Advice on paying for college (child support, assets, etc.)

Paying for College
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hello!

my parents got divorced when i was younger and we went through some extremely tough financial situations for a couple years, but my dad started paying child support recently and we got a lot of help.

currently, we own a house (worth around 800k) with no mortgage left on it and are living in a house with about 200k left to pay off. the problem is, both houses were bought almost completely with help from family so even though it is under our name we do have to pay them back, but it isn’t officially counted as ‘debt’ per see since the transaction was made privately.

also, our income alone is considered low-income but with child support it is above low income.

when i ran through my estimations for college tuition, they all came out alarmingly high because of our assets, and i have no way to afford anything near that cost. even with child support (which i don’t think my dad is going to pay much longer) the cost is impossible.

is there any way that i can still afford college? or at least do something about our assets?

thank you in advance

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Sell the second house. Or look at schools that offer significant merit aid. Also look at your in-state options.

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What provision in the divorce agreement did your parents make for college beyond child support? Who pays what? And why aren’t you living in the house with no mortgage?

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I just want to be clear…are you saying you own an $800,000 house free and clear that you don’t live in (is it rented to someone else), AND you own your primary house you live in which has $200,000 left to pay off? How much is that home worth? But you are paying someone else for those home?

You need to apply to colleges that will offer you merit aid. Schools will use the $800,000 second home as an asset even on just the fafsa. Just that $800,000 will add almost $45,000 to your family contribution. Colleges don’t give need based aid so that families can hang on to houses that have nearly a million dollars worth of equity.

In total, you have over a million dollars in real estate equity most likely. If the properties are in your parent name…you own them.

If you give us a little information like your stats, prospective major possibilities, geographic preferences, I’m quite positive folks here can give you some decent suggestions where merit aid might be very possible.

But first answer this…how much WILL your parents pay annually for college? That’s an important number for you to know because in reality, that is your budget.

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Just because the transaction was made privately doesn’t mean it’s not “officially counted as a debt per se.” If your houses were bought with help from family and you have to pay back what sounds like $800,000 +, there must be signed papers that lay out the terms of the deal, right? These papers document the debt and make it “official.”

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thank you for your response! my dad technically said he would pay for my college tuition in full, but this was many years back when my parents were getting divorced and he’s now been saying that he won’t be financially able to do so. he hasn’t taken any legal action to back it up yet, but i’m still hesitant to rely on him. we currently do not live in the house with no mortgage because the relatives who gave us money to buy it wanted to rent it out to others.

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thank you so much for your response!

technically yes, both houses are under my mother’s name, but all income that comes from renting it out to tenants goes to our family members who gave us the money. so we pretty much only own the house on paper; we get to live here when its not in use by our family members or tenants. it’s a weird situation :))

i’m not exactly sure where our financial standing will be in two years so i can’t answer truthfully how much my parents will be able to pay. as of now, i think anything above 10k a year is going to be tough.

sorry, i’m still very new to the whole college application concept; is merit aid something that is only offered at certain schools? if so, is there a threshold i have to qualify for to apply?

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@BelknapPoint thank you for your response!

the only document they signed off on was an unofficial IOU note; would that still be enough to write off the costs as debt?

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It’s impossible to say without knowing specifically what’s in writing. There are right ways and wrong ways to draft legally enforceable notes and mortgages.

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I would say…your best bet is to look for colleges where merit aid is highly possible. That way you usually don’t need to file the need based financial aid applications. Are your stats going to be sufficiently high enough that this might be a possibility (GPA, and SAT or ACT score).

Community college would be affordable on $10,000 a year if you are able to commute to one from where you reside.

Checking for clarity…

So…there is a rental property with $800,000 in equity that is in your name…but the rents for that property go to some other family member?

Why was this property put in your names?

If this is a rental property, and it’s in your parent name, it will be listed as an asset on the financial aid application forms. The rents will be listed as income. Who is dealing with the federal income taxes on these rental incomes?

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Clarifying things with an accountant and/or lawyer would probably help.

Merit aid depends on your standing relative to everyone else who got admitted. So, for instance, if you have an ACT 32 and were admitted to a college where the 25-75 spread* is 31-34, you get zero merit, but at a school where the spread is 25-31 you have a shot.
*thresholds for bottom 25% and top25%.

Not all universities offer merit aid.
Merit aid deadlines are usually earlier than earlier deadlines, between October 15 and December 1st of Senior year.

Where do you live?

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Your family may have good reasons for having the house in your mother’s name but her not getting the benefits of the rental income will not change how you answer the questions on the FAFSA. “Do you own real estate that is not your primary residence?” Yes. “What is the value of that property?” $800k. There is nowhere on the form to explain that this is a special arrangement or that she doesn’t have the right to sell the property (she probably does have that right legally).

If your parents are no longer following the divorce decree, it’s unlikely your father is going to pay tuition without a fight; some states stop all child support when child reaches 18. It’s hard to know what is in your parents’ divorce agreement.

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@penthesilia you have two primary things to figure out before you can decide how to conduct your college search.

  1. Find out in no uncertain terms how much you mother and father can (and are willing) to pay for your college education. No guesses. No assumptions. No past verbal promises. Ask now what they will do now. That’s your budget.

  2. Find out all the little details about your mother’s property ownership. This matters a lot. Is she on the deed? Are there loan documents (with a bank or individuals) that outline the details of the loan? What is the tax value of the properties she owns? Does she own these properties alone or are other people on the deed? Exactly how much income is generated from the rental property? Is this rental income paid directly to your mother and she then pays it to other people/banks? Is this rental income paid by the tenants directly to someone other than your mother? How much of all this is documented and can be proven, versus how much is undocumented and just kind of kept up with by the people involved?

You do not need to answer these questions here, but you need to know the answers yourself. You (or your mother, if she is the one who will be filling out college FinAid documents) need to know this information. Also, some private universities (and a few public universities) require applicants seeking FinAid to fill out the CSS Profile. The Profile takes financial information from your mother and father (and stepmother and stepfather) to help determine if you qualify for Financial Aid. Owning multiple properties worth more than $1M and generating rental income, may make it difficult to qualify for FinAid from schools that require the Profile.

I don’t think you mentioned the colleges you had in mind or your GPA and test scores (if you took any.) Those would also be helpful in providing recommendations.

Without knowing all this and taking into account the combination of significant real estate holdings, divorced parents, and an approximate budget of $10K, I would say your college list should first and foremost include in-state public colleges in the state where you live. Affordability is the most important factor, and in most situations, in-state public universities will be the least expensive 4yr option.

If your stats are high enough and/or if your desire to move away from your state is a driving factor, we can help more once we know your stats. I feel confident that one way or another, you’ll be able to continue with your education after high school. Whether that means your state flagship, a private university, community college then transfer to 4yr local public college, etc, depends on the answers to all those questions.

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It sounds as if your mother was used as a front by a relative who for some reason couldn’t ro didn’t want to have the property in his own name. This has definitely messed up your financial aid application.

First of all, make sure that you apply to your in-state public options, and to schools for which you are over-qualified, where you are likely to get major merit money.

As for straightening out the financial mess that your mother is in, I don’t really think that you can. That’s up to her. I suspect that there’s tax evasion behind it, possibly fraud regarding welfare benefits, at the very least hiding of assets in a divorce. It’s a mess you won’t be able to solve. Your mother is made vulnerable by this, too, because if she owns that house that is generating rental income, who is paying the tax on that income? A house that cost 800K would probably rent for 80K/yr. Who is paying the property tax on it? The income tax on that could be as much as 30K/yr, depending upon the recipient’s income and state residence. Ultimately, the owner of the property is the one who should have been receiving the income, and so is liable for the tax. Do you begin to understand how serious this could be?

My point is, best to leave it alone. If your mother truly has NO financial interest in this property, she never put a dime into it, she has nothing to do with it, she could “quit claim” it to the relative who actually owns it. That way, she is out of the mess with that property, going forward. Or if she actually does have financial ownership/interest in that property, she could sell it and use the money to pay for your college, although the relative who used her as a front to buy it, and who collects the rental income from it (putting your mother at risk of prosecution for tax evasion) will probably never speak with her again. Might sue her, too, but probably wouldn’t, out of fear of the consequences, regarding tax evasion and other fraud.

Let the grownups handle their own mess. Let it go. Figure that the most you’re going to be able to get for college is an unsubsidized direct student loan, total of 27K for four years of undergrad. That’s probably all you will qualify for, since that is available to anyone. Plan your applications accordingly, seeking in-state tuition and/or major merit money. In most states, you could get a 4 yr degree with that 27K by doing first two years with AP, CLEP, and at community college and last two at state U, while working a part time job and a summer job.

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@penthesilia : what’s your GPA? Are you taking honors classes? Have you taken any AP class (IB, AICE, dual enrollment…?) Are you involved in clubs, or volunteering, or working part time?

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Since your parents are divorced, will both of them cooperate with doing financial aid forms for colleges that require both of their financial information?

Unfortunately, if your parents’ finances are “irregular”, they may be hesitant to do financial aid forms for that reason, even if divorce does not preclude cooperation.

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