“The 2016-2017 update to the federal college aid formula that determines a student’s expected family contribution (EFC) toward the cost of college has been announced, and like recent years it penalizes middle class families even more. For families that save at all, the change in the formula has penalized them by almost $8,000 over four years of college, raising their out-of-pocket cost of college.” …
The drop in the APA is truly shocking!
Can you post a link to the 2016-2017 APA table?
*The so-called asset protection allowance (APA) is the amount of non-retirement assets, like savings and investments, that the formula allows parents to have without those assets being counted against a student for aid purposes. If you had a child entering college four years ago the asset protection allowance for a 45 year-old married parent was $41,300 for the 2012-2013 academic year. The recent update published in the Federal Register for the 2016-2017 academic year (when rising high school seniors will enter college), **is only $6,300/b.
States may also have various grants based on FAFSA EFC. While the example in the article had an $8k effect over four years, for an undergraduate student at UW-Madison who is pushed from a FAFSA EFC of $12,000 to $12,001 or higher, a $3,000 state grant changes to zero; over a four year period, this has a $12k state effect. Thus combined with the $8k federal effect, that is $20k.
http://www.gpo.gov/fdsys/pkg/FR-2015-05-27/pdf/2015-12803.pdf
The 2016-2017 table for parents of dependent students starts at the bottom of page 2 (Education Savings and Asset Protection Allowance).
Sorry if I missed it. If you have multiple kids and therefore multiple 529 accounts (one for each kid) how are the sibling accounts treated for the first kid that goes to college? Does the account for the second younger kid count against the first?
Generally the kids’ 529 accounts in total are the parents’ assets, so the younger kid’s account does affect the older child’s FAFSA EFC.
This is the penalty singles have been under for several years. Assets limited to about $10k two years ago, under $10k this year and next. Perhaps it would be better to not have any asset protection and just raise the EFC number that receives some of the grants and guaranteed loan benefits?
Do we know how soon this will be incorporated into the NPC? I have been running the NPCs for some kids and some of the calculators still say 2012 on them.
No one is forcing you to use Kid 2’s 529 to pay Kid 1’s expenses.
You can’t put all money into retirement accounts as they are limited. You may be able to put more into an IRA.
I’m wondering if it is possible to put the 529 into the younger child’s name, then it is not a parental asset, and then move it to the parents when that younger child goes to college? If there is enough space between the kids (older is out before the younger starts), does this work?
All 529s are considered parental assets.
This was the original post for a separate thread on the same topic, so they were merged. Given the detail in this post, I didn’t want to delete it - Fallenchemist
What happened to the asset protection allowance?! Next year, the amount will dip so low that the sibling’s small 529 will be counted as we have very little assets. As 529s are counted as a parental asset, we will be forced to use Kid 2’s money to pay Kid 1’s bill, is that even allowed? How do we do this, just transfer the money from one kid to the other? Do we have to pay penalties and extras? It doesn’t seem fair to Kid 2 but if we don’t spend it down, it will add to our efc. Luckily, Kid 1 is at a meets full needs school but the increases are hard for us to keep up with, each year the summer contribution goes up, his term time w/s goes up and flights have outpaced the travel allowance and clearly we didn’t plan well enough. I don’t know how we could have predicted this part though. I wrongly assumed that as we aged, it would go up each year but instead it has gone down and next year, it will be $8800. When Kid A applied, the Asset Protection Allowance for a family of 4, one in college and oldest parent age 54 was $51,900.
This is what the drops have looked like since we started:
2012-13 age 54 $51,900
2013-14 age 55 $46,800 ($5100 less than previous year)
2014-15 age 56 $40,600 ($6200 less than previous year)
2015-16 age 57 $37,300 ($3300 less than previous year)
2016-17 age 58 $8,800 ($29,000 less!)
There was a story on Forbes that says APA dropped 85% in 4 years so I double checked the formula for next year that came out in May and it’s true. I don’t understand the explanation of why the drop is so big so if anyone could explain it to me in plain language, I would appreciate it. Are you shocked? The economy doesn’t look that much better to me. Forbes said the same thing happened this year that happened last year and explains how the calculations are done: “The value of the protection allowance is an amount that will annually fill the income gap between a moderate family income standard and social security benefits. In other words, it is the present value of an income stream to be paid during the retirement years (age 65 until death) under a defined set of assumptions."
“In 2012 average social security benefits will increase by a percentage (3.6 percent) that is greater than the expected increase in the moderate family income level (2.2 percent). Thus, the income gap is less compared to the prior year. This smaller income gap means that the present value of an annuity to be paid during the retirement years is less than it was in the prior year, and the values of the education savings and asset protection allowances are likewise smaller.” – US Department of Education
Can some of the financial aid experts help me understand this? Am I allowed to post the link to article? If not, please mods take it out.
http://www.forbes.com/sites/troyonink/2015/06/30/2016-2017-college-financial-aid-formula-penalizes-middle-class-8000/
Have others tapped into siblings 529s and how did you do it? Did all of you know that the APA dropped so dramatically? Geez, what will it be when Kid 2 goes? $1.50? What’s with the “single” allocation, makes no sense either? If I was just starting out, I would be sure to put all assets into retirement accounts before the kids go to college and NO 529s.
Thank you fallenchemist for moving my post here.
Madison, I realize that no one is “forcing” us to use kid 2’s 529 but that asset amount is now a part of kid 1’s efc because it is over the $8800 limit of protection. I think we should use it now on kid 1 so it won’t inflate our efc for 2016-17 and was wondering if we could even do that, how to transfer it, etc… What are other families doing?
I was surprised that others didn’t notice this GIANT dip in asset protection allowance. Certainly this is not already incorporated in the NPCs for colleges so if you have a senior, you should do the FAFSA worksheets by hand and read up on the CSS Profile school rules, too.
ccsouth-“Does the account for the second younger kid count against the first?” Yes, when you fill out all the financial aid forms, FAFSA and CSS, it takes ALL assets into account and 529s are parent assets so colleges don’t even see that you have multiple 529s for multiple kids. I thought we would be asked to send in each kid’s paperwork so the college could see that second account was for the second child but it doesn’t matter. Now that the asset protection allowance is so low, kid 2’s 529 will raise our efc for kid1. The only assets they don’t count are retirement ones.
I don’t see how families can continue to use 529s for multiple kids unless they are getting a big state tax breaks when the assets could have gone into retirement accounts when the kids were babies. Instead of parking money in 529s, we should have done Roth’s or something else, little by little per year. I know we can’t do it now, too late for us. Once the kid is a senior, even money put into an IRA gets added back as income. I realize that the article says, saving something is better than having nothing and not all schools meet full need but this is a big change in how the formulas were previously calculated, for us a $43K change since the time K1 chose a school to attend.
I still don’t understand the reasoning behind the big drop despite rereading the quote over and over, can someone explain in plain English?
I am not clear how to figure out : parents’ adjusted available income (AAI). Nor what to do with the table on exempting my8 /9/6% income tax (married, NYS) Help?
People haven’t noticed the APA decrease because it is for 2016-2017 and was just published in the Federal Register in May.
Not all 529s are parental assets-could be grandparents’.
This whole story is frightening, as I am of the age that they predict SS will be bankrupt by the time I hit 65, not to mention the joys of an Obamacare ‘Cadillac tax’ on my health insurance next year on my flat income with higher deductibles and premiums.
I’m scared of what this is gonna look like in 30 yrs when sending my own kids to college, welp
Someone asked when the NPCs are updated. I believe each school is responsible for their own, but for my daughter who started in Fall 2014, I don’t think her school changed the website until July 1, 2014 so much later than when acceptances were required. They also didn’t change the tuition until July, just before the bills were issued. They also changed the room and board at the last minute, then changed the board back to only $9 more than the year before, then reissued bills, then made more adjustments. It was ridiculous and they don’t award merit by % but in set dollar amounts, but they did increase the most merit awards by $500-1000 to offset the $2000 tuition increase!
I don’t expect most NPC to change for 2016-17 until well into 2016. When I was running them in 2013 and early 2014, many still had the 2012 NPC up on the websites.