Capital gain and need-based college scholarship

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blackwhisker
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Capital gain and need-based college scholarship

Post by blackwhisker » Fri Jan 10, 2020 4:00 pm

My kid is still quite a few years away from applying for college. But I would like to understand the impact of capital gain on need-based scholarship.

I might consider to sell my house and buy another one in my area once my kid goes to college. The current average house price in my area is about 1.7M. So anyone who have been in their house for the last 10-20 years would have a big capital gain when they sell their house.

Would the capital gain from selling a house dis-qualify a child from receiving need-based college scholarship? Even if I put all the proceeds from selling the house into the next house right away?

Thank you.

P.S. BTW, 1.7M can only buy a small singe family house in my area (~1200 sq ft). nothing close to a mansion. Is that something I need to explain to people who make scholarship decisions at colleges?

Silk McCue
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Re: Capital gain and need-based college scholarship

Post by Silk McCue » Fri Jan 10, 2020 4:10 pm

If you put all of the proceeds from the sale into a new home their are no capital gains. In fact you can keep $250k filing Single or $500k MFJ without paying any taxes. The rest of the details including buying another home are discussed here.

https://www.nerdwallet.com/blog/taxes/s ... gains-tax/

Where do live BTW?

Cheers

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Nate79
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Re: Capital gain and need-based college scholarship

Post by Nate79 » Fri Jan 10, 2020 6:18 pm

If you have gains greater than $500k MFJ you will pay capital gains and it seems it might be true in your case. I don't know the impact on need based aid but are you sure someone who can afford a 1.7m house will get need based aid?

Silk McCue
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Re: Capital gain and need-based college scholarship

Post by Silk McCue » Fri Jan 10, 2020 6:26 pm

Removed - errant advice provided.
Last edited by Silk McCue on Fri Jan 10, 2020 6:46 pm, edited 1 time in total.

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Nate79
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Re: Capital gain and need-based college scholarship

Post by Nate79 » Fri Jan 10, 2020 6:27 pm

Silk McCue wrote:
Fri Jan 10, 2020 6:26 pm
Nate79 wrote:
Fri Jan 10, 2020 6:18 pm
If you have gains greater than $500k MFJ you will pay capital gains and it seems it might be true in your case. I don't know the impact on need based aid but are you sure someone who can afford a 1.7m house will get need based aid?
There are no gains if you buy a replacement home within iRS guidelines . The OP mentioned putting all the proceeds into a new home right away.

Cheers
That's not true. Where did you get that idea? I vaguely recall that that was killed 20+ years ago.
Edit to add: OP is talking about a personal residence, not a 1031 exchange for an investment property.

Silk McCue
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Re: Capital gain and need-based college scholarship

Post by Silk McCue » Fri Jan 10, 2020 6:41 pm

Nate79 wrote:
Fri Jan 10, 2020 6:27 pm
That's not true. Where did you get that idea? I vaguely recall that that was killed 20+ years ago.
Edit to add: OP is talking about a personal residence, not a 1031 exchange for an investment property.
Evidently I was stuck in a time-warp. Thanks for the correction.

Cheers

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BL
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Re: Capital gain and need-based college scholarship

Post by BL » Fri Jan 10, 2020 6:41 pm

If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse.Jan 3, 2020
Topic No. 701 Sale of Your Home | Internal Revenue Service
https://www.irs.gov › taxtopics :o

Topic Author
blackwhisker
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Re: Capital gain and need-based college scholarship

Post by blackwhisker » Fri Jan 10, 2020 7:19 pm

Nate79 wrote:
Fri Jan 10, 2020 6:18 pm
If you have gains greater than $500k MFJ you will pay capital gains and it seems it might be true in your case. I don't know the impact on need based aid but are you sure someone who can afford a 1.7m house will get need based aid?
Thanks for the reply Nate79. yes that's a logical question to ask.

I agree someone who can afford a 1.7m house might not need financial aid. I didn't pay 1.7m for my house. It was a lot cheaper when I bought it 2 decades ago.

I am pretty sure my kid is eligible for need based aid based on my income(single income household), if I don't sell my house and trigger a capital gain. As far as I understand, colleges don't expect people to sell their primary residence to pay for their kids tuition. Correct me if I am wrong.

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LilyFleur
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Re: Capital gain and need-based college scholarship

Post by LilyFleur » Sat Jan 11, 2020 3:44 am

blackwhisker wrote:
Fri Jan 10, 2020 7:19 pm
Nate79 wrote:
Fri Jan 10, 2020 6:18 pm
If you have gains greater than $500k MFJ you will pay capital gains and it seems it might be true in your case. I don't know the impact on need based aid but are you sure someone who can afford a 1.7m house will get need based aid?
Thanks for the reply Nate79. yes that's a logical question to ask.

I agree someone who can afford a 1.7m house might not need financial aid. I didn't pay 1.7m for my house. It was a lot cheaper when I bought it 2 decades ago.

I am pretty sure my kid is eligible for need based aid based on my income(single income household), if I don't sell my house and trigger a capital gain. As far as I understand, colleges don't expect people to sell their primary residence to pay for their kids tuition. Correct me if I am wrong.
Can you tell us what state you live in? Financial aid varies according to the state.

medic
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Re: Capital gain and need-based college scholarship

Post by medic » Sat Jan 11, 2020 5:41 am

FAFSA uses the prior-prior year tax info for computing aid(2019-20 school year aid is based on 2017 tax year).
A home sale will show the excess equity in your taxes, so it will be part of the calculation. To manage this, you would need to make an appeal case to the financial aid officer.

If the money from the sale is in a bank account (e.g you haven't purchased a new home), then you're going to get dinged hard since the assumption is you haven't/aren't buying something so the cash is available. And some colleges will consider home equity (capped a 2-3x income) as an asset.

If you have certain situations, like under $50k income, you could qualify for the simple needs test instead.
https://www.fastweb.com/financial-aid/a ... amily-home


I'd say to avoid complication, if you're going to switch homes anyway, do it before the sophomore year.

Topic Author
blackwhisker
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Re: Capital gain and need-based college scholarship

Post by blackwhisker » Sat Jan 11, 2020 11:17 pm

medic wrote:
Sat Jan 11, 2020 5:41 am
FAFSA uses the prior-prior year tax info for computing aid(2019-20 school year aid is based on 2017 tax year).
A home sale will show the excess equity in your taxes, so it will be part of the calculation. To manage this, you would need to make an appeal case to the financial aid officer.

If the money from the sale is in a bank account (e.g you haven't purchased a new home), then you're going to get dinged hard since the assumption is you haven't/aren't buying something so the cash is available. And some colleges will consider home equity (capped a 2-3x income) as an asset.

If you have certain situations, like under $50k income, you could qualify for the simple needs test instead.
https://www.fastweb.com/financial-aid/a ... amily-home


I'd say to avoid complication, if you're going to switch homes anyway, do it before the sophomore year.
Thank you thank you medic!! Your reply is very helpful! I really appreciate you taking the time to explain everything. I will read the fastweb article you recommended. Have a nice weekend.

Topic Author
blackwhisker
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Re: Capital gain and need-based college scholarship

Post by blackwhisker » Sat Jan 11, 2020 11:19 pm

LilyFleur wrote:
Sat Jan 11, 2020 3:44 am
blackwhisker wrote:
Fri Jan 10, 2020 7:19 pm
Nate79 wrote:
Fri Jan 10, 2020 6:18 pm
If you have gains greater than $500k MFJ you will pay capital gains and it seems it might be true in your case. I don't know the impact on need based aid but are you sure someone who can afford a 1.7m house will get need based aid?
Thanks for the reply Nate79. yes that's a logical question to ask.

I agree someone who can afford a 1.7m house might not need financial aid. I didn't pay 1.7m for my house. It was a lot cheaper when I bought it 2 decades ago.

I am pretty sure my kid is eligible for need based aid based on my income(single income household), if I don't sell my house and trigger a capital gain. As far as I understand, colleges don't expect people to sell their primary residence to pay for their kids tuition. Correct me if I am wrong.
Can you tell us what state you live in? Financial aid varies according to the state.
Thanks LilyFleur. I am in CA. My kid will apply for colleges in CA and other states as well.

HereToLearn
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Re: Capital gain and need-based college scholarship

Post by HereToLearn » Sat Jan 11, 2020 11:51 pm

Some schools use home equity when calculating FA awards. The amount of home equity considered varies a multiple of income to the full value of the home equity.

It might be worth searching 'Net Price Calculator' for a few of the schools you may be considering in the future. Entering your info in the NPC will illustrate the impact of income, savings, home equity, etc.

Topic Author
blackwhisker
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Re: Capital gain and need-based college scholarship

Post by blackwhisker » Sun Jan 12, 2020 9:12 pm

HereToLearn wrote:
Sat Jan 11, 2020 11:51 pm
Some schools use home equity when calculating FA awards. The amount of home equity considered varies a multiple of income to the full value of the home equity.

It might be worth searching 'Net Price Calculator' for a few of the schools you may be considering in the future. Entering your info in the NPC will illustrate the impact of income, savings, home equity, etc.
Thank you HereToLearn! I tried two NPCs, and will try more. The NPCs I tried didn’t ask home equity related questions. If possible, can you give me the names of a few colleges that ask home equity related questions in their NPC?

Thanks

HereToLearn
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Re: Capital gain and need-based college scholarship

Post by HereToLearn » Sun Jan 12, 2020 9:58 pm

blackwhisker wrote:
Sun Jan 12, 2020 9:12 pm
HereToLearn wrote:
Sat Jan 11, 2020 11:51 pm
Some schools use home equity when calculating FA awards. The amount of home equity considered varies a multiple of income to the full value of the home equity.

It might be worth searching 'Net Price Calculator' for a few of the schools you may be considering in the future. Entering your info in the NPC will illustrate the impact of income, savings, home equity, etc.
Thank you HereToLearn! I tried two NPCs, and will try more. The NPCs I tried didn’t ask home equity related questions. If possible, can you give me the names of a few colleges that ask home equity related questions in their NPC?

Thanks
Here is a list of CSS/Profile schools:
https://profile.collegeboard.org/profil ... tions.aspx

I do not know which among them use HE this year, but the list pasted below was from four years ago, probably based on data that was at least a year old. The numbers represent the amount of HE considered in the NPC.

I don't remember where I copied this from, and schools' policies change regularly, so check the NPCs to confirm the schools still consider HE. I also do not know why some schools appear on the list but are then noted as not considering HE. At this point, you must be questioning my info since I have so many caveats!

American University 100%, could appeal
Amherst College 1.2x income
Babson, MA 100%, could appeal
Bentley, MA 100%, could appeal
Bard, NY Don't use
Barnard, NY 100%, could appeal
Bates, ME 2x income
Bowdoin, ME 1.8x income
Boston College, MA 100%, could appeal
Boston University 2.5x income
Brandeis, MA 2x income
Brown, RI 3x income
Bryn Mawr, PA full, case by case
Bucknell, PA Don't use
Cal Tech, CA Don't use
Carleton, MN @ 3x income
Carnegie Mellon 2x Income
Claremont McKenna 2x or 1.5x income
Colby, ME Case by Case
Colgate 2x income
Columbia, NY 1.2 income
Connecticut College Generally, don't use
Cornell, NY 1.2 income
Dartmouth, NH 1.2 income
Davidson 1.5x income
De Pauw, IN Don't use
Duke, NC 1.2x income
Elon, NC 100%
Emory, GA 100%, could appeal
Fairfield, CT 3x income
Fordham, NY Case by Case
George Washington Case by Case
Georgetown 1.2x income
Gettysburg 100%, could appeal
Grinnell 1.5x income
Hampshire College 100%, could appeal
Hamilton College Don't use
Harvey Mudd, CA 2x income
Haverford College, PA 1.2x income
Harvard, MA Don't use
Hobart and William Smith 100% could appeal
Holy Cross, MA 100%, could appeal
Illinois Wesleyan Univ 2.5 - 3x income
Ithaca College, NY 100%, could appeal
Johns Hopkins, MD 3x income
Kenyon, OH 4x income
Lafayette College, PA 100%, and case by case
Lawrence University Use cap, not specific
Lehigh, PA 2.5x income
Lewis & Clark, OR 2x income
Loyola Maryland, MD 100%, could appeal
Macalester, MN 2x income
Middlebury, VT 1.2 income
MIT, MA 100%, could appeal
Mt. Holyoke, MA 100%, could appeal
Muhlenberg College 1x income
Northeastern Univ, MA 100%, could appeal
Northwestern Univ. IL 1.2x income
Notre Dame Case by Case
NYU wouldn't say
Oberlin, OH 1.2x income
Occidental, CA 2.5x income
Pitzer 2x income and case by case
Pomona, CA 1.2x income
Princeton, NJ Don't use
Providence College, RI 100%, could appeal
Reed College, OR 2x income
Rensselaer Polytech, NY 100%, could appeal
Rhodes, TN 100%, could appeal
RISD Design Don't use
Rice, Tx 2.5x income
Roger Williams, RI 100%, could appeal
Santa Clara, CA Don't use
Sarah Lawrence, NY 100%, could appeal
Scripps, CA 2.5x income
Skidmore, NY 3x income
Smith College, MA 3x income
St John's MD 100% could appeal
St Olaf Non committal
Stanford, CA 1.2x income
Stonehill College, MA 100%, could appeal
Syracuse, NY Case by Case
Trinity College, CT 3x income
Tufts 1.2x income
Tulane University Not sure
Union College, NY 100%, could appeal
Univ of Chicago 2x income
Univ of Denver Case by Case
Univ of Michigan 100%, could appeal
Univ of North Carollina UNC 100%, could appeal
Univ of Penn 1.5 to 2.5 cap income
Univ of Richmond 2x income
Univ of Rochester 3x income, could appeal
USC Univ of So Cal 2x income
Univ of Virginia Don't use
Ursinus, PA 3x income
Vassar, NY 1.5x income
Vanderbilt, TN 2.5x income
Villanova, PA 1.5x income
Wabash College 100%, could appeal
Wake Forest, NC 2x income
Washington & Lee 100%, could appeal
WA Univ Saint Louis Don't use
Wheaton College, MA 100%, could appeal
Wellesley, MA 1.2x income
Wesleyan, CT 2.4x income
Whitman, WA Don't use
Willimans, MA 100%, could appeal
Worcester Polytech Insti Looks like 100% per NPC
Yale, CT 2.4x income

random_walker_77
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Re: Capital gain and need-based college scholarship

Post by random_walker_77 » Mon Jan 13, 2020 12:28 am

One caution: there's a world of difference between need-based financial aid and a need-based scholarship. From my limited experience, an awful lot of financial aid is simply in the form of student loans and on-campus jobs. How'd you feel to shift things around so that the calculations show a financial need, only to find that this just qualifies you for student loans?

There are also need-based grants, but it sounds like it's hard to qualify for Pell Grants if your income is over 40-50K/yr:
https://money.howstuffworks.com/persona ... -grant.htm
https://www.debt.org/students/scholarsh ... ps-grants/

There's also need-based scholarships (equivalent to discounted tuition) from private universities. I'm not sure how much this applies for public universities.
https://www.cappex.com/articles/money/s ... holarships

jj45
Posts: 67
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Re: Capital gain and need-based college scholarship

Post by jj45 » Mon Jan 13, 2020 9:35 am

Any gains above the exclusion amount will count as income for the year in question. Financial aid is filed for each year a student enrolls and looks at income in the "prior-prior" year, so for a student enrolling in year X, or the academic year fall X, spring X+1, income for tax year X-2 is reported. So if you are filling out the forms now for a student enrolling in Fall 2020, income in tax year 2018 is reported.

If you have significant gains above the exclusion, they count as income and will be assessed heavily. FAFSA expects you to contribute 47% of the "adjusted available income" above $34.5K. The detailed formula for 2020-2021 is at https://ifap.ed.gov/efcformulaguide/att ... aGuide.pdf

You also have to report your assets as of the day you file the forms. If you sell your home, have $500K in a savings account waiting to put into your next home, and file for financial aid, they will see the $500K and add 12% to your efc. They won't care that you need the money to buy your next house.

So coordinating the timing of the sale, purchase, filing forms, and years of enrollment can make a big difference.

High-end elite private schools, the ones that are rich enough to give need based scholarships rather than loans, use CSS. They are not restricted to follow the rules of FAFSA, their process is not as open as FAFSA, and every school is different. As others have posted, home equity is assessed at various amounts. They also get copies of your tax returns, and it is not impossible they would dig through the returns, see the home sale and, even if it is under the exclusion, decide you can afford to pay more.

Because of the "prior-prior" year rule, I often see people say you can have high income in the student's later years and it won't affect aid. This is true for FAFSA but I wonder about CSS. CSS asks for income in the prior year and current year. Although these are not the target year, CSS does ask for this information and I have not seen anything definitive about how they use it. They may see a large jump in income in the prior or current years and reduce your need.

Topic Author
blackwhisker
Posts: 258
Joined: Thu Jul 05, 2018 9:32 pm

Re: Capital gain and need-based college scholarship

Post by blackwhisker » Mon Jan 13, 2020 3:18 pm

HereToLearn wrote:
Sun Jan 12, 2020 9:58 pm
blackwhisker wrote:
Sun Jan 12, 2020 9:12 pm
HereToLearn wrote:
Sat Jan 11, 2020 11:51 pm
Some schools use home equity when calculating FA awards. The amount of home equity considered varies a multiple of income to the full value of the home equity.

It might be worth searching 'Net Price Calculator' for a few of the schools you may be considering in the future. Entering your info in the NPC will illustrate the impact of income, savings, home equity, etc.
Thank you HereToLearn! I tried two NPCs, and will try more. The NPCs I tried didn’t ask home equity related questions. If possible, can you give me the names of a few colleges that ask home equity related questions in their NPC?

Thanks
Here is a list of CSS/Profile schools:
https://profile.collegeboard.org/profil ... tions.aspx

I do not know which among them use HE this year, but the list pasted below was from four years ago, probably based on data that was at least a year old. The numbers represent the amount of HE considered in the NPC.

I don't remember where I copied this from, and schools' policies change regularly, so check the NPCs to confirm the schools still consider HE. I also do not know why some schools appear on the list but are then noted as not considering HE. At this point, you must be questioning my info since I have so many caveats!

American University 100%, could appeal
Amherst College 1.2x income
Babson, MA 100%, could appeal
Bentley, MA 100%, could appeal
Bard, NY Don't use
Barnard, NY 100%, could appeal
Bates, ME 2x income
Bowdoin, ME 1.8x income
Boston College, MA 100%, could appeal
Boston University 2.5x income
Brandeis, MA 2x income
Brown, RI 3x income
Bryn Mawr, PA full, case by case
Bucknell, PA Don't use
Cal Tech, CA Don't use
Carleton, MN @ 3x income
Carnegie Mellon 2x Income
Claremont McKenna 2x or 1.5x income
Colby, ME Case by Case
Colgate 2x income
Columbia, NY 1.2 income
Connecticut College Generally, don't use
Cornell, NY 1.2 income
Dartmouth, NH 1.2 income
Davidson 1.5x income
De Pauw, IN Don't use
Duke, NC 1.2x income
Elon, NC 100%
Emory, GA 100%, could appeal
Fairfield, CT 3x income
Fordham, NY Case by Case
George Washington Case by Case
Georgetown 1.2x income
Gettysburg 100%, could appeal
Grinnell 1.5x income
Hampshire College 100%, could appeal
Hamilton College Don't use
Harvey Mudd, CA 2x income
Haverford College, PA 1.2x income
Harvard, MA Don't use
Hobart and William Smith 100% could appeal
Holy Cross, MA 100%, could appeal
Illinois Wesleyan Univ 2.5 - 3x income
Ithaca College, NY 100%, could appeal
Johns Hopkins, MD 3x income
Kenyon, OH 4x income
Lafayette College, PA 100%, and case by case
Lawrence University Use cap, not specific
Lehigh, PA 2.5x income
Lewis & Clark, OR 2x income
Loyola Maryland, MD 100%, could appeal
Macalester, MN 2x income
Middlebury, VT 1.2 income
MIT, MA 100%, could appeal
Mt. Holyoke, MA 100%, could appeal
Muhlenberg College 1x income
Northeastern Univ, MA 100%, could appeal
Northwestern Univ. IL 1.2x income
Notre Dame Case by Case
NYU wouldn't say
Oberlin, OH 1.2x income
Occidental, CA 2.5x income
Pitzer 2x income and case by case
Pomona, CA 1.2x income
Princeton, NJ Don't use
Providence College, RI 100%, could appeal
Reed College, OR 2x income
Rensselaer Polytech, NY 100%, could appeal
Rhodes, TN 100%, could appeal
RISD Design Don't use
Rice, Tx 2.5x income
Roger Williams, RI 100%, could appeal
Santa Clara, CA Don't use
Sarah Lawrence, NY 100%, could appeal
Scripps, CA 2.5x income
Skidmore, NY 3x income
Smith College, MA 3x income
St John's MD 100% could appeal
St Olaf Non committal
Stanford, CA 1.2x income
Stonehill College, MA 100%, could appeal
Syracuse, NY Case by Case
Trinity College, CT 3x income
Tufts 1.2x income
Tulane University Not sure
Union College, NY 100%, could appeal
Univ of Chicago 2x income
Univ of Denver Case by Case
Univ of Michigan 100%, could appeal
Univ of North Carollina UNC 100%, could appeal
Univ of Penn 1.5 to 2.5 cap income
Univ of Richmond 2x income
Univ of Rochester 3x income, could appeal
USC Univ of So Cal 2x income
Univ of Virginia Don't use
Ursinus, PA 3x income
Vassar, NY 1.5x income
Vanderbilt, TN 2.5x income
Villanova, PA 1.5x income
Wabash College 100%, could appeal
Wake Forest, NC 2x income
Washington & Lee 100%, could appeal
WA Univ Saint Louis Don't use
Wheaton College, MA 100%, could appeal
Wellesley, MA 1.2x income
Wesleyan, CT 2.4x income
Whitman, WA Don't use
Willimans, MA 100%, could appeal
Worcester Polytech Insti Looks like 100% per NPC
Yale, CT 2.4x income
Thank you so much HearToLearn! I really appreciate you sharing such helpful information! I will check each NPC to see if there are any updates. This list gives me a good idea about how many schools look at HE in their need-based scholarship decisions. thanks again!

Topic Author
blackwhisker
Posts: 258
Joined: Thu Jul 05, 2018 9:32 pm

Re: Capital gain and need-based college scholarship

Post by blackwhisker » Mon Jan 13, 2020 3:21 pm

random_walker_77 wrote:
Mon Jan 13, 2020 12:28 am
One caution: there's a world of difference between need-based financial aid and a need-based scholarship. From my limited experience, an awful lot of financial aid is simply in the form of student loans and on-campus jobs. How'd you feel to shift things around so that the calculations show a financial need, only to find that this just qualifies you for student loans?

There are also need-based grants, but it sounds like it's hard to qualify for Pell Grants if your income is over 40-50K/yr:
https://money.howstuffworks.com/persona ... -grant.htm
https://www.debt.org/students/scholarsh ... ps-grants/

There's also need-based scholarships (equivalent to discounted tuition) from private universities. I'm not sure how much this applies for public universities.
https://www.cappex.com/articles/money/s ... holarships
Thank you random_walker_77! good point! I will read the articles you sent.

Jack FFR1846
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Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Capital gain and need-based college scholarship

Post by Jack FFR1846 » Mon Jan 13, 2020 3:24 pm

There can be other forms to fill out as well. We have a son at WPI (next to last on list). First year, they require FAFSA and CSS. After that, they only require their own form which asks pretty much everything on CSS and then some.

We have friends with a son who went to another private college and tell us they had to fill out CSS and iDot. I know nothing about iDot.
Bogle: Smart Beta is stupid

Topic Author
blackwhisker
Posts: 258
Joined: Thu Jul 05, 2018 9:32 pm

Re: Capital gain and need-based college scholarship

Post by blackwhisker » Mon Jan 13, 2020 3:32 pm

jj45 wrote:
Mon Jan 13, 2020 9:35 am
Any gains above the exclusion amount will count as income for the year in question. Financial aid is filed for each year a student enrolls and looks at income in the "prior-prior" year, so for a student enrolling in year X, or the academic year fall X, spring X+1, income for tax year X-2 is reported. So if you are filling out the forms now for a student enrolling in Fall 2020, income in tax year 2018 is reported.

If you have significant gains above the exclusion, they count as income and will be assessed heavily. FAFSA expects you to contribute 47% of the "adjusted available income" above $34.5K. The detailed formula for 2020-2021 is at https://ifap.ed.gov/efcformulaguide/att ... aGuide.pdf

You also have to report your assets as of the day you file the forms. If you sell your home, have $500K in a savings account waiting to put into your next home, and file for financial aid, they will see the $500K and add 12% to your efc. They won't care that you need the money to buy your next house.

So coordinating the timing of the sale, purchase, filing forms, and years of enrollment can make a big difference.

High-end elite private schools, the ones that are rich enough to give need based scholarships rather than loans, use CSS. They are not restricted to follow the rules of FAFSA, their process is not as open as FAFSA, and every school is different. As others have posted, home equity is assessed at various amounts. They also get copies of your tax returns, and it is not impossible they would dig through the returns, see the home sale and, even if it is under the exclusion, decide you can afford to pay more.

Because of the "prior-prior" year rule, I often see people say you can have high income in the student's later years and it won't affect aid. This is true for FAFSA but I wonder about CSS. CSS asks for income in the prior year and current year. Although these are not the target year, CSS does ask for this information and I have not seen anything definitive about how they use it. They may see a large jump in income in the prior or current years and reduce your need.
Thank for jj45!! I really appreciate your detailed explanation! I feel I understand the process a lot better now because of your reply. Thanks again for taking the time to type up such a helpful reply.

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LilyFleur
Posts: 847
Joined: Fri Mar 02, 2018 10:36 pm

Re: Capital gain and need-based college scholarship

Post by LilyFleur » Mon Jan 13, 2020 8:08 pm

blackwhisker wrote:
Sat Jan 11, 2020 11:19 pm
LilyFleur wrote:
Sat Jan 11, 2020 3:44 am
blackwhisker wrote:
Fri Jan 10, 2020 7:19 pm
Nate79 wrote:
Fri Jan 10, 2020 6:18 pm
If you have gains greater than $500k MFJ you will pay capital gains and it seems it might be true in your case. I don't know the impact on need based aid but are you sure someone who can afford a 1.7m house will get need based aid?
Thanks for the reply Nate79. yes that's a logical question to ask.

I agree someone who can afford a 1.7m house might not need financial aid. I didn't pay 1.7m for my house. It was a lot cheaper when I bought it 2 decades ago.

I am pretty sure my kid is eligible for need based aid based on my income(single income household), if I don't sell my house and trigger a capital gain. As far as I understand, colleges don't expect people to sell their primary residence to pay for their kids tuition. Correct me if I am wrong.
Can you tell us what state you live in? Financial aid varies according to the state.
Thanks LilyFleur. I am in CA. My kid will apply for colleges in CA and other states as well.
Here is an explanation of the types of Cal Grants that are available:
https://www.csac.ca.gov/post/what-cal-grant-award

Here are the income and asset ceilings for Cal Grants for the 2020/21 school year:
https://www.csac.ca.gov/post/cal-grant- ... t-ceilings

My child just graduated from UC Berkeley. It was definitely a best-bang-for-the-buck education (and he loved it there). At the time that I was filling out FAFSA, house equity and tax-deferred retirement savings were not considered as available money for college costs.

You can google FAFSA strategies, and you are starting early, so that is good. Remember to consider that your property taxes will increase quite a bit should you buy a 1.7 million house at this time. Those $s could pay for textbooks and a good chunk of living expenses for your college student--if you should choose to stay in your current house. You don't say in your original post if your current home is paid for or not. If you have extra cash right now, it might be good to put the cash into your current home to pay down the mortgage. When my son was in college, my little home was paid for. I took out a HELOC, just in case, and I ended up using it to help pay for his housing one year. (He had already taken his $5,000 federal interest-deferred loan for that year, and my HELOC had a lower interest rate than the Parent-Plus loans.) The HELOC is a nice option if you don't have a lot of extra cash (and, you really don't want a lot of extra cash in taxable accounts at the time that you fill out the FAFSA because that will push up your EFC--estimated family contribution).

A top GPA is essential if your child is aiming for the UCs. It is difficult to get into the UCs, and the work is challenging once they get in. You can google the average incoming freshman GPAs for the different schools.

If your income is below the Cal Grant ceiling (which will cover tuition), and you have enough money to help them on living expenses (or if they can live at home), your child could graduate from college close to debt-free with a top-notch education.

I also have a child at a Cal State university. This child is a commuter student. This child has thoroughly enjoyed the professors, and likes the fact that Cal State courses are mostly taught by actual professors, unlike the UCs, where many sections are taught by graduate students, and the quality of that can be patchy.

Topic Author
blackwhisker
Posts: 258
Joined: Thu Jul 05, 2018 9:32 pm

Re: Capital gain and need-based college scholarship

Post by blackwhisker » Tue Jan 14, 2020 2:53 pm

LilyFleur wrote:
Mon Jan 13, 2020 8:08 pm
blackwhisker wrote:
Sat Jan 11, 2020 11:19 pm
LilyFleur wrote:
Sat Jan 11, 2020 3:44 am
blackwhisker wrote:
Fri Jan 10, 2020 7:19 pm
Nate79 wrote:
Fri Jan 10, 2020 6:18 pm
If you have gains greater than $500k MFJ you will pay capital gains and it seems it might be true in your case. I don't know the impact on need based aid but are you sure someone who can afford a 1.7m house will get need based aid?
Thanks for the reply Nate79. yes that's a logical question to ask.

I agree someone who can afford a 1.7m house might not need financial aid. I didn't pay 1.7m for my house. It was a lot cheaper when I bought it 2 decades ago.

I am pretty sure my kid is eligible for need based aid based on my income(single income household), if I don't sell my house and trigger a capital gain. As far as I understand, colleges don't expect people to sell their primary residence to pay for their kids tuition. Correct me if I am wrong.
Can you tell us what state you live in? Financial aid varies according to the state.
Thanks LilyFleur. I am in CA. My kid will apply for colleges in CA and other states as well.
Here is an explanation of the types of Cal Grants that are available:
https://www.csac.ca.gov/post/what-cal-grant-award

Here are the income and asset ceilings for Cal Grants for the 2020/21 school year:
https://www.csac.ca.gov/post/cal-grant- ... t-ceilings

My child just graduated from UC Berkeley. It was definitely a best-bang-for-the-buck education (and he loved it there). At the time that I was filling out FAFSA, house equity and tax-deferred retirement savings were not considered as available money for college costs.

You can google FAFSA strategies, and you are starting early, so that is good. Remember to consider that your property taxes will increase quite a bit should you buy a 1.7 million house at this time. Those $s could pay for textbooks and a good chunk of living expenses for your college student--if you should choose to stay in your current house. You don't say in your original post if your current home is paid for or not. If you have extra cash right now, it might be good to put the cash into your current home to pay down the mortgage. When my son was in college, my little home was paid for. I took out a HELOC, just in case, and I ended up using it to help pay for his housing one year. (He had already taken his $5,000 federal interest-deferred loan for that year, and my HELOC had a lower interest rate than the Parent-Plus loans.) The HELOC is a nice option if you don't have a lot of extra cash (and, you really don't want a lot of extra cash in taxable accounts at the time that you fill out the FAFSA because that will push up your EFC--estimated family contribution).

A top GPA is essential if your child is aiming for the UCs. It is difficult to get into the UCs, and the work is challenging once they get in. You can google the average incoming freshman GPAs for the different schools.

If your income is below the Cal Grant ceiling (which will cover tuition), and you have enough money to help them on living expenses (or if they can live at home), your child could graduate from college close to debt-free with a top-notch education.

I also have a child at a Cal State university. This child is a commuter student. This child has thoroughly enjoyed the professors, and likes the fact that Cal State courses are mostly taught by actual professors, unlike the UCs, where many sections are taught by graduate students, and the quality of that can be patchy.
Thank you so much for the information and advice LilyFleur!! You packed so much helpful and valuable information in the reply! When I was reading your reply, I felt it was like listening to a good friend talking to me and helping me! Thanks for sharing the information and your personal experience.

To answer your question, my house is not paid for yet. I do have a mortgage. Thank you for the advice about not keeping too much cash in taxable account. The HELOC option also sounds good. Also, thanks for the reminder about property tax.

Thanks for the links about Cal Grants! I didn't know about it until you told me.

Congratulations on your child's completion at Berkeley! I am also happy to hear your other child enjoys his/her experience at a Cal State university. Thank you for explaining the teaching difference at the UC vs Cal State.

I learned so much from your reply! Again, thank you so much LilyFleur! It really warms my heart there are kind people like you in the bogleheads community.

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