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

Paying for College
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<p>Linda, you need to understand that most FAFSA only schools do NOT guarantee to meet full need -- so having a low EFC is does not automatically translate into a lot of financial aid. Your low EFC makes you eligible for more aid, but being eligible is not the same thing as getting the aid. You still need to include some financial safety colleges -- colleges that you can afford even if you get no aid at all. Then you can take chances to find out whether your low EFC will translate into generous offers from other colleges. </p>

<p>The most generous colleges all require the CSS Profile, so limiting your college search to FAFSA only schools probably would not be a good idea. Look for colleges that offer merit aid as well -- your son will be eligible for federal grants & loans due to the FAFSA calculation, and a merit-awarding college will often give more than would be indicated with the IM methodology.</p>

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<p>Linda: I tried to make a distinction between fed aid and the school’s own money. If you meet the criteria for the automatic zero, it will open the door to a lot of fed aid. </p>

<p>Calmom makes an extremely important point about a school meeting a students full need as calculated by FAFSA. For example, let’s say FAFSA determines you get the automatic zero and the school’s estimated cost of attendance is $20K. In other words, FAFSA determines you need $20K. You have an automatic zero and get a Pell grant (approx. $4k); subsidized Stafford loan 3500; and fed work study 2500 (or total of 10K from feds.) Out of schools own pocket, they’ll only give you $5K. Although FAFSA said you’re need is $20K, you’ve been gapped $5k, meaning that the school is not meeting your kid’s full need (as calculated by FAFSA) and you’ll have to come up with $5K. Note that need is recalculated every year, so this out of pocket $5K is only for the first year. Calmom is right about checking out financial safeties. Although private schools requiring the Profile have more $$ to give, don’t overlook FAFSA only schools.</p>

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<p>This hypothetical scenario does not sound bad at all. My fear is that we would not be eligible for any aid and that I would have to pay $20K or $25K
per year for four years, out of money that, despite it not being in an IRA, is for my retirement.</p>

<p>I will be 57 when my son graduates from college. So this is a legitimate concern.</p>

<p>After reading some of the other threads here about merit aid at smaller schools, that might also be an avenue to pursue as well as applying to in-state colleges that would be affordable with little or no aid. My state also has some sort of automatic tuition grant for students that I need to check into as well as a few schools that do not charge tuition for families with AGIs of 40K or under.</p>

<p>One of the things I wonder about is -- is it more difficult to be accepted by a school when you need financial aid? If two applicants are roughly comparable in qualifications, but one does not need aid and the other does, wouldn't they choose the one who could pay full tuition?</p>

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<p>In terms of admission decisions, the need for financial aid only comes into play with students who are borderline for admissions -- that is, for need aware students, it might make a difference for the the bottom 10-20% or so of the admitted students. Sometimes after making admissions decisions, but before sending notices, if the financial aid budget has been exceeded, the financial aid people will notify the admissions people, and they will do some shifting around, shifting some admitted students to the waitlist and pulling some full payers off of the putative waitlist. The chapter on financial aid in the parents' section of the book Winning the College Admissions Game by Peter Van Buskirk has a very good explanation of how this works.</p>

<p>But all colleges do have funds budgeted for financial aid, and it is in the interest of the financial aid department to spend out their budget. It is also in the college's interest to spend its financial aid budget in a way that maximizes the use of the dollars in terms of shaping the kind of class they want -- hence all sorts of factors get weighed in. </p>

<p>In other words, the colleges want to have needy students and they want to give their money to them -- but they also want to pick and choose which students get their money. Colleges that claim to be need-blind are among the most selective, so as to them any student they admit is likely to be one that they are happy to spend their money on. </p>

<p>If your son wants merit aid, or a combination of merit and need-based aid, it would be in his interest to apply to colleges where he is near the top of the applicant pool -- so his request for aid won't ordinarily count against him.</p>

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<p>Doesn't the OP have to itemize to take property taxes and the extremely high percentage of medical expenses (30%) off her tax return? It would seem a waste not to do so. At any rate, I received no aid so college is off the table for me which I am actually okay with, I'm tired. Maybe in a few years, maybe never, who knows. I am actually looking forward to working full time and coming home without 8 kazillion hours of homework :)</p>

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<p>
[quote]
Doesn't the OP have to itemize to take property taxes and the extremely high percentage of medical expenses (30%) off her tax return? It would seem a waste not to do so.

[/quote]
</p>

<p>Not if the potential decrease in EFC makes her eligible for grant money (such as PELL) that is a larger amount than the tax she would save. For instance if she would save $1500 by itemising but would get $3000 PELL by filing a 1040EZ then that is a better way to go (totally random numbers by the way - just a for example). A situation where one should run the numbers to see which is the best benefit.</p>

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<p>A couple of points in addition to all that's been posted:</p>

<p>I believe after age 50, you are allowed to make additional IRA 'catch-up' contributions. Your TRowe advisor should be able to help with that. </p>

<p>There are fewer than 40 colleges in the country that are both need blind and guarantee that they'll meet your full demonstrated need. Some are the usual suspects (ivy universities) but there are small LACs (Swarthmore, Bates, Trinity in Ct., Grinnell). Grinnell doesn't use the college profile; there might be others I'm not aware of. Some of these schools offer only need based aid, but there are a couple with merit money, too. </p>

<p>I think you said your child is at a private school. How good is their college counseling? Do they know your situation? I would hope that they have enough knowledge to steer you towards colleges that meet your child's needs and are affordable (opportunity for merit money as well as need based aid).</p>

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<p>For folks who do not itemize deductions, there is a standard deduction option that is about 10,000$;for me, this is a higher amount than itemizing prop taxes and med deductions (which are not 100% deductible -- there is a formula). For example, if your mom had 5000$ in mortgage interest, some charitable deductions, and some taxes, that might not be as much as the standard deduction. I do not have 10,000$ in deductions, so the standard deduction works best for me -- and permits me to file a 1040A.</p>

<p>Cubsfan: are you skipping college because of finances? </p>

<p>There are at least two schools in my state that offer full tuition, room, and board for families with incomes of $40K or less, so I will look closely at those and see if we qualify despite our assets; we have also identified an in-state public safety school that is affordable out of pocket (and our state offers a $3K grant to almost anyone who is a resident and fulltime student who attends one of about twenty schools listed) and should be well within child's reach to be admitted. (Although -- who knows!)</p>

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<p>The FAFSA only schools option, as suggested, is a good one. However, that $300,000 in CD/Savings is an asset that will be tapped at the parent rate. With that amount in interest per year, I don't think you can file a 1040EZ or 1040A, can you (someone else here will need to answer that one) because your unearned income is quite high due to interest on those CD/Savings accounts. Even though YOU have these funds earmarked for retirement, only a %age of them will be protected assets. Also at age 52, you are not as close to retirement as someone in their 60's so less will be protected. Still, it sounds like your son has some good options. You have already found one school that may work. I agree that you should look into your state flagship university, possibly the honors college if that is something your child might qualify for. These programs provide an excellent education for a reasonable price to instate students. Also, there ARE some other flagship U's (U of South Carolina, for example) that give in state tuition to students who receive merit aid in excess of a specific amount. These can also be a terrific bargain for a student (and sometimes the majors are just what the child is interested in studying). There are also many smaller LACs where your child might be eligible for merit aid. I don't think you'll be able to bring the cost down to $10,000 per year, but maybe you can at some.</p>

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<p>Note to Cubsfan: In another thread, you said that both you and your mother have a trust fund. And that this affected your aid. I think, for the purpose of this thread, that the trust fund info is germane; your situation is not the same as mine despite your mother's income being similar to mine. We do not have assets in my child's name (20% contribution).</p>

<p>Just saying.</p>

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<p>thumper, Thank you for weighing in. Interestingly enough, the interest income is reported on a Schedule 1 for 1040A (all interest in excess of $1500 but it does not state a limit). Here is the form:
<a href="http://www.irs.gov/pub/irs-pdf/f1040as1.pdf%5B/url%5D"&gt;http://www.irs.gov/pub/irs-pdf/f1040as1.pdf&lt;/a&gt;&lt;/p>

<p>Is the U of South Carolina in state tuition you mention available to out of state students as merit aid?</p>

<p>What small LACs are you thinking of?</p>

<p>We cannot rely on the flagship U because it is so selective that it turns away 4.3 GPA kids regularly (although several at my son's school are accepted every year). The smaller in-state public that I mentioned seems likely although my son's stats put him at the top of their pool. Which leads to the question: big fish in small pond or big fish in big pond?</p>

<p>And, finally, if I were to take some of my money and live large for a year, well, we may not need to have this discussion! And I know people who do exactly that and accrue horrendous consumer debt. </p>

<p>We all need to be able to sleep at night; I do not want my child to graduate with student loan debt. I do not think an undergraduate degree is worth being a wage slave.</p>

<p>JMHO.</p>

<p>TAX STUFF:
1040EZ You may qualify to use Form 1040EZ, the simplest form, if:</p>

<p>• Your taxable income is below $100,000
• Your filing status is Single or Married Filing Jointly
• You are under age 65
• You are not claiming any dependents
• Your interest income is $1,500 or less</p>

<p>1040A You may be able to use Form 1040A if:</p>

<p>• Your taxable income is below $100,000
• You have capital gain distributions
• You claim certain tax credits
• You claim deductions for IRA contributions or student loan interest</p>

<p>1040 If you cannot use either a 1040EZ or 1040A, you probably need to use Form 1040. You must file form 1040 if:</p>

<p>• Your taxable income is $100,000 or more
• You claim itemized deductions
• You are reporting self-employment income
• You are reporting income from sale of property
• You are claiming the educator expense or higher education tuition and fees</p>

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<p>Linda, As I said...I'm not particularly versed on which tax form can be used by which folks. Just be sure to check carefully. You can send me a PM, and I'd be glad to respond to you. Re: U of SC...any student there who gets certain scholarships (there is a minimum amount...you would need to check...you can also post on the U of South Carolina college thread at CC and someone there will point you in the right direction) also gets in state tuition. The student has to maintain a 3.0 GPA for continuation of this scholarship.</p>

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<p>Cubsfan, there is a balance between itemizing and standard deduction. For some, it is a wash as to which gives more benefit. But I had no clue that EZ helped get one admitted to the world of Pell grants. </p>

<p>I will say that with financial aid, a combination of merit and need, we did better at a few of the Lac than the flagship state universities, at least with 2 in school. I'm a single parent. </p>

<p>Get the max allowed yearly of that savings into IRAs ASAP! From my understanding, you can access the money in a few years regardless, it will take the interest off your income, and should you buy standard IRAs, it reduces your AGI, and thus reduces your taxes. Tho perhaps the FAFSA just adds that back in. You also can invest in stocks/mutual funds without worrying about capitol gains reporting. I found standard IRAs quite helpful in reducing my AGI, thus making me eligible for more educational deduction money. </p>

<p>I welcome corrections to the above-this is what I've come up with through my own reading and figuring, though I've never put it into words previously.</p>

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<p>Just remember that any money contributed to retirement in 2007 WILL be used as an asset for the FAFSA for the 2007-2008 school year. Contributions for the year ARE used as assets...the amount IN your IRA (or any retirement account) is not. There is a difference.</p>

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<p>great lakes mom,</p>

<p>I admit that I am a little baffled as to how a parent putting a child through college could qualify to file a 1040 EZ, looking at the requirements on the IRS site:</p>

<p>1040EZ You may qualify to use Form 1040EZ, the simplest form, if:</p>

<p>• Your taxable income is below $100,000
• Your filing status is Single or Married Filing Jointly
• You are under age 65
• You are not claiming any dependents (NOTE THIS)
• Your interest income is $1,500 or less</p>

<p>So maybe that EZ portion applies to independent students. But the 1040A seems to be fair game for many, esp. if the standard deduction is close to what you could deduct via itemizing.</p>

<p>I am not sure how capital gains and mutual funds work, but I will look into that idea. </p>

<p>As for accessing money in IRAs -- and it is my understanding that I can deposit $5000 in year 2007 --, aren't early withdrawals penalized and taxed?</p>

<p>Would love to hear more about your experience with LAC aid, if you are willing to share.</p>

<p>Linda</p>

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<p>I would definitely talk to a financial planner - both for your son's college expenses and your own retirement. They would probably have better insight on what you should be doing. Also, I'd go ahead and pay off that 7500 in debt. You have 300k in the bank - might as well not be paying interest on the debt.</p>

<p>About the car issue, go for a Toyota - probably could easily get 300k+ before it dies - usually they go from old age or accidents before mechanical issues from high mileage. That would be about 10 years at your rate :D.</p>

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<p>Linda, I sent you a PM...</p>

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<p>An addition to the list above of reasons that may exclude you from filing a 1040A or 1040EZ- If in the previous year you itemised and you overpaid your state taxes - the refund is taxable income and the only form you can use is a 1040 - we got caught with that one!! Cost us a few hundred in aid by not being aligible for simplified needs test.</p>

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<p>Sorry, I have not looked at the 1040A, which was what you were probably referring to, rather than the EZ, which I used in 'the old days' when my life was far less complicated. I itemize, and had not heard of the above strategy previously. </p>

<p>Mutual fund IRAs, which I have a few of from my days of being married and a basically at home mom not covered by retirement, just grow along (hopefully) with dividends reinvested, and are not reported on tax forms. Tho I did fill out either college supplimentary forms or the Profile which asked for that information. </p>

<p>My understanding of IRAs is that the money is accessible at age 59 and 1/2 without penalty, and you need to withdraw a certain minimum amount per year after 70 1/2. Roth are untaxed, regular are taxed on withdrawl, but tax free going in, which is why I think they are useful in these college years. You can also withdraw for educational expenses with a penalty. If you intend your money as retirement, you can only put so much in per year regardless, a minor amount of your total, but every bit taken from your assets would help with both the tax bill and financial aid. </p>

<p>Everything I've read talks about paying off debt, buying a car, making any major purchases prior to getting into the financial aid game, so as to reduce assets. </p>

<p>Again, there is no way I'd consider myself especially qualified to give financial advice...but it sounds as if you're struggling with the same things as I have in this process. </p>

<p>One of the interesting parts of being single and struggling with financial issues, is that I find few women, at least of my acquaintance, have a good handle on this piece of life. Sp it is a process of ferreting out info, and no one to discuss with for the most part!</p>

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<p>
[quote]
And, finally, if I were to take some of my money and live large for a year, well, we may not need to have this discussion!

[/quote]
I am sure that you know that would be very foolish. There is no guarantee whatsoever that your son will get full need met at the colleges he most wants to attend, no matter how you manage to spend down your money -- and with your current income, you really need to preserve that nest egg as best as possible. </p>

<p>Again -- you SHOULD shelter whatever portion of that money you can, by paying the max into IRA's each year -- and you certainly SHOULD spend it down for <em>necessary</em> expenses in the year before applying for financial aid, such as fixing a leaky roof on your house or replacing a vehicle that is on its last legs. </p>

<p>But don't make the mistake of trying to make yourself poor to qualify for aid. It's a losing proposition, especially since the aid formulas only take 5.6% of your assets into account, after a small asset protection allowances. Truthfully, you could probably invest that money to earn a better return than 5.6% and actually come to a point where you would just about break even, using the income from the fund to pay for your EFC.</p>