Does 529 really hurt the chance to get financial aid?

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jxs705
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Does 529 really hurt the chance to get financial aid?

Post by jxs705 » Tue Apr 22, 2014 8:08 am

I had an impression that if your AGI is above a certain level, you won't get any need-based financial aid for college. But I was just told that this is wrong and even if your AGI is above 200k, you can still get some financial aid. So can someone tell me how do they evaluate the eligibility for need-based financial aid in general? How do I know whether the money in 529 would reduce the financial aid? thanks.

sscritic
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Tue Apr 22, 2014 8:40 am

As I understand it, financial aid looks at your income and assets. If you have no income but $10 million in the bank (or 529), you probably won't get much. You will certainly get less than someone with no income and no money in the bank.

If you have the time and like doing taxes, here is the full-blown formula for your contribution for a single year.
http://www.ifap.ed.gov/efcformulaguide/ ... de1415.pdf

Here is a quicky:
http://www.finaid.org/calculators/quickefc.phtml

and something in between:
http://www.finaid.org/calculators/finaidestimate.phtml

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jxs705
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Re: Does 529 really hurt the chance to get financial aid?

Post by jxs705 » Tue Apr 22, 2014 8:47 am

Thanks a lot. A simple question is that if the same amount of money is saved in the bank or 529 account, do they have the SAME impact on the financial aid?
sscritic wrote:As I understand it, financial aid looks at your income and assets. If you have no income but $10 million in the bank (or 529), you probably won't get much. You will certainly get less than someone with no income and no money in the bank.

If you have the time and like doing taxes, here is the full-blown formula for your contribution for a single year.
http://www.ifap.ed.gov/efcformulaguide/ ... de1415.pdf

Here is a quicky:
http://www.finaid.org/calculators/quickefc.phtml

and something in between:
http://www.finaid.org/calculators/finaidestimate.phtml

[Google is your friend, even if she spies on you]

livesoft
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Re: Does 529 really hurt the chance to get financial aid?

Post by livesoft » Tue Apr 22, 2014 8:51 am

The same amount of money saved in a 529 plan or a bank account owned by parents has the same impact on financial aid.
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livesoft
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Re: Does 529 really hurt the chance to get financial aid?

Post by livesoft » Tue Apr 22, 2014 8:55 am

The $200k AGI statement should be investigated. Clearly, a family with that kind of income should have resources to pay for college without financial aid for at least one child. I suspect folks in that category with 4 kids in college at the same time could get financial aid.
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centrifuge41
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Re: Does 529 really hurt the chance to get financial aid?

Post by centrifuge41 » Tue Apr 22, 2014 8:58 am

Correct, a parental 529 counts as a parental asset (exactly the same as $ in the bank). Thus, it'd lead to an extra 5.6% of EFC a year. Over the course of 4 years, that's ~22% gone!

Now, if it's a relative's 529 that they are spending on behalf of the student, then, using it freshman, sophomore, or junior years could affect financial aid by more than 5.6%. It'd be best to only spend the relative's 529 on a student's final year of college.

sscritic
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Tue Apr 22, 2014 9:00 am

You have to use the formula: savings go on line 88, mutual funds and 529s go on line 89.
88. As of today, what is your parents’ total current balance of cash, savings and checking accounts?
89. As of today, what is the net worth of your parents’ investments, including real estate? Don’t include the home in which
your parents live. Net worth means current value minus debt. See Notes page 2.
Since I have never filled out a FAFSA, I have never read the actual formula in the link I gave you. If I were to fill out a FAFSA, I would read it. The choice is up to you. They are your kids, and it's your money.

JW-Retired
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Re: Does 529 really hurt the chance to get financial aid?

Post by JW-Retired » Tue Apr 22, 2014 9:01 am

This may duplicate sscritic's linked information but FWIW I scanned this simplified college cost formula from an article in the Forbes 2014 Investment Guide. It should focus you on the key aspects.
http://imageshack.com/a/img836/9301/stwo.gif
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sscritic
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Tue Apr 22, 2014 9:10 am

In the official formula, these get added together along with some other items before being multiplied by a factor:
16. Cash,savings&checking(FAFSA/SAR#90)
17. Net worth of investments** (FAFSA/SAR #91)
There is a line number mismatch as the formula is for 2014-2015 and the FAFSA I quoted is from 2013-2014.

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Jack FFR1846
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Re: Does 529 really hurt the chance to get financial aid?

Post by Jack FFR1846 » Tue Apr 22, 2014 9:29 am

You can go to any college site and do a simulated FAFSA. My son is going to Wentworth Institute in the fall and I've used their calculator many times to A -> B many scenarios.

Remember also that LOANS are the majority (vast majority) of what is considered financial aid. Although our "need" was calculated at -$10k (minus $10k), we qualified for $5250 in non-subsidised stafford loans at under 4%.

Depending on the college, a 529 may or may not be counted if owned by a grandparent. But....as soon as you use any of the 529 money, it then becomes a student income for the year used and will be looked at for subsequent years. Parental 529s are assets.
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markcoop
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Re: Does 529 really hurt the chance to get financial aid?

Post by markcoop » Tue Apr 22, 2014 9:54 am

Jack FFR1846 wrote:You can go to any college site and do a simulated FAFSA. My son is going to Wentworth Institute in the fall and I've used their calculator many times to A -> B many scenarios.

Remember also that LOANS are the majority (vast majority) of what is considered financial aid. Although our "need" was calculated at -$10k (minus $10k), we qualified for $5250 in non-subsidised stafford loans at under 4%.

Depending on the college, a 529 may or may not be counted if owned by a grandparent. But....as soon as you use any of the 529 money, it then becomes a student income for the year used and will be looked at for subsequent years. Parental 529s are assets.
I'd be curious to understand how it would work if your need was say $10K. Would you still receive just loans or would you then get needs based aid either from the gov't or the school?
Mark

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Re: Does 529 really hurt the chance to get financial aid?

Post by jaj2276 » Tue Apr 22, 2014 9:59 am

JW Nearly Retired wrote:This may duplicate sscritic's linked information but FWIW I scanned this simplified college cost formula from an article in the Forbes 2014 Investment Guide. It should focus you on the key aspects.
http://imageshack.com/a/img836/9301/stwo.gif
JW
Wow, that's a great concise and clear summary of what you're expected to pay for college. Whether I agree with the formula (I personally don't believe they should include home equity... and home equity based on who's valuation?), this should be the opening page for any guide on college financial aid. Even if the parent's don't read another page of said guide, they'll at least be in the ballpark of what they're going to have to pay.

sscritic
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Tue Apr 22, 2014 10:03 am

Concise, clear, and wrong. That guide does not agree with the FAFSA
do not include the home you live in
Investments do not include the home you live in
Don’t include the home you live in.
Don’t include the home in which your parents live.
How many different ways can they say not to include your home?

If you want facts, go to a primary source. (Research 101)

freddie
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Re: Does 529 really hurt the chance to get financial aid?

Post by freddie » Tue Apr 22, 2014 10:30 am

One kid at Stanford (60k/yr) 200k/yr will get your financial aid if you have pretty much zero assets. Realistically you need 2 students in 50k+ universities to get anything.

I find it depressing how excited parents are to burden their kids with loans.


Will 529s hurt financial aid? Clearly. Having 100k in one will drop your package by ~20k over 4 years. Of course having one means you will leave college with 100k
livesoft wrote:The $200k AGI statement should be investigated. Clearly, a family with that kind of income should have resources to pay for college without financial aid for at least one child. I suspect folks in that category with 4 kids in college at the same time could get financial aid.

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Re: Does 529 really hurt the chance to get financial aid?

Post by JW-Retired » Tue Apr 22, 2014 10:41 am

sscritic wrote:Concise, clear, and wrong. That guide does not agree with the FAFSA
do not include the home you live in
Investments do not include the home you live in
Don’t include the home you live in.
Don’t include the home in which your parents live.
How many different ways can they say not to include your home?

If you want facts, go to a primary source. (Research 101)
I have not researched it thoroughly but I don't believe there is a "primary source". My understanding is colleges don't have to limit themselves only to FAFSA data. They can throw in their own individual tweaks to how they want to determine aid. This formula is a "curve fit" to hundreds of higher end college's complicated methods.

Maybe somebody else here who has sent their kids off to college lately can weigh in on the home equity question.
JW
ps: google says the "CSS/Financial Aid PROFILE" does ask about home equity. this is used by Harvard, Stanford, Yale, Cal Tech, and 400 others.
https://profileonline.collegeboard.org/ ... ervlet.srv

pps: This says the home equity number is capped at 1.2 x AGI.
http://www.forbes.com/sites/troyonink/2 ... tribution/
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livesoft
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Re: Does 529 really hurt the chance to get financial aid?

Post by livesoft » Tue Apr 22, 2014 10:45 am

Here is a NYTimes article on college financial aid. Some universities include home equity and some don't. The FAFSA does not include home equity.

http://www.nytimes.com/2014/04/13/educa ... hould.html
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Tue Apr 22, 2014 10:48 am

But there are differences in how colleges define assets. Cornell, Stanford, Columbia and Duke, for example, take into account home equity. Harvard and Princeton do not, and neither does the federal formula.
Which is why people with huge mortgages and little equity send their kids to Stanford, while those with paid off $3 million homes send their kids to Harvard.

This is essential information that should go into every "pay off my mortgage?" thread. Tell me where you want your kid to go to college, and I will tell you if you should pay off your mortgage or not.

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Re: Does 529 really hurt the chance to get financial aid?

Post by Jack FFR1846 » Tue Apr 22, 2014 10:54 am

JW Nearly Retired wrote: I have not researched it thoroughly but I don't believe there is a "primary source". My understanding is colleges don't have to limit themselves only to FAFSA data. They can throw in their own individual tweaks to how they want to determine aid. This formula is a "curve fit" to hundreds of higher end college's complicated methods.

Maybe somebody else here who has sent their kids off to college lately can weigh in on the home equity question.
JW

There are FAFSA-only schools and there are CSS schools. CSS goes beyond FAFSA. Schools can choose to go beyond CSS, if they wish. My son is going to start in a FAFSA-only school. At a college finance seminar (whole life salesman), I asked the pointed question after hearing and calculating as follows: "If I want more aid, I could go down the street to the Ferrari dealer and use all of my available funds to buy a new car, right?" The answer was that yes, that would be a way to "hide" assets for FAFSA-only schools. I am not convinced that this is a bad way compared to the whole life policy being proposed.

CSS and beyond schools will ask for what cars you own, what other valuables you own, what grandparent 529's might be available. There are listings of CSS schools easily found searching google. Don't assume private schools are not FAFSA-only. My son's school is private and FAFSA-only. He also received a good merit scholarship based on his high school grades.
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sscritic
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Tue Apr 22, 2014 10:58 am

JW Nearly Retired wrote: ps: google says the "CSS/Financial Aid PROFILE" does ask about home equity. this is used by Harvard, Stanford, Yale, Cal Tech, and 400 others.
https://profileonline.collegeboard.org/ ... ervlet.srv
The NY Times article says Harvard does not.

It is possible they have you fill out the form, but don't use all the data in their formula, i.e., they know your home equity but count it for nothing. There may be other aspects of the CSS form they are looking at.
The following colleges, universities, and scholarship programs use PROFILE, Noncustodial PROFILE, and/or IDOC as part of their financial aid process for some or all of their financial aid applicants.

livesoft
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Re: Does 529 really hurt the chance to get financial aid?

Post by livesoft » Tue Apr 22, 2014 11:02 am

If I was a financial aid administrator at a college, I would be on the lookout for folks trying to pull the wool over my eyes.
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amitb00
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Re: Does 529 really hurt the chance to get financial aid?

Post by amitb00 » Tue Apr 22, 2014 11:05 am

I get it that if one has high income or has assets, his kid's aid will reduce drastically. Having 529 for the kid is counted like asset and so having assets in 529 or other vehicles is similar in nature.
What kind of aid we are looking at here? Is it grant or loan? By grant I mean some scholarship which does not have to be paid. I hear many times that a kid got full ride to a school and folks congratulate the kid. Is that different from the aid we are talking about? Does academic achievement of kid also plays a role or it does not matter how good the kid is? I say this because some folks told me their kid was National Merit Scholar and got a full scholarship at some schools.

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Re: Does 529 really hurt the chance to get financial aid?

Post by mlipps » Tue Apr 22, 2014 11:19 am

amitb00 wrote:I get it that if one has high income or has assets, his kid's aid will reduce drastically. Having 529 for the kid is counted like asset and so having assets in 529 or other vehicles is similar in nature.
What kind of aid we are looking at here? Is it grant or loan? By grant I mean some scholarship which does not have to be paid. I hear many times that a kid got full ride to a school and folks congratulate the kid. Is that different from the aid we are talking about? Does academic achievement of kid also plays a role or it does not matter how good the kid is? I say this because some folks told me their kid was National Merit Scholar and got a full scholarship at some schools.
There are two things at play.

First, is the EFC given by the FAFSA. This will determine eligibility for Federal Financial aid, including Pell Grants (and connected grants, like the American Opportunity Grant, STEM Grants, etc.), Perkins Loans, subsidized Stafford Loans, and federal work-study. Across the board, from school to school, this funding will be fairly similar. (I say fairly because I believe schools are given a pot of money for Pell Grants & Perkins loans & can distribute it with some degree of discretion).

To get the Pell & Perkins loans, you must have quite high need. For example, my parents made around $45k/year when I was in school from 2007-2011 & I qualified for a Perkins loan only the first year, and Pell 2 out of 4 years. They have reportable assets of only about $10k.

In theory, the school should try to make up the difference between your EFC and the COA (cost of attendance) through a combination of federal & institutional aid.

Second, is school aid. This varies so much by school that one cannot make generalizations. It can be in the form of scholarships (which imply some degree of merit) or grants (which imply some degree of need). Most Ivy's and similar do not give merit-based aid because all of their students are brilliant and they can't discern.

Truthfully, how much you will get at most schools depends on how badly the school wants you to come there. For example, I received a merit scholarship of $13k annually, along with an institutional grant of $10k annually, which brought my parents share very close to the EFC. Many people who attend my university who did not do as well academically as I did in high school did not come close to having their full need met as I did.

The best schools are those that guarantee to meet your full EFC. These schools are those with large endowments. The very best schools promise to meet your full EFC without loans. These are few and far between, but slowly growing.

Finally, you must consider that, as others have said, some schools use the CSS Profile in addition to the FAFSA to determine your need. As others have said, the major difference is that the Profile takes into account home equity while FAFSA does not. However, the FAFSA still determines federal aid which is awarded; the Profile is used for any need based institutional aid.

Hope that helps.

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Re: Does 529 really hurt the chance to get financial aid?

Post by freebeer » Tue Apr 22, 2014 11:22 am

sscritic wrote:
But there are differences in how colleges define assets. Cornell, Stanford, Columbia and Duke, for example, take into account home equity. Harvard and Princeton do not, and neither does the federal formula.
Which is why people with huge mortgages and little equity send their kids to Stanford, while those with paid off $3 million homes send their kids to Harvard.

This is essential information that should go into every "pay off my mortgage?" thread. Tell me where you want your kid to go to college, and I will tell you if you should pay off your mortgage or not.
True, but there's a lot more to it especially including if & how other assets (both taxable and potentially even retirement funds) are considered. And taxes are another consideration. In our area a $3M home would incur about $30K in property taxes so it would seem a relatively self-defeating to pour one's taxable assets into a $3M house in attempt to secure college financial aid, not to mention the non-Bogleheadian lack of diversification that would result from such a strategy. Well, for someone with college-bound triplets... maybe it would make sense.

The bottom line is that it's all over the map between institutions and when merit scholarships are factored in it's even more varied. Our decision was to "stay the course" of our financial plan and just let the chips fall where they may (with near-certain result being zero eligibility for financial aid under any formula), with only consideration being to nudge kids towards applying to more rather than fewer institutions.

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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Tue Apr 22, 2014 11:30 am

freebeer wrote:
sscritic wrote: This is essential information that should go into every "pay off my mortgage?" thread. Tell me where you want your kid to go to college, and I will tell you if you should pay off your mortgage or not.
True, but there's a lot more to it especially including if & how other assets (both taxable and potentially even retirement funds) are considered. And taxes are another consideration. In our area a $3M home would incur about $30K in property taxes so it would seem a relatively self-defeating to pour one's taxable assets into a $3M house in attempt to secure college financial aid, not to mention the non-Bogleheadian lack of diversification that would result from such a strategy.
I didn't realize that property taxes were based on home equity. I would have thought that the property taxes on a $3 million home were the same whether you had a big mortgage or no mortgage at all. I guess property taxes where you live don't work like property taxes where I live.

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Re: Does 529 really hurt the chance to get financial aid?

Post by livesoft » Tue Apr 22, 2014 11:36 am

amitb00 wrote: I say this because some folks told me their kid was National Merit Scholar and got a full scholarship at some schools.
I have some folks tell me their kid was National Merit Scholar and got $2,000. Also one needs to know that National Merit Scholarships are often sponsored by Mega-Corps and an additional selection criteria is that the student is the child of an employee. That is, one's child only competes with the children of other employees.
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Tue Apr 22, 2014 11:44 am

livesoft wrote: I have some folks tell me their kid was National Merit Scholar and got $2,000. Also one needs to know that National Merit Scholarships are often sponsored by Mega-Corps and an additional selection criteria is that the student is the child of an employee. That is, one's child only competes with the children of other employees.
Back in the Dark Ages, one took a separate test apart from the PSAT to qualify. The separate test started in 1958. In 1963 (still the Dark Ages) college sponsored merit scholarships were introduced. The PSAT wasn't used until 1971 (beginning of the Renaissance).
http://www.nationalmerit.org/hc/vitalfacts.php

My memory is that winning and the amount were separate items, the amount being based on need, but that may not have been true in the Dark Ages; it may be a product of the Enlightenment.

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Re: Does 529 really hurt the chance to get financial aid?

Post by Grt2bOutdoors » Tue Apr 22, 2014 12:25 pm

jxs705 wrote:I had an impression that if your AGI is above a certain level, you won't get any need-based financial aid for college. But I was just told that this is wrong and even if your AGI is above 200k, you can still get some financial aid. So can someone tell me how do they evaluate the eligibility for need-based financial aid in general? How do I know whether the money in 529 would reduce the financial aid? thanks.
Financial aid = loan.
Grant = free ride you don't have to pay back this money.
EFC = minimum expected family contribution

We've come to the conclusion, if you are working, not poverty level, not rich, have some level of assets or no assets you will be given financial aid unless Doogie Howser is your child. My neighbors are not wealthy by any stretch of the imagination - sent their kid to state school because FAFSA said they had the money to pay - they had no retirement plan available, so used a taxable account to save for retirement - FAFSA said they were rich, CSS said between taxable account, home equity and the Timex watch on their wrists - they were wealthy. State school gave the kid a grant and very low EFC- grant=free ride for 4 years if academic records held, parents were not bankrupted.
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Re: Does 529 really hurt the chance to get financial aid?

Post by Grt2bOutdoors » Tue Apr 22, 2014 12:27 pm

livesoft wrote:
amitb00 wrote: I say this because some folks told me their kid was National Merit Scholar and got a full scholarship at some schools.
I have some folks tell me their kid was National Merit Scholar and got $2,000. Also one needs to know that National Merit Scholarships are often sponsored by Mega-Corps and an additional selection criteria is that the student is the child of an employee. That is, one's child only competes with the children of other employees.
It's up to $2,000! Wow!, back in the day it was only $1,000. Now the kids can purchase new books as opposed to "used" from the college bookstore.
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Re: Does 529 really hurt the chance to get financial aid?

Post by Grt2bOutdoors » Tue Apr 22, 2014 12:32 pm

livesoft wrote:If I was a financial aid administrator at a college, I would be on the lookout for folks trying to pull the wool over my eyes.
Hate to break it to you - college administrators are not the sharpest tools in the shed. They're are plenty of scam artists pulling the wool over their eyes and hence, everyone else is paying the freight for someone else's kid. What else is new? Someone I know, owns a business claims the business isn't doing well - (cash business), paid off his home mortgage (now no cash - on the advice of his accountant), showed on his income tax return he only makes 14K a year (his property taxes are 10K a year!)- so now considered poverty level - kid is very smart - got a free ride (all expenses paid) to an Ivy. Isolated case? maybe, but I have a feeling this is done more often than we think.
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Re: Does 529 really hurt the chance to get financial aid?

Post by jxs705 » Tue Apr 22, 2014 2:40 pm

Thanks all for your answers. However, I got more confused now after reading too much on this. One question, dose paying off the mortgage on the primary home help getting the financial aid assume I have only one house? should I pay off the mortgage before my kid goes to college if I have enough money to pay off the mortgage? Thanks.

amitb00
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Re: Does 529 really hurt the chance to get financial aid?

Post by amitb00 » Tue Apr 22, 2014 4:31 pm

Looks like retirement funds are viewed most favourably, then it is equity in home and then everything else. 529 counts as everything else. You are expected to pay 5.6% of your assets and 46% of your income above a certain level (as a ballpark). So paying mortgage will help in most cases and not harm. Some schools will look at equity in your home too and in those schools, it will not help.
If you are contributing to retirement (IRA or 401Ks), that income will be considered as income for 46% since schools expect you to first take care of kid's tuition and then take care of your own retirement. So saving for retirement in the current year will not help but assets in retirement account will not count as you are not expected to withdraw from there.
This is my understanding after reading this thread.

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Re: Does 529 really hurt the chance to get financial aid?

Post by livesoft » Tue Apr 22, 2014 4:33 pm

jxs705 wrote:Thanks all for your answers. However, I got more confused now after reading too much on this. One question, dose paying off the mortgage on the primary home help getting the financial aid assume I have only one house? should I pay off the mortgage before my kid goes to college if I have enough money to pay off the mortgage? Thanks.
Yes and no. If you read the linked NYTimes article, you will read that some places expect families to take out loans on their homes to pay for college.
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Re: Does 529 really hurt the chance to get financial aid?

Post by livesoft » Tue Apr 22, 2014 4:37 pm

Grt2bOutdoors wrote:…. so now considered poverty level - kid is very smart - got a free ride (all expenses paid) to an Ivy. Isolated case? maybe, but I have a feeling this is done more often than we think.
Perhaps, but maybe it had nothing to do with financial aid and poverty. My niece got an all-expenses paid college education at an Ivy and her father is a physician. But be careful about what people tell you as well. Next time, say emphatically, "I just don't believe you. Show me the award letters."
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Re: Does 529 really hurt the chance to get financial aid?

Post by freebeer » Tue Apr 22, 2014 11:44 pm

sscritic wrote:
freebeer wrote:
sscritic wrote: This is essential information that should go into every "pay off my mortgage?" thread. Tell me where you want your kid to go to college, and I will tell you if you should pay off your mortgage or not.
True, but there's a lot more to it especially including if & how other assets (both taxable and potentially even retirement funds) are considered. And taxes are another consideration. In our area a $3M home would incur about $30K in property taxes so it would seem a relatively self-defeating to pour one's taxable assets into a $3M house in attempt to secure college financial aid, not to mention the non-Bogleheadian lack of diversification that would result from such a strategy.
I didn't realize that property taxes were based on home equity. I would have thought that the property taxes on a $3 million home were the same whether you had a big mortgage or no mortgage at all. I guess property taxes where you live don't work like property taxes where I live.
Ha, of course property taxes aren't based on equity (anywhere I'm aware of)... the point was just that if you had $3M in taxable assets you could "hide" them (from some schools) in a $3M home (instead of having a more normal-priced home and investing most of the money in brokerage accounts). I was just pointing out that becoming "house poor" in that way might be a poor financial decision in part based on the increase in taxes from the more expensive home.

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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Wed Apr 23, 2014 12:09 am

The issue was home equity as counting in determining financial aid. I raised the significance of that in deciding to pay off a mortgage or not. The key to paying off a mortgage is that you already own a house that has a mortgage. I was not, and I don't think anyone else was, talking about buying a house.

Now if you want to talk about buying a house in the context of financial aid, you are free to, but buying a house had nothing to do with my post about paying off the mortgage on a house you already own. Thus, I was confused when you thought quoting my statement about paying off a mortgage was an entry point to your separate point about buying a house and its relationship to financial aid.

lhl12
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Re: Does 529 really hurt the chance to get financial aid?

Post by lhl12 » Wed Apr 23, 2014 7:33 am

Is there any difference - for purposes of qualifying for financial aid - between a 529 owned by a parent, a 529 owned by a grandparent, and a 529 owned by an aunt? (Assume in each case that the beneficiary is the same child.)

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Re: Does 529 really hurt the chance to get financial aid?

Post by Grt2bOutdoors » Wed Apr 23, 2014 7:50 am

lhl12 wrote:Is there any difference - for purposes of qualifying for financial aid - between a 529 owned by a parent, a 529 owned by a grandparent, and a 529 owned by an aunt? (Assume in each case that the beneficiary is the same child.)
Yes. If the grandparent or aunt owns the 529 plan and uses it to pay for Janey's first year of college, the school's financial aid office will count that money as being available assets to pay for further schooling in years 2,3 and 4. At least that is my understanding of it. If you use the grandparents 529 plan in year 4, then those assets will not affect financial aid since most kids plan on graduating after the 4th year. If the chld then goes on to graduate school, you could then use those assets for that. A 529 plan owned by the parent is disclosed on FAFSA - 5.64% of those assets are expected to be used for paying school bills each year.
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sscritic
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Wed Apr 23, 2014 7:56 am

Grt2bOutdoors wrote:
lhl12 wrote:Is there any difference - for purposes of qualifying for financial aid - between a 529 owned by a parent, a 529 owned by a grandparent, and a 529 owned by an aunt? (Assume in each case that the beneficiary is the same child.)
Yes. If the grandparent or aunt owns the 529 plan and uses it to pay for Janey's first year of college, the school's financial aid office will count that money as being available assets to pay for further schooling in years 2,3 and 4. At least that is my understanding of it.
I thought the amount paid was counted as income to the child in that year and would go on the next FAFSA. Either way, it counts against the child.

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Re: Does 529 really hurt the chance to get financial aid?

Post by Grt2bOutdoors » Wed Apr 23, 2014 7:59 am

sscritic wrote:
Grt2bOutdoors wrote:
lhl12 wrote:Is there any difference - for purposes of qualifying for financial aid - between a 529 owned by a parent, a 529 owned by a grandparent, and a 529 owned by an aunt? (Assume in each case that the beneficiary is the same child.)
Yes. If the grandparent or aunt owns the 529 plan and uses it to pay for Janey's first year of college, the school's financial aid office will count that money as being available assets to pay for further schooling in years 2,3 and 4. At least that is my understanding of it.
I thought the amount paid was counted as income to the child in that year and would go on the next FAFSA. Either way, it counts against the child.
You're right! It counts as income against the child and would go on the next FAFSA.
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livesoft
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Re: Does money really hurt the chance to get financial aid?

Post by livesoft » Wed Apr 23, 2014 8:29 am

Maybe the thread title should be changed to:

Does money really hurt the chance to get financial aid?
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Re: Does 529 really hurt the chance to get financial aid?

Post by JW-Retired » Wed Apr 23, 2014 8:48 am

Grt2bOutdoors wrote:
sscritic wrote:
Grt2bOutdoors wrote:
lhl12 wrote:Is there any difference - for purposes of qualifying for financial aid - between a 529 owned by a parent, a 529 owned by a grandparent, and a 529 owned by an aunt? (Assume in each case that the beneficiary is the same child.)
Yes. If the grandparent or aunt owns the 529 plan and uses it to pay for Janey's first year of college, the school's financial aid office will count that money as being available assets to pay for further schooling in years 2,3 and 4. At least that is my understanding of it.
I thought the amount paid was counted as income to the child in that year and would go on the next FAFSA. Either way, it counts against the child.
You're right! It counts as income against the child and would go on the next FAFSA.
This is the basis of advice to only put 1 year's tuition in the 529 and spend it all in the grandkid's senior year, not before. It never sees a FAFSA.

Appears to work today but we can only guess how long it might take for financial aid offices to counter this.
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sscritic
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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Wed Apr 23, 2014 9:09 am

JW Nearly Retired wrote: This is the basis of advice to only put 1 year's tuition in the 529 and spend it all in the grandkid's senior year, not before.
Doing so also means you don't waste your money on a dropout (at least one that drops out before the senior year). If only the 529 could be used as a graduation bonus. :)

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Re: Does 529 really hurt the chance to get financial aid?

Post by markcoop » Wed Apr 23, 2014 9:15 am

I never heard about a grandparent's 529 being considered income on the child's following year FAFSA. How about if the grandparent contributes to a grandchild's education cost. For example, grandparent gives a grandchild $5K for education in year 1 of college. Does that $5K become part of the following year's FAFSA equation?
Mark

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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Wed Apr 23, 2014 9:32 am

I have never filled out a FAFSA, but I can read.
Money received, or paid on your behalf, also includes distributions to you (the student beneficiary) from a 529 plan that is owned by someone other than you or your parents (such as your grandparents, aunts, and uncles). You must include these distribution amounts in question 45j.
j. Money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form. This includes money that you received from a parent whose financial information is not reported on this form and that is not part of a legal child support agreement.

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Re: Does 529 really hurt the chance to get financial aid?

Post by markcoop » Wed Apr 23, 2014 9:53 am

sscritic wrote:I have never filled out a FAFSA, but I can read.
Money received, or paid on your behalf, also includes distributions to you (the student beneficiary) from a 529 plan that is owned by someone other than you or your parents (such as your grandparents, aunts, and uncles). You must include these distribution amounts in question 45j.
j. Money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form. This includes money that you received from a parent whose financial information is not reported on this form and that is not part of a legal child support agreement.
Well, I just looked at last year's form (2013-2014) and it did not have all that information you posted. I then looked at this year's form (2014-2015) and it did. So depending upon when one read the form, the information may not have been so clear.

It sounds like it is better for a grandparent to gift the money to the parent and then have the parent pay the bill.
Mark

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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Wed Apr 23, 2014 9:59 am

markcoop wrote: Well, I just looked at last year's form (2013-2014) and it did not have all that information you posted. I then looked at this year's form (2014-2015) and it did. So depending upon when one read the form, the information may not have been so clear.

It sounds like it is better for a grandparent to gift the money to the parent and then have the parent pay the bill.
You are correct, the info wasn't as complete, but the question was there.
j. Money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form.
Perhaps some students were confused about what it meant when someone else paid their tuition. "Was that a bill paid on my behalf?" Duh!

P.S. This has nothing to do with a 529. If grandpa pays the tuition directly following the exception in the gift tax law, it is still a bill paid on behalf of the student.
Last edited by sscritic on Wed Apr 23, 2014 10:07 am, edited 1 time in total.

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Re: Does 529 really hurt the chance to get financial aid?

Post by JW-Retired » Wed Apr 23, 2014 10:07 am

markcoop wrote:I never heard about a grandparent's 529 being considered income on the child's following year FAFSA. How about if the grandparent contributes to a grandchild's education cost. For example, grandparent gives a grandchild $5K for education in year 1 of college. Does that $5K become part of the following year's FAFSA equation?
FAFSA instructions wrote: Money received, or paid on your behalf, also includes distributions to
you (the student beneficiary) from a 529 plan that is owned by someone
other than you or your parents (such as your grandparents, aunts, and
uncles). You must include these distribution amounts in question 45j.
I think that $5k given to grandchild becomes a grandchild's income..... same treatment in or out of the 529.

Also, grandparents can write a big check directly to the college and have the parents include it as part of the tuition payment. But looks like the FAFSA would grab that too as "paid on your behalf" income. However, payments to schools/colleges for education (as well as medical care payments) are excluded from any gift tax so grandparents can pay as much as they want. :oops:
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Re: Does 529 really hurt the chance to get financial aid?

Post by markcoop » Wed Apr 23, 2014 10:15 am

sscritic wrote:Perhaps some students were confused about what it meant when someone else paid their tuition. "Was that a bill paid on my behalf?" Duh!
Well, they did feel the need to clarify. Especially the 529 point. Then you have the point about FAFSA versus other methods used. Then you have the question leading to the point about maybe it's better for a grandparent to gift the money to the parent instead of the grandparent. So even though I could have been more diligent reading America's favorite FAFSA form before asking the question, I do believe that there's no such thing as a stupid question.
Mark

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Re: Does 529 really hurt the chance to get financial aid?

Post by sscritic » Wed Apr 23, 2014 10:19 am

markcoop wrote:
sscritic wrote:Perhaps some students were confused about what it meant when someone else paid their tuition. "Was that a bill paid on my behalf?" Duh!
Well, they did feel the need to clarify. Especially the 529 point. Then you have the point about FAFSA versus other methods used. Then you have the question leading to the point about maybe it's better for a grandparent to gift the money to the parent instead of the grandparent. So even though I could have been more diligent reading America's favorite FAFSA form before asking the question, I do believe that there's no such thing as a stupid question.
No one said it was a stupid question. However, as you discovered, the answer could be found by reading the form. One was clearer than the other, but to my mind the answer was there in both versions. As I mentioned, I have never filled out the form, but I read it because you asked the question. If I had thought your question was stupid, I wouldn't have done the reading required to get the answer.

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Re: Does 529 really hurt the chance to get financial aid?

Post by markcoop » Wed Apr 23, 2014 10:28 am

sscritic wrote:No one said it was a stupid question. However, as you discovered, the answer could be found by reading the form. One was clearer than the other, but to my mind the answer was there in both versions. As I mentioned, I have never filled out the form, but I read it because you asked the question. If I had thought your question was stupid, I wouldn't have done the reading required to get the answer.
Well, then thanks for looking it up. Personally, I have filled out the form once, but that question did not make an impression on me because it was 0 in our case (at least for this year). I'm personally still trying to figure out whether it's worth it to use an unsubsidized Stafford loan versus 529 money for child 1 when I have no idea how much money children 2 and 3 are going to need. But that's really an issue for another thread.
Mark

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