bought savings bonds because the interest was deferred, thereby not showing income associated with those hidden assets. :annoyed They could have well-afforded tuition payments.
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rec7
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Re: Who gets more College Financial aid?

Post by rec7 »

Grt2bOutdoors wrote:
Colorado13 wrote:Keep in mind that private institutions routinely request additional financial information beyond the FAFSA (called the CSS Profile), including information about assets. A friend who works in fin aid at a private college says he receives aps from students whose parents are business owners who report no income but with $1M vacation homes in Vail (or wherever) in addition to primary residence. These assets are considered in the fin aid awarding process.
I'd be interested in hearing if they are asked to list the value of their personal automobiles and other luxury trappings?
I knew of someone who had bought savings bonds because the interest was deferred, thereby not showing income associated with those hidden assets. :annoyed They could have well-afforded tuition payments.
The saving bonds would still be listed as an asset even if the interest is not listed. With interest so low today he is not making out like a bandit. He can also put only in 10k a year with an interest rate of .20% So for every year he does this he brings down his income $20 a year. Not to mention he would miss $80 or more in a good CD if he invested the 10k in that.
Last edited by rec7 on Thu Jul 25, 2013 8:52 am, edited 5 times in total.
integrity
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Re: Who gets more College Financial aid?

Post by integrity »

For my top 20 business school, I was asked to list my vehicle and house as assets. This was to calculate the amount of financial aid that would be directly provided by the school.
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Re: Who gets more College Financial aid?

Post by bungalow10 »

Grt2bOutdoors wrote:
The one thing that annoys me about FAFSA is the inability for them to distinguish between retirement savings which may be composed of both taxable and non-taxable accounts for individuals/couples who have limited pre-tax options, as opposed to individuals/couples who have defined benefit plans available to them. In order to accumulate an equivalent annuity at retirement, couple 1 in my example would need to accumulate far more in a taxable account but then that makes them fair game for FAFSA, whereas couple 2 with multiple pre-tax account availability is able to defer much more and be open to more aid.
+1

I know I have commented many, many times on the forums regarding the lack of fairness in the tax benefits of retirement accounts and how they aren't accessible to everyone - but here's just one more point in which some workers will get screwed because their employer will not offer a 401k or equivalent.

If there is an government benefit to having savings in a certain type of account and/or if it will count against you in a federal application for student aid, then that benefit should be available to everyone, regardless of whether or not their employer wants to offer it.
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Re: Who gets more College Financial aid?

Post by Grt2bOutdoors »

rec7 wrote:
Grt2bOutdoors wrote:
Colorado13 wrote:Keep in mind that private institutions routinely request additional financial information beyond the FAFSA (called the CSS Profile), including information about assets. A friend who works in fin aid at a private college says he receives aps from students whose parents are business owners who report no income but with $1M vacation homes in Vail (or wherever) in addition to primary residence. These assets are considered in the fin aid awarding process.
I'd be interested in hearing if they are asked to list the value of their personal automobiles and other luxury trappings?
I knew of someone who had bought savings bonds because the interest was deferred, thereby not showing income associated with those hidden assets. :annoyed They could have well-afforded tuition payments.
The saving bonds would still be listed as an asset even if the interest is not listed. With interest so low today he is not making out like a bandit. He can also put only in 10k a year with an interest rate of .20% So for every year he does this he brings down his income $20 a year. Not to mention he would miss $80 or more in a good CD.
I should have mentioned this occurred in the years where the limitations were $30K per year, per individual and he was socking away $60K a year, when interest rates were more favorable, but his primary concern was shielding assets from the colleges prying eyes. It's hard to determine what assets a person has or doesn't have if they are locked away in a safe deposit box. One would like to think people are all "above board" but when their own self-interest comes to play, you'll find they generally undertake actions that are less than fair to everyone else.
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Re: Who gets more College Financial aid?

Post by bungalow10 »

Grt2bOutdoors wrote: I should have mentioned this occurred in the years where the limitations were $30K per year, per individual and he was socking away $60K a year, when interest rates were more favorable, but his primary concern was shielding assets from the colleges prying eyes. It's hard to determine what assets a person has or doesn't have if they are locked away in a safe deposit box. One would like to think people are all "above board" but when their own self-interest comes to play, you'll find they generally undertake actions that are less than fair to everyone else.
I can totally see how easy it would be to hide paper savings bonds. I don't think it would be as easy to hid electronic ones.

Can you even get paper savings bond anymore? - edit, I looked it up and you can't.
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Colorado14
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Re: Who gets more College Financial aid?

Post by Colorado14 »

The CSS Profile (http://media.collegeboard.com/homeOrg/c ... cation.pdf) requests the following:

2012 federal income tax return(s), if completed
2011 federal income tax return(s)
W-2 forms and other records of money earned in 2012
Records of untaxed income and benefits for 2011 and 2012
Current bank statements
Current mortgage information
Records of savings, stocks, bonds, trusts, and other investments

Note that the Profile can be the basis for institutional aid, not state/federal financial aid.
MathWizard
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Re: Who gets more College Financial aid?

Post by MathWizard »

Couple 2 has the higher EFC. However, neither may get aid, certainly other than loans.

This is in the assets portion of the FAFSA, where there is an asset protection amount for
the parents (not kids) and most people are below that amount.

The income portion is usually much more important for the parents. Both of these couples
must have a fairly high income to be able to save $500K plus have another $300K in assets
by the time the kids get to college age.

The implied income will push them too high for Grants, and probably even beyond subsidized loans.
For in-state schools, the EFC is likely above the expected cost of attendance, and if so, no
need based aid would be given.
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Re: Who gets more College Financial aid?

Post by bungalow10 »

MathWizard wrote: This is in the assets portion of the FAFSA, where there is an asset protection amount for
the parents (not kids) and most people are below that amount.
I've heard the asset protection maxes out around 60-70k for most people. Is that not true?
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Re: Who gets more College Financial aid?

Post by Grt2bOutdoors »

MathWizard wrote:Couple 2 has the higher EFC. However, neither may get aid, certainly other than loans.

This is in the assets portion of the FAFSA, where there is an asset protection amount for
the parents (not kids) and most people are below that amount.

The income portion is usually much more important for the parents. Both of these couples
must have a fairly high income to be able to save $500K plus have another $300K in assets
by the time the kids get to college age.
Not really, you take two incomes which max out the 401k option and include company matching - it would not be difficult to amass the retirement assets over a twenty year time frame or less. The taxable asset base is accumulated by LBYM and not having bought a money pit - houses do consume in the form of maintainance, keeping up with the Joneses, propensity for municipalities to think of property as the goose that laid the golden egg to infinity, interest expense. It is possible, and it can be done on less than extravagant incomes.
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suming
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Re: Who gets more College Financial aid?

Post by suming »

If EFC is higher than the expected college cost, there is no need to even fill out FAFSA?
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Re: Who gets more College Financial aid?

Post by SpaceCommander »

Thank you all for the thoughtful replies. As I feared, the situation seems more complex than it may appear on the surface. Looking at the sticker prices for my daughter (who is currently a senior in high school), the cost of a decent college/university is obscene. But I'm told not to worry because nobody pays sticker price. The whole process seems muddled and confusing.

I remember when I went through college, I was able to LBYM and actually paid cash as I went. Finished with a BA with no loans whatsoever. Granted: this was not the most prestigious school, but still the degree got me to where I wanted to go and I didn't have to go into deep debt for it. I feel sorry for these kids now. They get to start off life with their future mortgaged before they even begin. Unless somehow they can win this "financial aid" sweepstakes and somehow get an institution to award them money.

As you can tell, I'm fuzzy on this whole process. It will probably be worth my time to get sharp on this stuff. I've got some homework to do. :?
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Re: Who gets more College Financial aid?

Post by bungalow10 »

SpaceCommander wrote:Thank you all for the thoughtful replies. As I feared, the situation seems more complex than it may appear on the surface. Looking at the sticker prices for my daughter (who is currently a senior in high school), the cost of a decent college/university is obscene. But I'm told not to worry because nobody pays sticker price. The whole process seems muddled and confusing.

I remember when I went through college, I was able to LBYM and actually paid cash as I went. Finished with a BA with no loans whatsoever. Granted: this was not the most prestigious school, but still the degree got me to where I wanted to go and I didn't have to go into deep debt for it. I feel sorry for these kids now. They get to start off life with their future mortgaged before they even begin. Unless somehow they can win this "financial aid" sweepstakes and somehow get an institution to award them money.

As you can tell, I'm fuzzy on this whole process. It will probably be worth my time to get sharp on this stuff. I've got some homework to do. :?
:( I'm sorry. My kids are still young and we are pretty much planning* for the worst case scenario. Please come back and update us with what you learn.

*This doesn't mean we'll have enough money for the worst case scenario, just that we know it will be painful.
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rec7
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Re: Who gets more College Financial aid?

Post by rec7 »

bungalow10 wrote:
Grt2bOutdoors wrote: I should have mentioned this occurred in the years where the limitations were $30K per year, per individual and he was socking away $60K a year, when interest rates were more favorable, but his primary concern was shielding assets from the colleges prying eyes. It's hard to determine what assets a person has or doesn't have if they are locked away in a safe deposit box. One would like to think people are all "above board" but when their own self-interest comes to play, you'll find they generally undertake actions that are less than fair to everyone else.
I can totally see how easy it would be to hide paper savings bonds. I don't think it would be as easy to hid electronic ones.

Can you even get paper savings bond anymore? - edit, I looked it up and you can't.
You would think that the government would even have a record of the paper ones. They know so many other things about people.
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Re: Who gets more College Financial aid?

Post by bungalow10 »

rec7 wrote:
bungalow10 wrote:
Grt2bOutdoors wrote: I should have mentioned this occurred in the years where the limitations were $30K per year, per individual and he was socking away $60K a year, when interest rates were more favorable, but his primary concern was shielding assets from the colleges prying eyes. It's hard to determine what assets a person has or doesn't have if they are locked away in a safe deposit box. One would like to think people are all "above board" but when their own self-interest comes to play, you'll find they generally undertake actions that are less than fair to everyone else.
I can totally see how easy it would be to hide paper savings bonds. I don't think it would be as easy to hid electronic ones.

Can you even get paper savings bond anymore? - edit, I looked it up and you can't.
You would think that the government would even have a record of the paper ones. They know so many other things about people.
The bank recorded who purchased them, but as far as I know there was no record of who owned them. My husband had a few savings bonds from when he was born - gifts from relatives. I don't think they had any name on them or SSN. I'm sure if they were lost there would have been no record that could have been used to replace them.
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Re: Who gets more College Financial aid?

Post by TomatoTomahto »

SpaceCommander wrote:Thank you all for the thoughtful replies. As I feared, the situation seems more complex than it may appear on the surface. Looking at the sticker prices for my daughter (who is currently a senior in high school), the cost of a decent college/university is obscene. But I'm told not to worry because nobody pays sticker price. The whole process seems muddled and confusing.

I remember when I went through college, I was able to LBYM and actually paid cash as I went. Finished with a BA with no loans whatsoever. Granted: this was not the most prestigious school, but still the degree got me to where I wanted to go and I didn't have to go into deep debt for it. I feel sorry for these kids now. They get to start off life with their future mortgaged before they even begin. Unless somehow they can win this "financial aid" sweepstakes and somehow get an institution to award them money.

As you can tell, I'm fuzzy on this whole process. It will probably be worth my time to get sharp on this stuff. I've got some homework to do. :?
I seldom suggest that anyone look elsewhere for information, but you probably should try the Financial Aid sub-forum at http://www.collegeconfidential.com. It gets complicated, and everyone's situation is different (your child's capabilities, aspirations, HS record, what state you live in and the quality of its State flagship school, etc.).

Good luck.

EDITED TO ADD: Specifically, I'd start with http://talk.collegeconfidential.com/fin ... -faqs.html
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MathWizard
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Re: Who gets more College Financial aid?

Post by MathWizard »

SpaceCommander wrote:Thank you all for the thoughtful replies. As I feared, the situation seems more complex than it may appear on the surface. Looking at the sticker prices for my daughter (who is currently a senior in high school), the cost of a decent college/university is obscene. But I'm told not to worry because nobody pays sticker price. The whole process seems muddled and confusing.

I remember when I went through college, I was able to LBYM and actually paid cash as I went. Finished with a BA with no loans whatsoever. Granted: this was not the most prestigious school, but still the degree got me to where I wanted to go and I didn't have to go into deep debt for it. I feel sorry for these kids now. They get to start off life with their future mortgaged before they even begin. Unless somehow they can win this "financial aid" sweepstakes and somehow get an institution to award them money.

As you can tell, I'm fuzzy on this whole process. It will probably be worth my time to get sharp on this stuff. I've got some homework to do. :?

My youngest son will be entering the top public Univ in the state. Total Cost of Attendence is listed as just above $20K.
Most state Universities are like that for in-state students (your taxes pay to keep tuition down).

If you go out of state, you pay out-of-state tuition.
If you are going to a high cost of living state, then you pay both for the increased cost state and for not being in-state.
The state I grew up in was a low COL state. Residents of a neighboring state could pay out-of-state for my Univ and be
less than in-state at theirs, while for me it would have tripled tuition and doubled housing if I had went to their state Univ.

For us, it was about
$20K / year in-state public,
$30K to $40K/yr. out-of-state public ,
$50K to $60K out-of-state private in HCOL state.

Lucky for us he chose in-state public and got a decent scholarship.
MathWizard
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Re: Who gets more College Financial aid?

Post by MathWizard »

suming wrote:If EFC is higher than the expected college cost, there is no need to even fill out FAFSA?
I would still fill it out.

Some schools use that for scholarships.

You son/daughter may want to go to a more expensive school.
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Re: Who gets more College Financial aid?

Post by MathWizard »

bungalow10 wrote:
MathWizard wrote: This is in the assets portion of the FAFSA, where there is an asset protection amount for
the parents (not kids) and most people are below that amount.
I've heard the asset protection maxes out around 60-70k for most people. Is that not true?
Asset protecton is usually in the $40-50K range, although it is based on the age of the older parent,
so the $300K would most definitely cause a loss of a lot of most, if not all, financial aid.

My point was that the income side is generally more important than the asset side, and
I believe that with that much savings, unless it was a gift, would imply an income
which would put you out of reach of financial aid.

You could try the EFC estimator at:
http://talk.collegeconfidential.com/efc/

or

http://www.finaid.org/calculators/finaidestimate.phtml
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BestWishes
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Re: Who gets more College Financial aid?

Post by BestWishes »

Some colleges require FAFSA only. In addition, many colleges want CSS Profile or their own forms.

Here is a very rough simple view of how FAFSA calculates EFC.
~25-35% of parents annual income depending on the size of family, how many kids in college, etc
~5% of parents asset excluding primary home, retirement accounts, asset protection based on age

If the student has income or asset, those are counted at much larger percentages although most students have very little income or asset.

COA - EFC = need

Just because you have need, you still might not get it. There is often a gap between aid and need. Many of the FAFSA only colleges are known to not give very good aid which will leave a big gap.

Profile asks for a lot more details and colleges might adjust your EFC based on those additional info, i.e. primary home equity, retirement accounts might all be considered.

Filling out the FAFSA is the only way that a student can get a loan without a cosigner. The limit is like $5k for the first year and adjusts every year.

You are expected to pay for college with past savings (asset), current income and future income (loan).

For a FAFSA only college, couple #1 will likely get more aid but every college is different and every student is different.

As another poster pointed out, the College Confidential financial aid forum has a huge amount of info on this topic.
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Post by AndrewJackson »

Unfortunately most bogleheads will not be able to hide their large incomes, which will scrap them from a lot of grant and scholarship aid available. I think the best thing to do for your little one is to save up a fixed $ which you are willing to commit to college. Let your child know full well that after that $ amount is past, you will no longer support their college endeavors. This should allow real economic factors to enter into the conversation and lead your child to optimize their college experience/$ spent.
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Re: Who gets more College Financial aid?

Post by avalpert »

Grt2bOutdoors wrote:
Colorado13 wrote:Keep in mind that private institutions routinely request additional financial information beyond the FAFSA (called the CSS Profile), including information about assets. A friend who works in fin aid at a private college says he receives aps from students whose parents are business owners who report no income but with $1M vacation homes in Vail (or wherever) in addition to primary residence. These assets are considered in the fin aid awarding process.
I'd be interested in hearing if they are asked to list the value of their personal automobiles and other luxury trappings?
I knew of someone who had bought savings bonds because the interest was deferred, thereby not showing income associated with those hidden assets. :annoyed They could have well-afforded tuition payments.
I can tell you that the financial aid form we are using for private school asks for the make, model, year and value of car as well as the value of any assets (like jewelry) that are worth >$20,000.
MGBGTV8
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Re: Who gets more College Financial aid?

Post by MGBGTV8 »

BestWishes wrote:Some colleges require FAFSA only. In addition, many colleges want CSS Profile or their own forms.

Here is a very rough simple view of how FAFSA calculates EFC.
~25-35% of parents annual income depending on the size of family, how many kids in college, etc
~5% of parents asset excluding primary home, retirement accounts, asset protection based on age

.
Wow- 25-25% of income is probably more than most of us pay for our mortgages (while we still have them).

This sort of argues in favor of having the 15 year mortgage so that we can have the house paid off in time to divert that cash flow toward college costs. Good thing rates were so low over the past years that we were able to re-fi into a 15 year. Sort of takes a little of the sting out of getting peanuts on our savings.
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Re: Who gets more College Financial aid?

Post by Phineas J. Whoopee »

bungalow10 wrote:
Grt2bOutdoors wrote: I should have mentioned this occurred in the years where the limitations were $30K per year, per individual and he was socking away $60K a year, when interest rates were more favorable, but his primary concern was shielding assets from the colleges prying eyes. It's hard to determine what assets a person has or doesn't have if they are locked away in a safe deposit box. One would like to think people are all "above board" but when their own self-interest comes to play, you'll find they generally undertake actions that are less than fair to everyone else.
I can totally see how easy it would be to hide paper savings bonds. I don't think it would be as easy to hid electronic ones.

Can you even get paper savings bond anymore? - edit, I looked it up and you can't.
For the past three years you could get up to $5,000 in paper Series I savings bonds as a tax refund, and indications are, to my mind, that the possibility will continue for the present tax year.

Last month the IRS published a draft of the 2013 form 8888, which still shows I Bonds as an option.

It says to me that issuing them for 2013 refunds has at least not yet been ruled out. We'll see how things end up in a few months, of course.

Anybody who intentionally conceals income or assets they have which according to law and institutional guidelines should be reported for financial aid purposes is behaving in a contemptible manner.

PJW
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tom0153
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Re: Who gets more College Financial aid?

Post by tom0153 »

SpaceCommander wrote:Thank you all for the thoughtful replies. As I feared, the situation seems more complex than it may appear on the surface. Looking at the sticker prices for my daughter (who is currently a senior in high school), the cost of a decent college/university is obscene. But I'm told not to worry because nobody pays sticker price. The whole process seems muddled and confusing.

I remember when I went through college, I was able to LBYM and actually paid cash as I went. Finished with a BA with no loans whatsoever. Granted: this was not the most prestigious school, but still the degree got me to where I wanted to go and I didn't have to go into deep debt for it. I feel sorry for these kids now. They get to start off life with their future mortgaged before they even begin. Unless somehow they can win this "financial aid" sweepstakes and somehow get an institution to award them money.

As you can tell, I'm fuzzy on this whole process. It will probably be worth my time to get sharp on this stuff. I've got some homework to do. :?
Perhaps your daughter's high school presents a seminar on financial aid. I went two years; the first, the guidance counselor wanted to know why I was there. The next year, I was able to absorb everything being said by the college admissions person, and ask questions that helped to clarify some of my thinking.

Much of this information is now readily available online, via the not for profits who are seeking to make sure that students and parents have the info at hand, so they can make informed decisions.

I know that parents want to do everything they can for their kids, which includes four years at a prestigious university. But a Boglehead philosophy might even suggest two years at a community college to get the liberal arts items out of the way, with a transfer to a good in-state state university where tuition starts out discounted because of residency, and it is possible to obtain some scholarship as a transfer student. It is also possible to seek out scholarships and grants that apply independent of the school attended, for the most part. My daughter got one scholarship from our credit union, and another from a fraternal organization which was for all four years, as long as she attended a Catholic University.

I think it is important to underscore to the kids that these choices apply to whether they can live within their means and save in the future. If a huge chunk is going out to pay for loan repayment, then they will be choking, perhaps after we have finished our parenting and moved on ....

Many of these sites are pointed to the kids, to try to drive these points home.
Best, Tom
johnkidding
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Re: Who gets more College Financial aid?

Post by johnkidding »

Dumb question... But I've been considering this for 20 years in my future

1. Plan ahead to try have all assets in tax favored retirement accounts and primary residence
2. Plan on having little to no income for 2 years before filling out the fasfa (travel the world, retire early, etc)

Wouldn't this be incredibly favorible for many people?
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TomatoTomahto
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Re: Who gets more College Financial aid?

Post by TomatoTomahto »

johnkidding wrote:Dumb question... But I've been considering this for 20 years in my future

1. Plan ahead to try have all assets in tax favored retirement accounts and primary residence
2. Plan on having little to no income for 2 years before filling out the fasfa (travel the world, retire early, etc)

Wouldn't this be incredibly favorible for many people?
#1 is okay, but regarding #2: No, for sure it wouldn't be favorable for many people (i.e., those who are paying your child's way), and quite possibly it wouldn't be favorable even for you. Don't let the tail wag the dog.
I get the FI part but not the RE part of FIRE.
wilked
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Re: Who gets more College Financial aid?

Post by wilked »

johnkidding wrote:Dumb question... But I've been considering this for 20 years in my future

1. Plan ahead to try have all assets in tax favored retirement accounts and primary residence
2. Plan on having little to no income for 2 years before filling out the fasfa (travel the world, retire early, etc)

Wouldn't this be incredibly favorible for many people?
My only comment would be...20 years from now, expect that the rules will have changed.

I am in the 18-20 years from now range, and my takeaway from reading up on this is:

1) Try to time it so the house is paid off the year the child goes into college. This will allow you to largely bankroll college with that mortgage payment.
2) The student's freshman year, become an expert on the current rules. Visit the biggest college financial forum daily, ask questions, strategize. By the start of their sophomore year, begin implementing
3) The only silver bullet I have seen is to be a business owner (this does not work for every scenario, but can work for many). Realize that being a business owner has risks, but if you can manage those it is possible to hide a bunch of money this way. This requires a lifestyle change for many, of course.
4) There are a lot of good out-of-state deals out there, colleges that will throw a lot of money at a smart student even if that student has means. Often these are not the best known schools, but it can be one of the best deals out there.
5) 2 years community college + transfer is still one of the best deals out there, and arguably one of the best educations.
6) 529s are not the deal they are often purported to be. They can help, but are far from a free lunch. For many, that money would have been better spent paying off the mortgage early, for instance, and taking into account flexibility, investing that into a taxable account can be comparable.
7) The earlier you start telling your son / daughter that you will be paying for the state university cost only, that many private colleges are a good way to graduate in a heap of debt, communicate stories of BA English majors working at Starbucks deferring $80K in loans...etc etc, the more they will digest it, the more they will accept it. If you wait until junior year Xmas time to start talking college choices you may find their mind made up to enroll in a Duke / NYU / etc, and it can be difficult to change their mind without significant letdown / resentment.
nepats
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Re: Who gets more College Financial aid?

Post by nepats »

Another option is pre-paid college tuition if the kids are young. In Virginia, there are many excellent public colleges. So it may be an option to hedge some risk of ever rising college tuitions.
Hyperion
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Re: Who gets more College Financial aid?

Post by Hyperion »

johnkidding wrote: 2. Plan on having little to no income for 2 years before filling out the fasfa (travel the world, retire early, etc)
Aside from the moral debate, in most institutions financial aid is reassessed every year the child is enrolled, which means little to no income for 2 years will only help with the first year. For the typical 4 years, you are looking at major life style change for 5-6 years. The only likely scenario is early retirement with paid-off mortgage.
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tom0153
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Re: Who gets more College Financial aid?

Post by tom0153 »

There is a principle in taxation, that it is fully within one's rights to avoid taxation where possible.

It is outside of the bounds of one's rights to evade taxes.

Same rules apply to the filing of the FAFSA (read what it says just above where you are asked to sign).

It is possible to plan for one's retirement, and thus, to avoid having to report those assets on the FAFSA. For instance, knowing that there is a distinction between a 529 owned by parents v. a child, it is important to make sure you understand this. Even investing in a Roth early enough, so that funds can be used in the last year of tuition, might make some planning sense. Purchasing a rental property instead of paying out room and board might make some limited sense, and perhaps, not produce much income due to depreciation charges, etc.

Knowing that your investment in your home is protected, it is important to know this, and to make appropriate plans.

The value of your business is an asset. Suggesting that you can hide assets within a business, when the business is a reportable assets, is not the kind of planning that should be discussed here.

Like Vanguard looks with favor on this forum for its expertise, I would think that we would also want the government to look upon it with favor.
Best, Tom
wilked
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Re: Who gets more College Financial aid?

Post by wilked »

Tom, before you get too righteous, please link to where anyone suggested doing anything illegal.

The fact is that W2 income is taxed heavily via the FAFSA by colleges. If one were considering a business, investing in a business can lower income for some years while your son or daughter is in school. Fiscally, this is a smart and legal move for those with the interest in being a business owner.

This is akin to estate planning... Smart folks examine the legal ways in which they will be taxed upon death, and move around their finances to minimize taxes owed
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tom0153
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Re: Who gets more College Financial aid?

Post by tom0153 »

"hide a bunch of money this way."

I don't feel it is righteous to suggest that the DOE on its FAFSA does not permit this.
Best, Tom
rec7
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Re: Who gets more College Financial aid?

Post by rec7 »

Delete
Last edited by rec7 on Thu Aug 01, 2013 9:29 pm, edited 1 time in total.
rec7
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Re: Who gets more College Financial aid?

Post by rec7 »

rec7 wrote:
tom0153 wrote:"hide a bunch of money this way."

I don't feel it is righteous to suggest that the DOE on its FAFSA does not permit this.
It is worded a little different it's called Maximizing Your Aid Eligibility instead of "hide a bunch of money this way."
http://www.finaid.org/fafsa/maximize.phtml
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TomatoTomahto
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Re: Who gets more College Financial aid?

Post by TomatoTomahto »

These threads so often meander into dicey territory. Someone's willingness to pay for their children's education is, at some level, their right to decide (unless they're divorced, when more often than not, the courts will decide). I have strong views on education and "put my money where my mouth is," but those views are not to be forced on someone else.

However, there is a point where someone decides, through subterfuge, that I should pay for their children's education when they are perfectly capable of paying for it themselves. That makes me see red.

I should mention that I am not opposed to paying my fair share of the freight for children who deserve the financial help.

EDITED TO ADD: Remember that sometimes your children will learn all too well the lessons you teach by your behavior.
I get the FI part but not the RE part of FIRE.
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TomatoTomahto
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Re: Who gets more College Financial aid?

Post by TomatoTomahto »

rec7 wrote:
rec7 wrote:
tom0153 wrote:"hide a bunch of money this way."

I don't feel it is righteous to suggest that the DOE on its FAFSA does not permit this.
It is worded a little different it's called Maximizing Your Aid Eligibility instead of "hide a bunch of money this way."
http://www.finaid.org/fafsa/maximize.phtml
On this thread it was worded pretty much as Tom stated:
3) The only silver bullet I have seen is to be a business owner (this does not work for every scenario, but can work for many). Realize that being a business owner has risks, but if you can manage those it is possible to hide a bunch of money this way.
I get the FI part but not the RE part of FIRE.
rec7
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Re: Who gets more College Financial aid?

Post by rec7 »

TomatoTomahto wrote:These threads so often meander into dicey territory. Someone's willingness to pay for their children's education is, at some level, their right to decide (unless they're divorced, when more often than not, the courts will decide). I have strong views on education and "put my money where my mouth is," but those views are not to be forced on someone else.

However, there is a point where someone decides, through subterfuge, that I should pay for their children's education when they are perfectly capable of paying for it themselves. That makes me see red.

I should mention that I am not opposed to paying my fair share of the freight for children who deserve the financial help.

EDITED TO ADD: Remember that sometimes your children will learn all too well the lessons you teach by your behavior.
A rich person could do this but it would be very hard. Sounds like these ideas might work for the lower middle class. Remember income is one of the main things they look at.
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tom0153
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Re: Who gets more College Financial aid?

Post by tom0153 »

The caution that begins FINAID's presentation, about certain activities that are not directly described by DOE, suggests he was torn in having to do so (FINAID is one guy responsible for all of his content, but he must employ a number of people):

"Maximizing Your Aid Eligibility


This page presents a list of strategies for maximizing your eligibility for need-based student financial aid. These strategies are based on loopholes in the need analysis methodology and are completely legal. Parents should be aware of these strategies to avoid several common mistakes that can negatively impact eligibility for financial aid.

The decision to add this section to the FinAid Page was a difficult one. We considered the pros and cons for over a year before deciding to publish the information contained in this section of the page. Financial aid administrators often criticize this kind of advice as telling rich people how to look poor. The goal of the financial aid administrator is to distribute limited funds fairly and they disagree with anything that smacks of subverting the system. Unfortunately, need analysis formulas often do not reflect a family's ability to pay, and are little more than rationing systems. For example, the federal methodology ignores consumer debt, to the detriment of many families, making them look more affluent than they really are."

That said, he describes some strategies that I did not hesitate to use, or recommend. If you have three kids, but one young enough not to be attending college yet, well, he should have significant assets in his/her 529, rather than fully funding the older kids in school. Moving cash into that younger child's name is a gift. Responsibility attaches, similar to custodial or trust funds. Custodial funds can be "corrected" in terms of their FAFSA treatment by putting them in an appropriate 529.

It is important to address the change in small business ownership. No matter the form of ownership or how it is reported to the IRS, there has to be at least one employee. So, payroll needs to be set up for that entity. FINAID offers a link to the description of the exemption. You'll note how heavy it is. So, we are talking about protecting family livelihood, but one can expect that the school financial aid administrator will review the question closely. If you have ever undergone or seen such an audit or verification (http://www.finaid.org/fafsa/verification.phtml). FINAID has a good review of the small business details here: http://www.finaid.org/fafsa/smallbusiness.phtml

If my financial details fit the model, I wouldn't shy away, I'd just be very prepared to deal with the financial aid office (you are required to answer the question, "do you own a business," on the FAFSA). If you have ever dealt with them on a FAFSA review, well, you understand, you don't want to be unprepared. They can delay the receipt of aid until they are made happy.
Best, Tom
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Phineas J. Whoopee
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Re: Who gets more College Financial aid?

Post by Phineas J. Whoopee »

wilked wrote:...
The fact is that W2 income is taxed heavily via the FAFSA by colleges.
...
College tuition is not a tax. Failure to pay tuition is not punished by law. You just don't get to attend. Failure to pay tax is punished. One might as well claim first class airfare is a tax on the wealthy because only they pay it.

Taxes are taxes; including those we pay, apportioned according to law and without regard to whether one is attending or paying for somebody else to attend college, that wind up supporting higher education.

Just because a cost is roughly proportional to income doesn't mean it's a tax. Neither does the fact somebody doesn't like it.

PJW
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tom0153
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Re: Who gets more College Financial aid?

Post by tom0153 »

This woman is a great advocate for affordable tuition, and often highlights where we have departed from the affordable. She also suggests advocacy opportunities.

She made her bones developing strategies for law students to take advantage of educational opportunities and broadened from there: http://askheatherjarvis.com/tools

I have to say, I can't recall how I came across this site, which may prove useful for education planning: http://archimedes.com/demos/efp/efp.phtml I hope it remains accurate.

Financial aid can be increased, in a sense, by taking advantage of programs that forgive loans - think public sector employment, not for profits, doctors and nurses, lawyers, and veterinarians willing to serve certain agricultural but underserved areas. See: http://www.ibrinfo.org/what.vp.html.

Together with FINAID, and without listing government sites, that is most of what I've got.
Best, Tom
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Phineas J. Whoopee
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Re: Who gets more College Financial aid?

Post by Phineas J. Whoopee »

tom0153 wrote:...
Together with FINAID ...
To quote some wag who contributed to the graffiti on the wall surrounding the single campus phone that was located in the building basement where we grad students' offices were housed; written just under the extension number for the Financial Aid department:

"Dorsal assistance"

PJW
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tom0153
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Re: Who gets more College Financial aid?

Post by tom0153 »

Phineas J. Whoopee wrote:
tom0153 wrote:...
Together with FINAID ...
To quote some wag who contributed to the graffiti on the wall surrounding the single department phone in the basement of the building where we grad students' offices were housed; written just under the campus extension number for the Financial Aid office:

"Dorsal assistance"

PJW
I learned more from the admissions and financial aid officer invited to speak to my daughter's high school than anyone else up to that time. I made sure I attended in both junior and senior years.

However, when trying to interface with the financial aid officers later on, for my son, I encountered some useless folks, and I wonder how they got into the state system at all.

Now, this was before a lot of this stuff was as readily available on the Internet.

FINAID.org as a resource suggests that it is a great search engine for scholarships, but I don't really find this to be so. I think the search really needs to start with the high school student and how the placement officer at that school and locate opportunities for the student. Again, this worked well for my daughter, in a private HS, but not my son, in an overcrowded public school.

However, FINAID, does, imho, recap pretty well how to apply via FAFSA for federal aid, and offers a fair understanding. On the other hand, the Federal government seems to have come to terms with the fact that their stuff was incomprehensible.

I'm still trying to translate dorsal assistance and don't know if I've addressed your concerns at all :D .
Best, Tom
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Phineas J. Whoopee
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Re: Who gets more College Financial aid?

Post by Phineas J. Whoopee »

tom0153 wrote:...
I'm still trying to translate dorsal assistance and don't know if I've addressed your concerns at all :D .
That's nuttin'.

The campus police put up notices saying locking one's bicycle to external stairway railings was unacceptable - and fair enough. The railings were there for safety in the event of emergencies. They shouldn't be encumbered in any way. The signs concluded: "Violators' bicycles will be impounded."

Outside the building containing my office the campus police sign had been vandalized to read:

"Violators will be pounded."

PJW
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