10 Year Old Cars and IRAs: will I even get any aid???

Paying for College
1

<p>This is my first post; I have been following many of the discussions here and wish to ask some of you more experienced folks about my situation and financial aid.</p>

<p>First off, I am impressed that some of you are able to get 10 years of use out of your cars; I live in a rural area and have to drive far to get most places, so after 3 years, they tend to have 100K on the odometers.</p>

<p>But I digress.</p>

<p>Can some of you look at my situation and suggest financial aid strategies..??</p>

<p>My son will be applying to colleges next year. He currently attends a prep school that has 100% college acceptance to 4 year colleges, so I am not worried that he won't get into college, but I am concerned, like many of you, of the cost.</p>

<p>Stats:</p>

<p>single parent age 52 (father deceased)
annual income: 37K or 22K (see note)
note: this includes my son's SSA benefit which will stop the month of his high school graduation; his SSA benefit is about 15K a year.
Family assets:
house paid for -- it cost 150K a decade ago and the market value is probably 400K in today's climate
IRA -- 20K (my job does not offer a 401K)
Savings and CDs: $300000
Debt: a $7500 student loan left over from my graduate studies; nothing else</p>

<p>We do not have any other properties or assets other than one car worth about 12K. We do not have family or friends who are able to contribute to education costs. Our major annual expense is about $6000 in health insurance and medical expenses. </p>

<p>It would be difficult for me to earn more money due to the area in which we live, my area of expertise, and my age.</p>

<p>ANY comments or advice would be MOST appreciated.</p>

2

<p>Much of this depends on whose name the CD and savings are in, if they are in your name expect the FAFSA people to take 5% per year ($15K) first year. If the savings are in the child's name FAFSA will take 20% ($60K) first year. This scenario does not take into account any other assets. Based on the info you provided I would not expect much in the way of aide.</p>

3

<p>Have your tried one of those expected family contribution calculators? There is a decent one on the CSS Profile site. There is one on the Princeton Review site, I believe, and I think the FAFSA will give you an EFC projection as well. Most calculators (except the FAFSA one) perform an "institutional" EFC calculation, i.e., one that is supposed to be more like the CSS/private school calculation than the FAFSA one. I am NO expert on this, but I recall that the CSS Profile states that they factor in some few aspects of your financial picture, other than income (e.g. certain assets, not others), whereas the FAFSA may not. They don't really tell you how they come up with the EFC, but my estimated EFC from these calculators was pretty close to the "real" one. Since you still have time, is there any way that you can get some general, as well as college-related, financial planning advice before the fall? Again, this is NOT my field, but IMHO, $20K is not enough for retirement at your age, and you need more of your total assets clearly designated for your retirement. I think (again, check on this) that the EFC calculation realizes parents need to save some money for retirement, so may discount or not count IRAs, etc. Is there any way that you can move some of the savings into retirement accounts without exceeding limits for annual contributions? That way, perhaps your child can get more money in aid. You might be able to start an IRA for your child, as well, or other creative money ploys that an expert (not me!) can help with. In my state, there is a free college aid advice service that will help with these EFC calculators, etc, the existence of which is apparently mandated by law, since these loan operations make so much money (as we've seen in recent headlines :(). I actually got some good information from them about how I should handle certain aspects of the aid process, and it was accurate. Some of those investment firms' brochures on saving for college, when it is best to gift money to kids, e.g. from Fidelity, are not bad, either, in terms of telling you how you can distribute your investments and assets to deal with college costs. Good luck.</p>

4

<p>Have your tried one of those expected family contribution calculators? There is a decent one on the CSS Profile site. There is one on the Princeton Review site, I believe, and I think the FAFSA will give you an EFC projection as well. Most calculators (except the FAFSA one) perform an "institutional" EFC calculation, i.e., one that is supposed to be more like the CSS/private school calculation than the FAFSA one. I am NO expert on this, but I recall that the CSS Profile states that they factor in some few aspects of your financial picture, other than income (e.g. certain assets, not others), whereas the FAFSA may not. CSS Profile does not really tell you how they come up with the final EFC, but my estimated EFC from these calculators was pretty close to the "real" one. </p>

<p>Since you still have time, is there any way that you can get some general, as well as college-related, financial planning advice before the fall? Again, this is NOT my field, but IMHO, $20K is not enough for retirement at your age, and you need more of your total assets clearly designated for your retirement. I think (again, check on this) that the EFC calculation realizes parents need to save some money for retirement, so may discount or not count IRAs, etc. Is there any way that you can move some of the savings into retirement accounts without exceeding limits for annual contributions? You might be able to start an IRA for your child, as well, or other creative money ploys that an expert (not me!) can help with. In my state, there is a free college aid advice service that will help with these EFC calculators, etc, the existence of which is apparently mandated by law, since these loan operations make so much money (as we've seen in recent headlines :(). I actually got some good information from them about certain aspects of the aid process, and it was accurate. Some investment firms' brochures, e.g. Fidelity, are not bad on issues such as saving for college, when it is best to gift money to kids, how you how you can distribute your investments and assets to deal with college costs. Good luck.</p>

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<p>Sorry about duplicate posts! I was in the middle of editing when the site said I was not signed in---but it had posted my reply already. Apologies.</p>

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<p>One other suggestion--the site Zillow can give you some idea of your house value. You need that number for the aid applications. It is based on recent sales, etc. I don't know how it performs in a more rural area. It seemed very accurate in my medium sized city.</p>

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<p>cubsfan is mistaken -- your income may be low enough that the assets will be disregarded if the CD's are in your name. </p>

<p>You can run your numbers with a financial aid calculator at <a href="http://www.finaid.org/calculators/finaidestimate.phtml%5B/url%5D"&gt;http://www.finaid.org/calculators/finaidestimate.phtml&lt;/a&gt;&lt;/p>

<p>If you are careful to accurately enter info, especially noting correctly the type of tax return you are required to file, the "federal methodology" results will be very accurate as to the FAFSA EFC.</p>

<p>The "institutional methodology" will not be as accurate, because colleges that use that approach are free to set their own standards. I would suggest looking at whatever number comes up and figuring it could be +/- $7000. </p>

<p>I get a FAFSA EFC of about $3600 if you are eligible to file a 1040A rather than 1040; FAFSA EFC of about $17K if you must file a 1040; Institutional Methodology EFC of $4500/$40K respectively .. but that high end EFC is largely created by using a home equity of $400K. If I use the Federal Housing Index at <a href="http://www.finaid.org/calculators/scripts/housing.cgi%5B/url%5D"&gt;http://www.finaid.org/calculators/scripts/housing.cgi&lt;/a> to calculate home equity (as my daughter's college does), I get a $225K value based on the purchase price, and high end EFC falls to $30K. If I go one step further and cap the home value at 2.5x your net income, as many colleges do, I get an EFC of between $21-$24K. </p>

<p>But I really didn't have enough info to make a good calculation. For example, the CD's are probably earning interest in excess of $15K annually -- is that included in the $22K figure, or is that an extra chunk of income not accounted for? </p>

<p>So you need to run the figures yourself, and based on everything I see, my guess is that you are probably going to have to pay almost full costs if your son attends an in-state public, but depending on the college, may get a financial aid package bringing your costs down to about $25K/annually with a private college that has more generous aid policies. </p>

<p>I'd suggest that you make sure that your son applies to your in-state public and also encourage him to apply to colleges likely to award generous merit aid. If he wants to apply to highly selective private schools which will only award need-based aid, then it might be worthwhile for you to try to meet wit their financial aid departments before he applies to get a sense of what you can expect. (Or you can take the hit-and-hope and see-what-happens approach that I did with my kids, which is fine as long as you don't let the kid forget that money is an issue or get his hopes set on one college --both my kids got very nice, better-than-expected need-based awards from pricey private colleges, but both also had to turn down their top choice schools because of inadequate financial aid. )</p>

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<p>when you file FAFSA you will have to put down the SS income your son received in the base year. But you can then ask the financial aid oficer for a special circumstances adjustment based on loss of benefits. You can also ask for an adjustment based on high out of pocket medical expenses. You will have to provide documentation proving the income loss and medical costs. If the FA officer decides your claim is valid he/she will go into your FAFSA and make adjustments accordingly.</p>

<p>Also good advice above about the simplified needs tests. If your AGI is under $50,000 and can file a 1040A or 1040EZ then assets are not taken into account. If your AGI is under $20,000 and you can file a 1040A or 1040EZ you may qualify for an automatic zero EFC. The being eligible to file a 1040A or 1040 EZ is an important part of the formula - if you file a regular 1040 you are not eligible.</p>

<p>All the above applies to FAFSA - I don't know how profile works.</p>

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<p>retirement funds are not used to calculate EFC -- it there a reason you have $300,000 in savings and so little in retirement? My first suggestion would be to move those funds. you get a certain amount that is protected and after that, they expect money from savings to go to college.</p>

<p>I would look at doing this:</p>

<p>figuring out what the asset allowance is for single parent, age 52 and keep that money in easy to reach savings</p>

<p>use the remainder of the money as so: pay any and all bills, take care of any thing that may have significant costs for the next four years (new car, fix the roof, buy the kid a laptop for college, etc)</p>

<p>Then put the rest of the money in retirement accounts.</p>

<p>That would eliminate any debt (for which there is no allowance in financial aid calculators) and should eliminate any large expenses in the next four years. With your house paid and no large expenses, can you live on your income?</p>

<p>Have son apply to FAFSA only schools -- they ignore home equity for the primary home.</p>

<p>use the calculators and try some different scenarios to see what works best</p>

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<p>Thanks all. I am new to this. </p>

<p>Am I wrong in thinking that my only options to establish a retirement fund is to contribute 5000$ a year to an IRA? That is what I did last year. My job, which I have had for 15 years, does not offer a 401K, a pension plan, or ANYTHING. </p>

<p>How can I find FAFSA only schools?</p>

<p>Yes, I can live on my income.</p>

<p>Thanks again for any and all ideas.</p>

<p>As a sidenote, my son attends a high school that has a $36000 annual tuition and the financial aid from that school covers all but $6500 of the tuition. I am wondering if their financial aid formula is different than a college's.</p>

<p>Linda C.</p>

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<p><a href="http://studentaid.ed.gov/students/attachments/siteresources/0708EFCFormulaGuide.pdf%5B/url%5D"&gt;http://studentaid.ed.gov/students/attachments/siteresources/0708EFCFormulaGuide.pdf&lt;/a&gt;&lt;/p>

<p>This is a link to the formula for 2007-2008 FAFSA EFC calculations. The asset protection allowance is on page 19. Unfortunately being a single parent your asset protection is vastly lower that a couple which is an odd thing in the system (something that was discussed on a thread a few months ago)</p>

<p>I agree you would be in a better position ig our savings were in retirement accounts. But I don't think it is possible to transfer it all at this point - aren't ther annual limits to what you can contribute to IRAs?</p>

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<p>Most State schools are FAFSA. Some private ones are but you would have to check the financial aid pages for schools he is interested in.</p>

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<p>swimcat: I thought the limit for an IRA contribution was $5K per year, but I will ask someone at T Rowe Price. Thanks for your comments.</p>

<p>I DID, thanks to everyone's input, easily find a FAFSA only private school within 50 miles of my home that has many things my son would like (including his uncommon sport); it looks to be like a VERY safe choice so he may be able to get some merit aid as well.</p>

<p>$10K a year is very do-able; I just want to have money left for retirement and wish to avoid heavy student loan debt. I say this as someone who went to a very name-brand school; still have a 7500$ balance on a student loan taken out over 20 years ago; and am in a field that is NOT lucrative. </p>

<p>The CDs are in my name. </p>

<p>Linda C.</p>

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<p>Following up on swimcatsmom’s post #8: when FAFSA makes it calculation, it focuses first on parental income as expressed by the parent’s AGI found on a federal tax return. If the criteria for the simplified needs test is met, all family assets will be excluded from the FAFSA calculation (e.g $300K CD). If the criteria for the automatic zero are met, all info reported on FAFSA will be excluded and you will get an EFC of zero.</p>

<p>FAFSA doesn’t consider your home equity. As to IRAs, FAFSA generally ignores except any IRA contributions you make for this tax year (2007) will be adding back and included into your AGI. A school that also requires the Profile may or may not look at home equity.</p>

<p>As I interpret your OP, your AGI is 22K. The 15K your son receives, although treated as income to the parent for FAFSA purposes and reported on FAFSA parent schedule A, is not part of the your AGI as reported on a fed tax return. SS will report your son’s 15K under his SSN. If your AGI can be reduced to under 20K and you file a short form, you should qualify for the automatic zero and open the door to a lot of fed aid. I’m not saying that reducing your AGI from 22K to under $20K may not be a big thing to you, but it could open the door to a lot of fed aid. </p>

<p>Keep in mind that FAFSA only applies to fed aid programs (e.g. Pell grant, Stafford loans, work study, etc.) When a school also requests the PROFILE, this is a way a school makes a decision on money out of its own pocket. There is no simplified needs test or automatic zero when it comes to the PROFILE. Even if the school uses only FAFSA, when it comes to the school’s own money, the school has discretion on whether to rigidly follow the FAFSA calculation, or consider other info reported on FAFSA. </p>

<p>An aid package can have money from fed govt using the FAFSA calculation alone and/or from money out of the school’s own pocket using the Profile and/or FAFSA.</p>

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<p>Hey Jugulator! - your advice when I first started looking on CC a few months ago has really helped us out. We were in a similar position to the OP on this thread - benefits that end with Ds graduation and also high medical costs - I would never have asked for an adjustment from her school because I did not know I could. Thanks to the info you provided we are in a much better position finaid wise than we would otherwise have been. Thank You!!!</p>

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<p>swimcatsmom: you're welcome.</p>

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<p>Taking the suggestions you offered, I researched the 1040EZ and the 1040A forms and the requirements for filing each, and I am eligible to file a 1040A as I have no itemized deductions. </p>

<p>Good info, thanks.</p>

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<p>calmom- my mom, who is also a single parent, has an income nearly identical to the OP and has a mortgage. The assets were still figured in on the EFC. We appealed and lost. Some assets were discounted but when you get savings in the range of $300,000 they will not discount them all. The interest alone, without touching principle, can make a decent contribution to the cost. I do not know the OP's family size but with no mortgage and a ten year old car most of her income is disposable.</p>

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<p>Cubsfan,</p>

<p>Most of my income is not disposable. At 22K per year, after taxes that's about 19800 net. Some annual expenses look like this:
Property taxes: 1422
Car ins (one driver): 800
Homeowners' ins: 750
Home utilities: 2400
Health ins, prescriptions, glasses: 6000</p>

<p>That right there is 11,372 and doesn't include food, gas for car, phone, car maintenance, property owners' road fees in my subdivision, clothing, and other basics. </p>

<p>May I ask what your EFC is?</p>

<p>And, if your mom has a mortgage and deducts the interest, then she probably files a 1040 form. According to what I read here, that means her assets are counted. If you file a 1040EZ or 1040A (which means you take the standard deduction and do not itemize things like mortgage interest), then on the FAFSA you qualify for zero EFC. [I could be wrong but this is what I have gleaned.]</p>

<p>Thanks for your comments. This is all very helpful to me.</p>

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<p>cubsfan, if you read my post you will see that the issue of the type of tax return filed is VERY important. Ask your mom whether she is required to file a 1040 or is eligible to file a 1040A or 1040EZ and you will have your answer.
[quote]
I do not know the OP's family size but with no mortgage and a ten year old car most of her income is disposable.

[/quote]
That's totally irrelevant to EFC calculation -- they do not ask nor consider what housing costs or other expenses are. A $22K income is going to qualify for simplified needs test (no consideration of assets) as long as the parent is not required to file a 1040. </p>

<p>The fact that Linda's money is in CD's may be a big advantage because of its impact on tax filing status -- if she had it in investment accounts and was buying and selling stocks, she would probably end up with capital gains and have to file a 1040 -- so she is lucky that she opted for a safe but less lucrative form of investment. She could probably double the return on her money with a more aggressive investment strategy, but the down side would be that it could very negatively impact financial aid ability.</p>