Extreme Maximization of College Financial Aid

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KlangFool
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Re: Extreme Maximization of College Financial Aid

Post by KlangFool » Fri Sep 23, 2016 12:45 pm

OP,

I "cash flow" 2 of my children's college education. With your income level and proper financial planning, you probably could do the same. So, I believe you are overthinking on this subject. Put money into 529 up to the state deduction limit. Beyond that, I do not believe you need to do anything else for college education financing.

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randomguy
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Re: Extreme Maximization of College Financial Aid

Post by randomguy » Fri Sep 23, 2016 12:48 pm

Jack FFR1846 wrote:So I haven't seen this emphasized yet, so I'll say it......

Let's say that you do get those new jobs that put you below the poverty line and somehow hide assets. Now you get the letter saying the following:

Your kid has been approved for Stafford loans.
Subsidized: 3.76%
Unsubsidized: 3.76%
That brings in $5500 for freshman year

Now, you are eligible for parent loans at 7.75% to cover the remaining $60,000 for the first year cost of attendance.

Remember that "aid" is now the word used by the government for "loans".
Last time I looked only 3 top 20 (John Hopkins, Notre Dame, and Georgetown) schools gave out loans. It is the subelite tier of schools right below those elite schools that have crazy prices and hand out loans like candy on halloween.

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TomatoTomahto
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Re: Extreme Maximization of College Financial Aid

Post by TomatoTomahto » Fri Sep 23, 2016 12:49 pm

stoptothink wrote:
WildBill wrote:A There is a certain satisfaction that you are not beholden to some financial aid committee or similar sort of body to meet your obligations. Contorting your life on a bet that you can minimize those obligations and somehow find an optimal strategy in the face of uncertainty is foolish.
My wife just returned to school this past semester, after dropping out to work full-time a decade ago. One thing she said to me was that it was really satisfying telling admissions that there was no need to fill out a FAFSA, that she should be paying by check.
YES!!!!!

You have both earned that satisfaction. Congratulations.

Da5id
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Re: Extreme Maximization of College Financial Aid

Post by Da5id » Fri Sep 23, 2016 12:59 pm

randomguy wrote: Last time I looked only 3 top 20 (John Hopkins, Notre Dame, and Georgetown) schools gave out loans. It is the subelite tier of schools right below those elite schools that have crazy prices and hand out loans like candy on halloween.
But bear in mind that OP's 1 and 2 year old children haven't yet taken the SATs (what slackers) and may or may not be going to elite schools...

lee71959
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Re: Extreme Maximization of College Financial Aid

Post by lee71959 » Fri Sep 23, 2016 1:16 pm

Da5id wrote:
randomguy wrote: Last time I looked only 3 top 20 (John Hopkins, Notre Dame, and Georgetown) schools gave out loans. It is the subelite tier of schools right below those elite schools that have crazy prices and hand out loans like candy on halloween.
But bear in mind that OP's 1 and 2 year old children haven't yet taken the SATs (what slackers) and may or may not be going to elite schools...
I've got them in the toddler/newborn classes and things are looking good. They really learned when I refused to give them milk for anything other than 99%+.

lee71959
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Re: Extreme Maximization of College Financial Aid

Post by lee71959 » Fri Sep 23, 2016 1:17 pm

I started this discussion so that I could get facts on the current financial aid environment and some of the comments on future expectations of financial aid, Roth accounts, etc. have been helpful as well. Overall, I've gotten a good sense of what Bogleheads think about the financial soundness of my proposed strategy.

Your depiction of my "fantasyland" is quite exaggerated and some of the generalizations are not so clear-cut.

Let me respond inline:
letsgobobby wrote: If you are trying to maximize financial aid (in a fantasy world where this might actually work) you need to have minimal income AND minimal assets outside of primary home equity and retirement accounts. Money owned by the parents and invested in taxable or 529s is equally counted against you. So putting money in the 529 unravels your strategy just as much as putting money in a taxable investment account instead of paying off your mortgage [I've accepted this and noted that this is a hedge (the cost of this hedge is paying more for college) if I pursue the strategy - as earnings are tax-free in 529's if used in education, so my point is that this is a better hedge than taxable] . Furthermore, only under this fantasy scenario does your proposal to fill at Roth 401k rather than a traditional 401k, while being in a medium to high tax bracket, make any sense [No guarantee - one could also still think that tax rates or personal income will be higher in the future and Roths would retain their function.] We normally recommend higher income earners maximize their wealth by contributing to traditional over Roth 401k investments. If you choose to do the opposite it is because (as you wrote in your OP) you are trying to keep less money 'in visible assets.' So we agree we have entered fantasyland for you and if so, we should play by the rules of fantasyland.

In fantasyland, you should:

- max Roth 401k instead of traditional [Correct - only if my assumption holds, which I have acknowledged it likely will not]
- use every remaining dollar to pay off the mortgage on the biggest and most expensive house you can find [Exaggeration - do I want to but a $10 million mansion? Think NYC tri-state suburb with good schools and commute and $1M - $2M is common and within my budget. Is this enough home equity room? Maybe not, but maybe so if I go to government sooner]
- spend a lot of money on travel and other experiences which won't accrue countable assets [Where did this come from?]
- quit your high paying job and take a much lower paying job in the couple of years prior to applying for financial aid [My work/life balance and overall quality of life would improve is a huge consideration and I'd likely make this move regardless of whether my kids go to college.]
- invest no money in 529s or taxable accounts, even if that means spending it on ski trips to Aspen [This is getting silly - isn't my move to a lower paying job enough?]

In the real world, most of us in your situation have quickly discovered the following:
- quitting a $250k job to make $75k to score a $25k grant is a loser's game; [Numbers make no sense and its not like I'm working the same stressful job when I take that paycut, and I would have enough saved before I made the move]
- spending money rather than saving it, only to get some relatively small amount back in the form of a grant or a loan is a loser's game; [See above]
- refusing to save any money in taxable or 529s is self-defeating; [Isn't that the whole point of this discussion? It doesn't boil down to one short sentence.]
- voluntarily giving up the sure thing of a 25-39.6% + state immediate tax break by choosing Roth 401ks over Traditional 401ks is silly; [And this is always right because the future is certain? Why are there so many threads on Roth vs Traditional? There's a preference in this forum for one side but there is also debate]
- money has a higher rate of return invested in productive assets rather than used to pay off very low cost mortgages that are tax-deductible to boot. [Fair point - I agree with this which is why conceded that my earlier assumption is likely one that I shouldn't consider]

Unless you live in a very expensive location, when your income is > $200k you quickly find that you can max out your retirement accounts and still have significant money leftover. There just aren't enough places to 'hide' the money. You end up having to invest it somewhere and that somewhere is going to be countable. For instance we've only been in the work force for just over a dozen years. We have maxed out all our retirement accounts during that period of time and could pay off our not-inexpensive home today with taxable investments and quit our jobs today and we would still not qualify for a penny of financial aid: our 529s and taxable investments would remain large enough that our EFC would be greater than the cost of school. This has happened in just 12 years. I think these strategies have merits for households on the margin, but not for higher income families with excess cash flow every month.

bigred77
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Re: Extreme Maximization of College Financial Aid

Post by bigred77 » Fri Sep 23, 2016 1:25 pm

OP,

I would personally just fund all tax advantaged accounts, fund 529s, keep my higher paying job, invest the extra in taxable accounts, and just generally go about my business. If you make 300k now, your salary could be 600k in 20 years, making $1M in college tuition perfectly affordable over 6 years with that salary plus many millions in assets. No big deal. Heck your picturesque American middle class family making 60k per year today commonly has 2 kids going to college with a combined, all in bill of 100k for both kids over 6 years. Quite common and doable if they value education for their kids, have a little in home equity, some college savings, and a some retirement assets. Plus as a bonus for you, your "essentials" will be a much lower percentage of your income than the middle class family.

If you DO intend to try and "work the system" (which I personally think is fine, it's just a large bet to make if your altering your financial plan over multiple decades) then just forego the 529s and throw everything in taxable brokerage accounts. if your 2 kids are looking like Ivy material when they hit Jr year then just take all of your taxable investments plus your existing home equity at the time and buy the biggest multi-million dollar house you can find and still support the carrying costs on your new downsized salary. Accomplishes the same thing plus you get to live in a mansion for 6-8 years.
Last edited by bigred77 on Fri Sep 23, 2016 1:26 pm, edited 1 time in total.

Allixi
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Re: Extreme Maximization of College Financial Aid

Post by Allixi » Fri Sep 23, 2016 1:26 pm

Is there some reason you assume you have to pay full sticker price for everything? Let your kids take out loans and pay them off themselves; they'll figure it out just as you did.

We've already established that this is letting the college tuition tail wag the personal finance dog. Now we're just haggling over how extreme you're willing to go.

To that end, I think the most effective thing is to work at a university for 7-10 years and have their tuition covered.

lee71959
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Re: Extreme Maximization of College Financial Aid

Post by lee71959 » Fri Sep 23, 2016 1:48 pm

KlangFool wrote:OP,

I "cash flow" 2 of my children's college education. With your income level and proper financial planning, you probably could do the same. So, I believe you are overthinking on this subject. Put money into 529 up to the state deduction limit. Beyond that, I do not believe you need to do anything else for college education financing.

KlangFool
Klangfool,

If I were expecting to pay full freight possibly for an expensive school, isn't it financially optimal to fund 529's to higher amounts? At the time of tuition payment, I would be using up the principal and tax-free earnings in the 529's and able to save my then-current cash flow. The difference would be that a greater part of the tuition would be paid for with tax-free earnings.

On the other hand, I acknowledge that this way of thinking also commits greater funds to educational purposes (which may or may not pan out) and impose a significant penalty to withdraw otherwise.

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DaftInvestor
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Re: Extreme Maximization of College Financial Aid

Post by DaftInvestor » Fri Sep 23, 2016 1:52 pm

lee71959 wrote:
KlangFool wrote:OP,

I "cash flow" 2 of my children's college education. With your income level and proper financial planning, you probably could do the same. So, I believe you are overthinking on this subject. Put money into 529 up to the state deduction limit. Beyond that, I do not believe you need to do anything else for college education financing.

KlangFool
Klangfool,

If I were expecting to pay full freight possibly for an expensive school, isn't it financially optimal to fund 529's to higher amounts? At the time of tuition payment, I would be using up the principal and tax-free earnings in the 529's and able to save my then-current cash flow. The difference would be that a greater part of the tuition would be paid for with tax-free earnings.

On the other hand, I acknowledge that this way of thinking also commits greater funds to educational purposes (which may or may not pan out) and impose a significant penalty to withdraw otherwise.
The penalty is NOT that significant. Its an extra 10% on the EARNINGS ONLY (not on contributions). If this concerns you - don't fund more than 50% of what you might need into the 529s. I agree that adding more to 529s (if retirement accounts are fully funded) makes very sound financial sense. Why pay taxes on growth if you don't have to.

randomguy
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Re: Extreme Maximization of College Financial Aid

Post by randomguy » Fri Sep 23, 2016 1:54 pm

Da5id wrote:
randomguy wrote: Last time I looked only 3 top 20 (John Hopkins, Notre Dame, and Georgetown) schools gave out loans. It is the subelite tier of schools right below those elite schools that have crazy prices and hand out loans like candy on halloween.
But bear in mind that OP's 1 and 2 year old children haven't yet taken the SATs (what slackers) and may or may not be going to elite schools...
Sure but if you don't get into an elite school, you don't have to pay for it either. If it turns out your kid is a 5% instead of a 1%er, you can send them to the local state school and not pay the 60k at some subelite private school.

letsgobobby
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Re: Extreme Maximization of College Financial Aid

Post by letsgobobby » Fri Sep 23, 2016 2:38 pm

lee71959 wrote:I started this discussion so that I could get facts on the current financial aid environment and some of the comments on future expectations of financial aid, Roth accounts, etc. have been helpful as well. Overall, I've gotten a good sense of what Bogleheads think about the financial soundness of my proposed strategy.

Your depiction of my "fantasyland" is quite exaggerated and some of the generalizations are not so clear-cut.

Let me respond inline:
letsgobobby wrote: If you are trying to maximize financial aid (in a fantasy world where this might actually work) you need to have minimal income AND minimal assets outside of primary home equity and retirement accounts. Money owned by the parents and invested in taxable or 529s is equally counted against you. So putting money in the 529 unravels your strategy just as much as putting money in a taxable investment account instead of paying off your mortgage [I've accepted this and noted that this is a hedge (the cost of this hedge is paying more for college) if I pursue the strategy - as earnings are tax-free in 529's if used in education, so my point is that this is a better hedge than taxable] . Furthermore, only under this fantasy scenario does your proposal to fill at Roth 401k rather than a traditional 401k, while being in a medium to high tax bracket, make any sense [No guarantee - one could also still think that tax rates or personal income will be higher in the future and Roths would retain their function.] We normally recommend higher income earners maximize their wealth by contributing to traditional over Roth 401k investments. If you choose to do the opposite it is because (as you wrote in your OP) you are trying to keep less money 'in visible assets.' So we agree we have entered fantasyland for you and if so, we should play by the rules of fantasyland.

In fantasyland, you should:

- max Roth 401k instead of traditional [Correct - only if my assumption holds, which I have acknowledged it likely will not]
- use every remaining dollar to pay off the mortgage on the biggest and most expensive house you can find [Exaggeration - do I want to but a $10 million mansion? Think NYC tri-state suburb with good schools and commute and $1M - $2M is common and within my budget. Is this enough home equity room? Maybe not, but maybe so if I go to government sooner]
- spend a lot of money on travel and other experiences which won't accrue countable assets [Where did this come from?]
- quit your high paying job and take a much lower paying job in the couple of years prior to applying for financial aid [My work/life balance and overall quality of life would improve is a huge consideration and I'd likely make this move regardless of whether my kids go to college.]
- invest no money in 529s or taxable accounts, even if that means spending it on ski trips to Aspen [This is getting silly - isn't my move to a lower paying job enough?]

In the real world, most of us in your situation have quickly discovered the following:
- quitting a $250k job to make $75k to score a $25k grant is a loser's game; [Numbers make no sense and its not like I'm working the same stressful job when I take that paycut, and I would have enough saved before I made the move]
- spending money rather than saving it, only to get some relatively small amount back in the form of a grant or a loan is a loser's game; [See above]
- refusing to save any money in taxable or 529s is self-defeating; [Isn't that the whole point of this discussion? It doesn't boil down to one short sentence.]
- voluntarily giving up the sure thing of a 25-39.6% + state immediate tax break by choosing Roth 401ks over Traditional 401ks is silly; [And this is always right because the future is certain? Why are there so many threads on Roth vs Traditional? There's a preference in this forum for one side but there is also debate]
- money has a higher rate of return invested in productive assets rather than used to pay off very low cost mortgages that are tax-deductible to boot. [Fair point - I agree with this which is why conceded that my earlier assumption is likely one that I shouldn't consider]

Unless you live in a very expensive location, when your income is > $200k you quickly find that you can max out your retirement accounts and still have significant money leftover. There just aren't enough places to 'hide' the money. You end up having to invest it somewhere and that somewhere is going to be countable. For instance we've only been in the work force for just over a dozen years. We have maxed out all our retirement accounts during that period of time and could pay off our not-inexpensive home today with taxable investments and quit our jobs today and we would still not qualify for a penny of financial aid: our 529s and taxable investments would remain large enough that our EFC would be greater than the cost of school. This has happened in just 12 years. I think these strategies have merits for households on the margin, but not for higher income families with excess cash flow every month.
If the goal is to maximize financial aid then what I have written in the first section is correct. If your goal is to maximize long term wealth, then the second strategy is generally preferred. My point is that you are likely overestimating the amount of financial aid you will receive even if you adhere to your questionable strategy from beginning to end and everything works out the way you think it will. You will not get $50,000 in annual grants for your child when you have been saving $10,000 per year for that child since birth. That alone will be worth $300,000 if properly invested and if receiving average market returns for 18 years. With $300,000 in that single 529, your EFC will be $15,000 per year, substantially offsetting aid you might receive. So if you are going to try to impoverish yourself in the eyes of FAFSA, that is a bad strategy to pursue. On the other hand, moving that money to home equity will help quite a bit.

The traditional vs Roth debate is not primarily about future expected tax rates. The real debate is between current marginal and future average tax rates. That is quite different. If you are not familiar with that debate the forum is replete with such threads where the issue is laid out in detail; googling those threads may help you. Thus, if you are earning in the $200k-$400k range (implied by your OP) and living in a high-tax locale in the NYC metro area then it is almost certainly a major error to be contributing to a Roth IRA vs TIRA (or Roth 401k vs traditional 401k). If you choose to make this major upfront error in the hopes of obtaining a little more financial aid later, that is your choice but you would be making a certain major giveaway in exchange for only a small potential return. In order to justify such a decision you really have to have entered "fantasyland" as I call it, feet first.

No, your move to a lower paying job is not enough because assets are counted too - countable parental assets at over 5% in FAFSA and many assets more than that in CSS as well. There just aren't enough places to "hide" the money. At some point the strategies become so questionable, and so expensive (ie WL insurance) that the known costs for such an uncertain and potentially small return simply cannot be justified.

flyingbison
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Re: Extreme Maximization of College Financial Aid

Post by flyingbison » Fri Sep 23, 2016 2:56 pm

Allixi wrote:
To that end, I think the most effective thing is to work at a university for 7-10 years and have their tuition covered.
First make sure the school offers such a benefit. Most I've worked at do not.

ThatGuy
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Re: Extreme Maximization of College Financial Aid

Post by ThatGuy » Fri Sep 23, 2016 3:14 pm

Switch away from the red herring that is financial aid and look for ways to reduce the price quoted to you. One option is to look at local and state governments, for instance, this nugget enshrined in California law:
California Education Code 66025.3 wrote: (a) No campus of the University of California, the California State University, or the California Community Colleges shall charge any mandatory systemwide tuition or fees, including enrollment fees, registration fees, differential fees, or incidental fees, to any of the following:

(1) Any dependent eligible to receive assistance under Article 2 (commencing with Section 890) of Chapter 4 of Division 4 of the Military and Veterans Code.

(2) (A) Any child of any veteran of the United States military who has a service-connected disability, has been killed in service, or has died of a service-connected disability, where the annual income of the child, including the value of any support received from a parent, does not exceed the national poverty level as defined in subdivision (c).

(B) Notwithstanding Section 893 of the Military and Veterans Code, the Department of Veterans Affairs may determine the eligibility for fee waivers for a child described in subparagraph (A).

(3) Any dependent, or surviving spouse who has not remarried, of any member of the California National Guard who, in the line of duty, and while in the active service of the state, was killed, died of a disability resulting from an event that occurred while in the active service of the state, or is permanently disabled as a result of an event that occurred while in the active service of the state. For the purposes of this paragraph, “active service of the state” refers to a member of the California National Guard activated pursuant to Section 146 of the Military and Veterans Code.

(4) (A) Any undergraduate student who is a recipient of a Medal of Honor, commonly known as a Congressional Medal of Honor, or any undergraduate student who is a child of a recipient of a Medal of Honor and who is no more than 27 years old, if both of the following requirements are met:

(i) His or her annual income, including the value of any support received from a parent, does not exceed the national poverty level as defined in subdivision (c).

(ii) The recipient of the Medal of Honor who is or was the parent of the undergraduate student is, or at the time of his or her death was, a California resident as determined pursuant to Chapter 1 (commencing with Section 68000) of Part 41.

(B) The Department of Veterans Affairs shall determine the eligibility of any applicant for a fee waiver under this paragraph.

(b) A person who is eligible for a waiver of tuition or fees under this section may receive a waiver for each academic year during which he or she applies for that waiver, but an eligible person may not receive a waiver of tuition or fees for a prior academic year.

(c) As used in this section, the “national poverty level” is the poverty threshold for one person, as most recently calculated by the Bureau of the Census of the United States Department of Commerce.

(d) The waiver of tuition or fees under this section shall apply only to a person who is determined to be a resident of California pursuant to Chapter 1 (commencing with Section 68000) of Part 41.

(e) This section shall not apply to a dependent of a veteran within the meaning of paragraph (4) of subdivision (a) of Section 890 of the Military and Veterans Code.

(f) No provision of this section shall apply to the University of California except to the extent that the Regents of the University of California, by appropriate resolution, make that provision applicable.
This law has seen changes, but the idea has been in effect since 1937. I have also personally verified that this applies to both a two year degree at the local CC, as well as a PhD program at UC Berkeley.
Work is the curse of the drinking class - Oscar Wilde

KlangFool
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Re: Extreme Maximization of College Financial Aid

Post by KlangFool » Fri Sep 23, 2016 3:50 pm

lee71959 wrote:
KlangFool wrote:OP,

I "cash flow" 2 of my children's college education. With your income level and proper financial planning, you probably could do the same. So, I believe you are overthinking on this subject. Put money into 529 up to the state deduction limit. Beyond that, I do not believe you need to do anything else for college education financing.

KlangFool
Klangfool,

If I were expecting to pay full freight possibly for an expensive school, isn't it financially optimal to fund 529's to higher amounts? At the time of tuition payment, I would be using up the principal and tax-free earnings in the 529's and able to save my then-current cash flow. The difference would be that a greater part of the tuition would be paid for with tax-free earnings.

On the other hand, I acknowledge that this way of thinking also commits greater funds to educational purposes (which may or may not pan out) and impose a significant penalty to withdraw otherwise.
lee71959,

<< I would be using up the principal and tax-free earnings in the 529's and able to save my then-current cash flow. >>

Why would that matters if your taxable account is big enough and there is no tax difference? Let's use 60K per child per year as the number. If you save at very high rate, your taxable account will be very big in 15 years. You will have dividend and distribution from your taxable account. Plus, you will be saving 100+K per year. You could "cash flow" 120K per year easily from your current income, dividend, and distribution. With 1 to 2 million investment in the taxable account, you have 20K to 60K worth of distribution and dividend.

I am doing that with my 2 kids right now. But, they only cost 30K per child per year.

KlangFool

thx1138
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Re: Extreme Maximization of College Financial Aid

Post by thx1138 » Fri Sep 23, 2016 4:08 pm

I'm sorry OP if I offended you. I think I wasn't clear in connecting my thoughts, so let me explain:

1. As multiple people have pointed out your entire premise is ridiculous. You are going to be so far out of the range eligible for actual *grants* rather than incredibly crappy *loans* that the *only* way you will ever get into the window is to either do clearly unethical asset hiding or financially self-damaging things that don't make a lick of sense.

2. My response was based on that fact. Which was why I pointed out that tucking assets in intelligent places makes a lot of sense for folks in appropriate income and asset ranges. That isn't you and won't be you 15 years from now unless you start warming your house by burning C-notes. So I have no ethical objection to maximizing the amount of aid someone might get when it means minor movements of assets or income timing. As you say, much like other various optimizations. However, that isn't your situation and that was what I was responding to. I didn't make that clear.

I'll also note that you are making a number of straw-man arguments here and as a result missing the forest for the trees. You say college is going to cost $500K or more. Sure, it very well can. But no one is going to give you $500K. If you followed all your questionable strategies you'd end up making a marginal difference of a few 10K at best gross and as others have pointed out very likely your net will actually be negative. As someone else said, very much the tail wagging the dog. Or as I put it, your money owns you rather than the other way around.

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DaftInvestor
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Re: Extreme Maximization of College Financial Aid

Post by DaftInvestor » Fri Sep 23, 2016 4:23 pm

KlangFool wrote:
lee71959 wrote:
KlangFool wrote:OP,

I "cash flow" 2 of my children's college education. With your income level and proper financial planning, you probably could do the same. So, I believe you are overthinking on this subject. Put money into 529 up to the state deduction limit. Beyond that, I do not believe you need to do anything else for college education financing.

KlangFool
Klangfool,

If I were expecting to pay full freight possibly for an expensive school, isn't it financially optimal to fund 529's to higher amounts? At the time of tuition payment, I would be using up the principal and tax-free earnings in the 529's and able to save my then-current cash flow. The difference would be that a greater part of the tuition would be paid for with tax-free earnings.

On the other hand, I acknowledge that this way of thinking also commits greater funds to educational purposes (which may or may not pan out) and impose a significant penalty to withdraw otherwise.
lee71959,

<< I would be using up the principal and tax-free earnings in the 529's and able to save my then-current cash flow. >>

Why would that matters if your taxable account is big enough and there is no tax difference? Let's use 60K per child per year as the number. If you save at very high rate, your taxable account will be very big in 15 years. You will have dividend and distribution from your taxable account. Plus, you will be saving 100+K per year. You could "cash flow" 120K per year easily from your current income, dividend, and distribution. With 1 to 2 million investment in the taxable account, you have 20K to 60K worth of distribution and dividend.

I am doing that with my 2 kids right now. But, they only cost 30K per child per year.

KlangFool
So Lee may have to pay taxes on the 20k to 60k worth of distribution and dividend in the taxable account - if he puts the money in the 529 and uses it for education it will be tax free. Why pass up on tax free growth.

KlangFool
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Re: Extreme Maximization of College Financial Aid

Post by KlangFool » Fri Sep 23, 2016 4:54 pm

DaftInvestor wrote:
So Lee may have to pay taxes on the 20k to 60k worth of distribution and dividend in the taxable account - if he puts the money in the 529 and uses it for education it will be tax free. Why pass up on tax free growth.
DaftInvestor,

In order for OP to retire in 30 years and have 6 figures retirement income, he would have a large taxable account in 15 years. There is no way out of this. This is true even if he put 500K into the 529s. He cannot reach his retirement goal with only 60K annual contribution to the tax advantaged accounts.

KlangFool

WildBill
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Re: Extreme Maximization of College Financial Aid

Post by WildBill » Fri Sep 23, 2016 4:56 pm

lee71959 wrote:
Da5id wrote:
randomguy wrote: Last time I looked only 3 top 20 (John Hopkins, Notre Dame, and Georgetown) schools gave out loans. It is the subelite tier of schools right below those elite schools that have crazy prices and hand out loans like candy on halloween.
But bear in mind that OP's 1 and 2 year old children haven't yet taken the SATs (what slackers) and may or may not be going to elite schools...
I've got them in the toddler/newborn classes and things are looking good. They really learned when I refused to give them milk for anything other than 99%+.
Sound like Harvard material for sure. Looking forward to the update on college acceptances in 2032. 8-)
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

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TomatoTomahto
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Re: Extreme Maximization of College Financial Aid

Post by TomatoTomahto » Fri Sep 23, 2016 5:10 pm

WildBill wrote:
lee71959 wrote:
Da5id wrote:
randomguy wrote: Last time I looked only 3 top 20 (John Hopkins, Notre Dame, and Georgetown) schools gave out loans. It is the subelite tier of schools right below those elite schools that have crazy prices and hand out loans like candy on halloween.
But bear in mind that OP's 1 and 2 year old children haven't yet taken the SATs (what slackers) and may or may not be going to elite schools...
I've got them in the toddler/newborn classes and things are looking good. They really learned when I refused to give them milk for anything other than 99%+.
Sound like Harvard material for sure. Looking forward to the update on college acceptances in 2032. 8-)
We need a BH historian to track plan vs actual. If too old for the job, otherwise I'd volunteer.

lee71959
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Re: Extreme Maximization of College Financial Aid

Post by lee71959 » Fri Sep 23, 2016 5:15 pm

thx1138 wrote:I'm sorry OP if I offended you. I think I wasn't clear in connecting my thoughts, so let me explain:

1. As multiple people have pointed out your entire premise is ridiculous. You are going to be so far out of the range eligible for actual *grants* rather than incredibly crappy *loans* that the *only* way you will ever get into the window is to either do clearly unethical asset hiding or financially self-damaging things that don't make a lick of sense.

2. My response was based on that fact. Which was why I pointed out that tucking assets in intelligent places makes a lot of sense for folks in appropriate income and asset ranges. That isn't you and won't be you 15 years from now unless you start warming your house by burning C-notes. So I have no ethical objection to maximizing the amount of aid someone might get when it means minor movements of assets or income timing. As you say, much like other various optimizations. However, that isn't your situation and that was what I was responding to. I didn't make that clear.

I'll also note that you are making a number of straw-man arguments here and as a result missing the forest for the trees. You say college is going to cost $500K or more. Sure, it very well can. But no one is going to give you $500K. If you followed all your questionable strategies you'd end up making a marginal difference of a few 10K at best gross and as others have pointed out very likely your net will actually be negative. As someone else said, very much the tail wagging the dog. Or as I put it, your money owns you rather than the other way around.
Thx1138, your points are valid and I also apologize for being excessively snarky. If my trajectory will take me well into a financial situation where I can't feasibly benefit from any strategies, then I will consider myself lucky and happily pay. My purpose in exploring my proposed strategy is in the case where I am still able to benefit significantly (if I move to a lower stress/pay government job). That being said, the other considerations (tax rate implications, expected returns of market vs my mortgage rate, etc.) as well as the uncertainty of future regulation/education/financial aid landscape and to your point, how much aid my children would qualify for, are factors that support a typical Boglehead path. Plenty of things for me to consider going forward.

NotWhoYouThink
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Re: Extreme Maximization of College Financial Aid

Post by NotWhoYouThink » Fri Sep 23, 2016 5:17 pm

If you work for a company with a nonqualified salary deferral (457) option, you can start throwing off much of your annual income tax free now into that plan. (If you don't, go find a job with one. You may be able to defer up to half your salary and all bonuses.). Then when it comes time to try for college financial aid you might just have the 529s and an emergency fund in after tax investments. The rest is IRA, 401K, home equity, and a big monster 457.

Again with the standard disclosures that in order for any of this to pay off your kid has to attend one of the dozen or two schools that provides generous financial aid in the form of grants instead of loans.

Then as long as your company isn't World Com or Enron or Lehman Brothers or Chrysler or the next big corporation to flame out, you can start taking your 457 withdrawals after the last kid starts junior year in college, and paying whatever the tax laws at that time say you have to pay. If your company becomes one of those, you can get in line with the other unsecured creditors.


Thinking back on how this would have worked out if my parents had let on that they had contorted their financial planning like a pretzel to get free college, instead of keeping things straightforward and just telling us what they would pay. One sibling would have stressed out but worked like a demon so as to keep the parents happy, and would resent them for it to this day. One would have made the casual drug use less casual, and just dropped out for spite. And one would probably have enlisted at 17 just to get out of the house. It's hard to force kids into a mold, but a lot of fun to see what they grow into.

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Re: Extreme Maximization of College Financial Aid

Post by blevine » Fri Sep 23, 2016 5:57 pm

Two kids in private school now, one in an Ivy and the other in a reasonably elite tech school that does give some merit scholarships.

My saving strategy over the years :

10k/year in NYS 529 as well, which with modest growth is paying for the first 2 years for S1 and 1st year for S2.
Pay off mortgage, motivation was to reduce interest for a guaranteed return (not to hide assets from FAFSA).
Maximize retirement accounts (to reduce taxes, not to hide assets, considering CSS shows it).
Almost NO money in kids names, just in case we do end up applying for fin aid (which we did not)
Relentless LBYM to save even more in taxable

End result :

Joy of knowing I have the option to pay full freight if my kids got into elite schools, and if it made sense for their goals.

Know that these elite schools will relentlessly hit you up for donations, from the very first day your child attends.
You may feel some joy at their attendance, and they hopefully good education they receive, and actually WANT to do more.
Personally I pay full freight at the Ivy, have no great desire to donate to that multi-billion $ institution as a result,
already doing my part. But my other son who got nice merit at the tech school, BEFORE he started, I already sent a small donation.
It's perverse but the schools who least need the money do not give merit (since all the students are smart),
and many 2nd tier schools who have far less, give far more in merit. Still costing me a bundle after merit,
almost $50k (vs the list price nearing $70k now).

A benefit to self funding, your ability to maintain your privacy. Have not filled out CSS yet, and unless I have a
financial disaster, don't plan to do so.

I too like to optimize as the OP, but I decided years ago to go with the strategies that had immediate obvious benefit
(like reduce the taxes I pay each year immediately) and not to try and figure out what might happen 15 years down the line.
I have the same thoughts about retirement, no idea where tax rates nor fin aid policy will go, and not going to try and guess.
Just save as much as possible THIS year (lower taxes, fund ER, and living expenses).

Best of luck in your quest to optimize yet desire to donate your time and money, with thoughtful balance of the two goals.

Engineer250
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Re: Extreme Maximization of College Financial Aid

Post by Engineer250 » Fri Sep 23, 2016 6:02 pm

lee71959 wrote:
Engineer250 wrote:I agree this is like cutting off your nose to spite your face.

What's your current tax rate? Have you considered that if you and your wife quit your jobs, went on unemployment, and then ate at soup kitchens and worked minimum wage jobs you could probably reduce your tax bill to 0? If you stopped paying your mortgage, watched the bank foreclose on your house, and then moved into a shelter you could also avoid paying property taxes.

Does it seem like I'm being hyperbolic? It's just an extreme version of what you're talking about. Everyone grumbles about taxes but no one turns down a 20% raise just because 5% of that is going to go to taxes. If you want to come out financially ahead, you work hard you save more money and you will. If you want to game the system you will be the person who turned down 15% in extra income because they didn't want to pay 5% of taxes. Or maybe that's why you make "low six figures" since you've turned down too many of these raises. Heaven forbid you pay for your special snowflake kids to go to college and that lets some poor, single mom's kid go to college on a grant. That would be terrible.
Yes, why don't I just stop drinking and eating right now and then I'll never need any money again after a couple of weeks so no need to worry about income or taxes. That's the last of my snarkiness for this thread. That being said, the colleges I am talking about are generally need-blind admissions and are very generous with billions in endowment. I sincerely doubt that my snowflake would keep Ms. SingleMom from getting the aid she needs.

And I should apologize too for taking some money away from every known social program in the USA because I choose to utilize my 401k and thus deprive the government of tax money. And I'll also beat myself up with a stick for using an HSA. I guess I lied earlier - can't seem to control myself.
It's alright, a snarky post deserves a snarky reply, so I'm sure I earned it.

My point was not that you shouldn't reduce your taxes paid and maximize your return like you seem to imply in your 2nd paragraph. My point was you are reducing your overall lifetime earnings more than you are going to be able to save by hypothetically getting grants to reduce the cost of college. No one would take a job that paid less after taxes just so they could pay less taxes overall. That is along the lines of what you are trying to seek advice to do.

Suggest you internet-search "expected family contribution calculator" and see how low of an income you would need to reduce your college bill significantly. A family of 4 with 1 kid in college making $60k household income is still expected to contribute $2k-$3k a year in the state of New York. I'm not sure what you are making now, but if it's ~$160k it seems ridiculous to me to take a $100k hit in income to save possibly $30k-$50k a year on college expenses. And some of those expenses could be easily made up in tax free earnings in a 529.
Where the tides of fortune take us, no man can know.

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Re: Extreme Maximization of College Financial Aid

Post by welldone » Fri Sep 23, 2016 6:10 pm

I am going to try to point some items out that other posters have alluded to, but not made absolutely clear (unless I missed it somewhere, more than possible).

1. There are ~70 schools (out of over 3,000) in the US who, at this time, pledge to "meet 100% financial need" of admitted students.

2. Your first hurdle is to have your (infant) children be accepted into one of those schools; many of which have acceptance rates of 5%. Unhooked, over-represented groups (white males, white females, and Southeast and East Asians all count in this) who are bright & well rounded have even less chance than the published admit rates. So, you are trying to create a financial plan that starts with a 95% chance of failure due to the acceptance rates of the schools that would actually give 100% need for students to attend. Now, if your children are in an underrepresented group (non-white latino, African-American, Native American male or female) who turn out to be also brilliant in academics (or athletics) AND/OR are full pay and willing to apply ED - there chances might rise to 25-30% admit rates at these same schools. Hard to tell with infants though. And that still leaves a 75% chance of rejection.

3. All the schools who "meet 100% need" all use more than the FAFSA to calculate need. They will consider home equity, retirement accounts, assets, etc. You don't have any control over their internal algorithms that determine need. Reducing your income does not necessarily translate into any of these schools determining you have need. And if you are counting on Princeton's policy not to count home equity for another 20 years...well, that is extremely optimistic and goes hand in hand with expecting to win acceptance at school with 5% admit rates - twice.

4. Most of the "meet 100% need" schools have over 50% of the student body who are full pay. Year after year that figure remains steady. Those schools aren't trying to build a class of financially needy students. They need those full pay students and if you think that need blind admissions is true, then ask yourself how the schools who offer 100% needs met financing seems to fill their classes year after year with so many full pay students and at such a steady rate.

5. It seems like you live in NJ. Probably within an excellent school district. And I am assuming you and your wife hold graduate degrees. All of these schools are going to ask those questions and make determinations as to how competitive your children are within the very competitive environment of upper middle class NJ. You are geographically disadvantaged in obtaining admission to the schools you are looking to your children to attend. There are literally thousands of excellent students in NJ and your child is competing with all of them (not to mention the rest of the world) for a spot at a lottery school.

6. Schools who don't meet 100% full need (~2,930 of colleges/univ in the US) will create a financial aid package filled with loans for your family, even if you have a low income. Go look at college confidential and read story after story of families who make $80-$100K being told their contribution is $30-45K a year because the school their child was accepted to doesn't have any money to give to them. Cutting your income down right before you are asked to pay for something really expensive is foolish.

I think you would be better off deciding how to better save and invest (with an eye towards reducing tax liability and also flexibility in how money can be accessed) rather than create Rube Goldbergian financial plans that have terrible odds of actual success.

There are a lot of schools that will give merit money to smart kids. But even then, relatively few give full rides. Many give half tuition, some full tuition. There can still be $20-40K (depending of COA) in expenses that parents are expected to pay after 'generous' merit aid.

Get comfortable with paying for your children's college. Or get comfortable with down-grading your expectations for where your children will attend college.

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Re: Extreme Maximization of College Financial Aid

Post by helloeveryone » Fri Sep 23, 2016 6:55 pm

Interesting thread....

I have a straightforward question - (I think) - we have two kids who are 10 years away from starting college. We plan on funding their 529's and hopefully by the time they start college will have enough money for 3-4 years worth of tuition at an in-state university.

When they enter college will we have to fill out a FAFSA just in case they qualify for certain scholarships? (i.e. for educational scholarship or volunteering or whatever other non-need based scholarships?) Or should we just forego that knowing we don't qualify for financial aid and have a 529 to fund their education?

NotWhoYouThink
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Re: Extreme Maximization of College Financial Aid

Post by NotWhoYouThink » Fri Sep 23, 2016 7:13 pm

You probably won't need to fill out FAFSA. There are a few potential scholarships at a few schools that require you to provide financial data, but you'll know if your student is applying to a school where that applies. In most cases, merit aid is need blind. It's great to know you can make your choice without having to open the books to the judges.

Gleevec
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Re: Extreme Maximization of College Financial Aid

Post by Gleevec » Sat Sep 24, 2016 2:13 am

As mentioned earlier, can someone explain to me the moral difference between using legal means to maximize college financial aid and the backdoor Roth IRA?

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Re: Extreme Maximization of College Financial Aid

Post by blevine » Sat Sep 24, 2016 6:15 am

helloeveryone wrote:Interesting thread....

I have a straightforward question - (I think) - we have two kids who are 10 years away from starting college. We plan on funding their 529's and hopefully by the time they start college will have enough money for 3-4 years worth of tuition at an in-state university.

When they enter college will we have to fill out a FAFSA just in case they qualify for certain scholarships? (i.e. for educational scholarship or volunteering or whatever other non-need based scholarships?) Or should we just forego that knowing we don't qualify for financial aid and have a 529 to fund their education?
Went through this. Of the many schools my 2 sons applied, exactly one wanted fafsa for merit, and that was
after you win the scholarship and enroll, after the fact.
So had my son rejected that full tuition scholarship, I could have avoided the fafsa. As it turned out, he transfered so I did not have to do it again (was required annually). Also note, FAFSA forms aren't too bad, easy and less invasive than CSS and other forms where private schools want to know about the pocket change in your couch seat cushions :-)

The reason it was they want to make sure you apply for federal pell grant and similar state aid, so they can recover part of the scholarship. Does not impact you financially, just have to give up some data.

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Re: Extreme Maximization of College Financial Aid

Post by blevine » Sat Sep 24, 2016 6:21 am

NYTimes opinions on saving and paying for college, that resonate with me in hindsight.

http://mobile.nytimes.com/2015/10/24/yo ... 1&referer=

http://mobile.nytimes.com/2016/09/24/yo ... 9&referer=

Buffetologist
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Re: Extreme Maximization of College Financial Aid

Post by Buffetologist » Sat Sep 24, 2016 7:34 am

This is a fool hardy exercise for children this young. We went through this, and by the time our kids were close to college, my wife and I were both so successful that we could pay out of current income. Taking a sufficiently lower paying job would have been more costly than college. We both had positions of such responsibility, that leaving to drop our salaries would have been a career killer. Even taking a lateral job at a university that would pay half tuition at any school(a taxable benefit by the way) would have involved a pay cut and would net us less than just paying the darn tuition. Besides, I just liked my job.

In the end, we just paid, though we found that the colleges had an unadvertised prepayment plan which allowed the payment of 4 years of tuition up front which meant that we would pay the freshman year tuition for all for years. The return on this investment would be "tuition inflation", and the return was not taxable income. This has been between equivalent to a 3-4% return after taxes on cash. That's about the best you can hope for, IMHO.

I recommend that you focus your energies on maximizing your careers so that the benefits of getting financial aid become moot and wish you both success in that endeavor.

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Re: Extreme Maximization of College Financial Aid

Post by TomatoTomahto » Sat Sep 24, 2016 8:13 am

Buffetologist wrote:This is a fool hardy exercise for children this young. We went through this, and by the time our kids were close to college, my This is a fool hardy exercise for children this young. We went through this, and by the time our kids were close to college, my wife and I were both so successful that we could pay out of current income. and I were both so successful that we could pay out of current income.
This. 15 years is a long time. Much is unknown.

In retrospect, I wish we had taken the pay 4 years once plan. I guess they refund if the kid transfers or for any reason leaves the school.

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Re: Extreme Maximization of College Financial Aid

Post by ClevrChico » Sat Sep 24, 2016 8:21 am

My experience was that a lower middle class household income qualified me subsidized loans. Income rose into middle class, and there were only unsubsidized loans available my last two years.

With you already having a low/mid 6-figure income now, I think financial aid is pretty limited outside of loans.

You have to be very needy for need based financial aid. My FAFSA was audited twice, even for the limited aid I received.

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Re: Extreme Maximization of College Financial Aid

Post by *3!4!/5! » Sat Sep 24, 2016 8:27 am

The maximum need based college financial aid you can get is $0.00.

So no matter what you do, you will get the maximum.

Easy peasy.

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teen persuasion
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Re: Extreme Maximization of College Financial Aid

Post by teen persuasion » Sat Sep 24, 2016 9:10 pm

The FAFSA formulas are NOT secret. Google "EFC formulas 2017-18" for the pdf. Start on page 9. You can see exactly what the current income protection allowance is for a family of 4, and what the asset protection allowance for a parent of age x is. You can see the rate your available income and assets are included at, too.

Google "paper fafsa" to find the inputs for the formulas (line 95a thru f, for example).

Then go back and look at the changes from past years. I've been filling the FAFSA since 2008, when DD1 started college, and while much of it is the same, some aspects have been getting progressively more restrictive (asset protection #s have shrunk, not increased as you'd expect due to inflation).

One thing that might prove useful, in exactly the right circumstances, is the Simplified Needs Test. If your income is <$50k, and you meet at least one other criteria (can file 1040EZ or A, eligible for SNAP, WIC, Medicaid, free/reduced lunches, are a displaced worker) then assets are NOT reported or included in the calculations. This would be hugely important if you have either 529 or taxable investments. We have used this, as our large family size and relatively low income meant we were eligible for free/reduced lunches, until this year. DS4 just entered college, and DD3 is still attending but no longer our tax dependent, so dropping down to 4 family members knocked us off that list. We must file 1040 due to our HSA, so that option is out. The way the eligibility is worded, being free/reduced lunch eligible in the HS senior year covers 3 college years, so I have a window during which I am watching for options, and considering timing of filing vs drawing down the EF to fund Roth IRAs early or similar. The Medicaid eligibility clause is new this year, and might prove important if we RE.

There is also an auto EFC=0. If your income is <$25k, and meet same list as before, you get an automatic EFC=0. When DD1 started college, the limit was maybe $28k, and gradually rose over the years to $32k, when it was retroactively dropped to $23k. We easily met it when around $30k, by contributing to 401k. The lower amounts are more difficult to reach, and to live on.

Contributions to retirement and HSA accounts lower your AGI for the testing stage, but contributions to retirement are added back to income. HSA contributions reported on line 25 are also added back. Federal tax paid, FICA paid, and a state specific % of income are subtracted, and an employment expense and the income protection amount. The income protection amount goes up with more family members, but is reduced for more students simultaneously in college.

The newest change to the FAFSA is the change in filing date and tax year used. Previously, you applied after January 1 using the prior year's tax info for the upcoming fall semester. The filing date was moved to the previous October 1 (nearly a year in advance) using the prior-prior year's taxes. So DS4 did the FAFSA this spring for 2016-17 with 2015 tax info. In a week, he will do the FAFSA for 2017-18 using 2015 tax info (this is the only overlap year). So for new college freshman in 2017, the FAFSA is looking at tax info from 2 years earlier, part of their sophomore HS year. Have to plan ahead if making income or tax changes for college.

I'm already looking at the years relevant for DS5, even though he's 11. RE needs to be done just right to not mess up his FAFSA - he will effectively appear an only child as the others move on. Withdrawals from Roth accounts are counted as income. Conversions are also "income". We will be in a catch 22 situation, I fear.

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Re: Extreme Maximization of College Financial Aid

Post by *3!4!/5! » Sat Sep 24, 2016 9:19 pm

^^^
Great post "teen persuasion". It won't apply to the OP, but for us "average" folks, it's very useful.

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teen persuasion
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Re: Extreme Maximization of College Financial Aid

Post by teen persuasion » Sat Sep 24, 2016 9:33 pm

Now for the kinds of aid the kids have received.

Fed subsidized and unsubsidized and Perkins loans.
Work study, ~$1200/ year
PELL
TAP
Scholarships
Grants
TEACH grants (which turn into loans retroactively if employment in low income schools is not met).

The OP mentioned NY - TAP is NY specific, so if you are a resident it is worth staying in-state to be eligible. It is nearly as much as PELL. To get either, your EFC must be < max TAP/PELL. As your EFC is > 0, they each are reduced.

Every school is different in policies. Some schools gap (refuse to offer aid to meet cost of attendance - EFC). DD1's first choice school gapped her an amount = 50% of our income. She asked for reconsideration, but they only offered parent loans and suggested she'd be happier elsewhere. She was very happy at her second choice, nearer to home (less transportation cost, in-state TAP) with better scholarships and grants.

Some schools will negotiate - DS2 received a slightly better FA offer from his second choice school, so he contacted his preferred school and said he'd like to attend there, but #2 had offered more -would they match it? They asked to see the offer, and beat it!

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Re: Extreme Maximization of College Financial Aid

Post by lee71959 » Sun Sep 25, 2016 1:00 am

bigred77 wrote:OP,

I would personally just fund all tax advantaged accounts, fund 529s, keep my higher paying job, invest the extra in taxable accounts, and just generally go about my business. If you make 300k now, your salary could be 600k in 20 years, making $1M in college tuition perfectly affordable over 6 years with that salary plus many millions in assets. No big deal. Heck your picturesque American middle class family making 60k per year today commonly has 2 kids going to college with a combined, all in bill of 100k for both kids over 6 years. Quite common and doable if they value education for their kids, have a little in home equity, some college savings, and a some retirement assets. Plus as a bonus for you, your "essentials" will be a much lower percentage of your income than the middle class family.

If you DO intend to try and "work the system" (which I personally think is fine, it's just a large bet to make if your altering your financial plan over multiple decades) then just forego the 529s and throw everything in taxable brokerage accounts. if your 2 kids are looking like Ivy material when they hit Jr year then just take all of your taxable investments plus your existing home equity at the time and buy the biggest multi-million dollar house you can find and still support the carrying costs on your new downsized salary. Accomplishes the same thing plus you get to live in a mansion for 6-8 years.
I hope I'm not making 600k in 20 years because I'd regret working so hard and so long. If I'm still in my general line of work in 15 years, something has gone wrong. Your proposal could work, but assuming the markets go up even at a very moderate average pace over the next 15 years, the amount of capital gains tax would be quite high to cash out the taxable investments. Living in a larger house would be nice, though the irony would be that my kids would be out of the house shortly thereafter. And as you note, the property taxes and maintenance could be immense as well.

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Re: Extreme Maximization of College Financial Aid

Post by LadyGeek » Sun Sep 25, 2016 3:23 pm

I removed several off-topic comments and replies which were derailing the discussion. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

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Re: Extreme Maximization of College Financial Aid

Post by chipperd » Sun Jan 28, 2018 8:17 am

OP. This may be a long response, but given I am you in 15 years, with much smaller incomes, we do have a senior, junior and freshman currently in high school, I want to make sure I share as much info as I can. Skip to the bottom of the Northeastern* section if you don't want to comb through this long post.
Before I do, I want to appreciate all that responded to my post on a similar topic a few months ago regarding if my wife and I should downsize early to reduce our EFC (Expected Family Contribution). I too got some moralizing against my written request and see this in a similar vain as you: this post high school educational system in our country lacks transparency and is akin to keeping as much of your hard earned $ as possible from educational corporations (that's what the private schools really are) who have huge positive balance sheets. I realize now, after learning from my post and other sources, that was a pretty elementary question, but one I needed to ask to educate myself. It's great you are doing the same so much earlier than I did.
Our situation: Married: I am 50 wife is 47 (yep that matters, the older you are when your kids apply to college, the better). Kids ages 17, 16 and 14. Senior, Junior and Freshman in high school respectively. We gross about 150k/year and for the tax year 2016 (2 year look back) our AGI was 122k.

The seniors stats. No, it's not a "humblbrag" but rather to point out you can have a high achieving kid and it really doesn't matter.
GPA: ACT: 35. 4.8 weighted/3.98 unweighted. 8 A.P. classes (5's on the exam so far) and one college class as a junior. Soccer two years, tennis four years (one year captain). Founded investment club at school and recruited 15 others to join, basically running the high school mutual fund. Commended on the psat. Mock trial and model UN for two years. Volunteers at local orgs and tutors. He wants to be a financial analyst and most AP's are in math related/heavy classes.
Schools applied to: UPenn, Duke, Carnegie Mellon, Northeastern, Bentley, Uconn, UVM, UNH, Syracuse, UVA, Lehigh, Bucknell,
Only available results so far are from Northeastern, UNH and UVM.
UNH: (safety): admitted as honors student. 10k merit and 5k merit scholarships. Net cost of about 30k/year which includes a 5k/year fed loan
UVM: (safety): admitted as honors student. 18k/year merit scholarship. No other financial info as of yet.
*Northeastern: admitted as non-honors student. Was told they had many top tier students apply and have an acceptance rate of 18% this year (normally in the mid to upper 20% rate). 22k/year merit scholarship. 35k/year net cost including 5k/year fed loan.
Here's where it gets interesting for you. I called the financial aid office and spoke with his officer. She said our home equity of 225k (realistically it's much more) will be hit to the tune of 5%/year. So $11,250 of the expected 35k/year (its' really 40k as far as I'm concerned when you take out that loan) is due to the equity in our home. I was floored. So if all 3 of our kids go to Northeastern we need to use a close to 50% of our home equity (theres less every year b/c they took it the previous x number of years). I don't think so.
Also, that 22k/year merit aid is just a marketing tool to get my kid excited about attending. I asked, so if my son gets into honors and qualifies for the additional 4k/year scholarship that comes with that acceptance, would my net cost got down to 31k/year. No silly! They just take the paltry 4k grant they gave us based on our income out of the equation, keeping our net cost at 35k. They have a number they expect us to pay, and just move money around like a shell game to get to that number.
So, as you probably know, there are CSS profile schools (top tier state schools and privates like those in my kids list) and FAFSA schools (the two financial aid forms). The FAFSA schools don't take into account home equity. Most likely your state school is a FAFSA school, but that's worth a confirmation.
As for 529''s, CSS profile schools as about those own by you, so that will be info those schools will have. Each school decides how they use all that financial info you gave them (and it's a financial enema; they ask everything) and they don't have to tell you how. Ergo, lack of transparency, You can call and ask, but they don't have to tell you squat. Most even asked for our entire tax return.
All this may be for naught for you as I'm sure the rules will change even by the time our youngest is ready, but this is what I know so far. Feel free to let me know if you want me to keep you updated on our results.
Given we live in CT and Uconn has a top tier honors program, if my first one gets in there, I suspect that's where he will wind up unless a private school comes through in a big way. (C'mon Bentley!). I'm of the opinion he's getting an advanced degree and the name on that sheepskin is probably more important.

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