I think colleges use the info. on the profile to get an overall picture of finances. If value and assets of a business are in the 7-figures and a family claims a low 5-figure salary, the financial aid office will probably take a closer look.
Nobody expects families to sell their business to pay for college. If a family owns rentals, they can borrow against them. If they own a business without concrete assets, I suppose the assumption is that they’ve been saving because they knew college was coming. I expect some calculations are based on possible future income. We have friends who own a partner law firm. When one wanted to retire the others bought him out. The value of his share of the firm wasn’t $0. The money may not be there now, but that doesn’t mean it won’t be in the future. I don’t think it’s unrealistic for colleges to expect families to borrow against future income. Whether the money comes from savings or parent loans that are paid back when the family sells the business or liquidates the assets isn’t the colleges’ concern.
I don’t think anyone gets a pass because they tied up all their money in inventory either. If families can’t run a business on less or live on a smaller percentage of their income for the years their kids are in college then they probably have to look at less expensive colleges. A lot of people have to adjust expectations during the application process. That’s why it’s important to have financial safeties.
@sylvan8798 what I mean…should need based aid be given if a family has significant business assets…but they are not willing or able to sell them? Should need based monies be awarded to help families keep businesses?
As an example…there was a family here who owned a LOT of rental properties worth millions of dollars. They felt the equity in those should be excluded from the financial aid calculation. It’s not. My feeling is that need based financial aid should not be awarded so that families can maintain ownership of assets.
@thumper1 - I’m not sure how you got
“Are you suggesting that need based aid should be given so that families can continue to own family owned businesses? I don’t support that either.”
from my post.
For starters I didn’t suggest that need based aid be given (or not given) to anyone. I am merely discussing the possible pitfalls in assuming that a family that JOINTLY owns a corporation has access to the assets of that corporation for personal use. It is a discussion, not a complaint, not an assumption, not a suggestion.
Ownership of personal assets and joint ownership of an active corporation are totally different. If a parent who works for a corporation that he/she owns JOINTLY WITH A NON FAMILY MEMBER that is completely different from a family that owns income producing properties outright.
If you want to know what I think about FA I will tell you. I would like to see colleges go away from this high price/high aid model they are currently using. I would like to see prices lowered across the board and no aid given except to those who are very low income. That isn’t going to happen right now.
@Proudpatriot
My response was NOT directed at you only. It was a response to this thread in general.
So @Proudpatriot , I typed a lot of responses to the above, asking what the cash was for if not salaries and why a small law firm was a C corp, why you would want to show a lot of cash earnings, but upon reading it back, editing, etc, I realized it was asking bunch of stuff that was none of my business. But I did not want you to think I had not read your thoughtful response to me.
I will say without specificity to any individual’s situation that assets are assets to the taxman, regardless of their use or liquidity, and so should they be for financial aid. Without these there would be too many ways to game the systems, and there are already too many!
Yes sometimes it seems unfair – for example an S-Corp/LLC that borrows money in one year and pays it back over several cannot deduct the principal portion of the amortized payments (which of course are the large percentage of it near the end of the loan) but you still have to make them, so blammo, you get taxed on that part as earnings even though you paid it to the banker.
I know it isn’t your business but the C vs S Corp decision was made for non tax reasons. The firm has to pay for salaries other than the salaries of the shareholders. All the other employees get paid. Insurance. Rent. Office supplies. Taxes. Licenses. Training. Software, Hardware. We are in a practice area where we MUST advance costs for corporate clients. The cash is not available solely for the benefit of the shareholders. It would be REALLY REALLY NICE if we could do that!
I understand that small companies can be gamed and that colleges have to look at small company ownership. I just think there should be a way to separate assets that are illiquid, but available (like real estate) and assets that are liquid but completely unavailable (like cash in a business where the parent does not own a controlling share).
In cases such as ours the income we take from the business is sufficient (in addition to our savings) to pay for college. Between the partners our youngest is the last of 7 to go to college. Life is good. However, many people have businesses that require more assets and do not generate as much income as a law firm. I wish CSS Profile would do a better job of identifying those people.
@austinmshauri Thanks, that makes sense. Our portion of the gross receipts were in the lower-mid six figures with a net income in the lower five figures and I don’t think that looks fishy. I was worried they would use the gross receipts in the financial aid calculation which would be ridiculous. Our portion of the assets isn’t much, but it will still hurt, but that is fair. I still think asking for net receipts would have made more sense than gross, but I guess they have their reasons.