<p>We have a hefty chunk of credit card debt that we would like to pay down. To do that, we would have to sell some long-term stock holdings that have shown very modest appreciation over the past several years. I doubt that the sale would add more than $2,000 to our AGI for 2010. This seems like an easy one -- we should do it. Its not like we're buying things that we don't need in order to make ourselves poorer -- we're reducing a debt load that in itself decreases our ability to finance college. Am I missing anything?</p>
<p>Thanks very much for your insights.</p>
<p>As far as FAFSA is concerned, as long as you would not otherwise qualify for the simplified needs test (income under $50k) or auto 0 EFC (income under $31k) then the increased AGI would probably increase you EFC a few hundred dollars (income has more impact than assets % wise). Whether this would affect your FA depends on your overall financial picture.</p>
<p>Print out the FAFSA formula for 2011-2012, and work through it with both scenarios. [IFAP</a> - EFC Formula Guide](<a href=“http://www.ifap.ed.gov/efcformulaguide/101310EFCFormulaGuide1112.html]IFAP”>http://www.ifap.ed.gov/efcformulaguide/101310EFCFormulaGuide1112.html)</p>
<p>Then pay down that debt. </p>
<p>Think of it this way: every cent that is going to service that debt could be going to pay for college instead. The sooner you are rid of the debt, the sooner you can use your money for other thing.</p>
<p>Are you making 20%/year on your stock? If not, and that’s around what you’re paying in interest in your credit card debt, then taking the modest gain to pay down this debt, plus paying taxes on the gain, seems like a wise decision.</p>
<p>In addition, whatever you spend from your stock holdings is no longer your asset, therefore not reportable on financial aid forms. This might balance out some of the $2000 bump in AGI that resulted from realizing your capital gains. Spending $10,000 in parent assets reduces marginal EFC by $560.</p>
<p>Yes, pay down the debt.</p>
<p>(When you apply for financial aid, debt does nothing to help you. The first $40,000 to $45,000 of assets (such as bank accounts and stocks) typically is not counted in reducing aid because that is considered emergency funds.)</p>
<p>A much belated thank you very much. That’s the advice that seems to comport most with common sense, but common sense is not always the best guidepost for navigating the financial aid waters.</p>
<p>The possible exception to the advice to go ahead and sell would be if your AGI is below $50k or $31k. Those are the cut offs for simplified needs (where assets are ignored in the EFC formula) and the auto 0 EFC (where the EFC is set at 0 and disregards everything other than the AGI). Selling stock would mean you would be ineligible to file a 1040a or ez which would probably make you ineligible for these which, if eligible, can have a big impact on FA. But if your AGI is over these cut offs then there would probably be little FA impact.</p>
<p>Yes…pay down the debt…</p>
<p>you might consider selling some stock this month and then some stock right after Jan 1…to minimize income impact over 2 years.</p>