<p>Every year there seems to be thread popping up related to gaming the system somehow. This article came out last January but I thought it would serve as good info (yes, people really do get caught and are penalized) and a reminder to those students who are tempted...it's more than your integrity at stake!</p>
<p>Gaming</a> the Financial-Aid System - The Daily Beast</p>
<p>It’s an interesting article, thanks for posting it.
The only comment I have is that she made a misstatement regarding the impact of savings on financial aid:
“Since applications for financial aid are primarily evaluated based on how much money you have in the bank, and not your consumer assets, spending as much as possible before apps are due is a common method for obtaining more aid.”</p>
<p>In fact, the biggest impact on financial aid is your current income. Parental savings are only “charged” at about 5%, and even then there is a certain amount that is shielded entirely from consideration, depending on age and marital status (for us it’s around $50K - older parent is 47, and we are married). Also, savings in qualified retirement accounts are also shielded.</p>
<p>For those who are looking to legally find ways to maximize their financial aid, the book “Paying for College Without Going Broke” is a must-read.</p>
<p>Thanks for posting that article sk8rmom. Some of us need all the help we can get right now. I am reading “Paying For College Without Going Broke” now and it is great. An interesting note in it related to FAFSA suggests that the other thing to consider is diminishing the value of your owned assets, like your home. I am 56, my wife 51, and we own our home now, paying taxes on it only. PFCWGB suggests taking out a home equity loan on the house, which apparently in the eyes of FAFSA reduces the value of the asset by the amount of the loan. The loan could be used to pay off credit cards or other debt that doesn’t encumber an asset which I am told FAFSA doesn’t recognize and allow you to deduct. A wise personal move to be sure, but does it really help? (Granted, a wiser personal move would have been to not have the debt, but with the economy and our bad jobs we had no choice.)</p>
<p>The question is whether or not this home equity loan is wise - will it diminish my son’s chances of getting student loans by his connection to us? I assume we co-sign for the student, thus our own debt picture might enter the equation.</p>
<p>Please forgive me - I have JUST started working on the visceral financing application process and probably could answer my own questions with a little more reading. I just don’t have time if I want to get the loan before FAFSA and other financial aid packages are due and as I said we started this process late for an unfortunate series of personal and work reasons. Any help would be appreciated.</p>
<p>As far as FAFSA is concerned, your primary home is not a reportable asset at all. So taking a home equity loan against it will make no difference whatsoever to the EFC. If it is a secondary home then that is a reportable asset so reducing the reportable asset would make a difference.</p>
<p>If you are looking at schools that require CSS then the primary home is reportable on CSS. But different CSS schools will treat the home value differently so the impact may vary from school to school.</p>
<p>But, and this is a big BUT, if you do take a home equity loan out make sure you use the funds before you file FAFSA and they are not sitting in the bank. If you still have the money from the loan on the day you file FAFSA then it is a reportable asset on FAFSA.</p>
<p>@smorgasborgnine: Federal Stafford loans don’t require parental co-signers. Your student takes them out in his own name. If you are thinking about having him take out private loans, you should really think long and hard about it first. Some of them come with terrible terms/rates. </p>
<p>You would probably be better off taking out PLUS loans in your own name if you have to borrow. In which case I’m guessing having home equity loans out might hurt your chances of being approved? (We don’t have these, so maybe someone who knows more could answer.)</p>
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<p>I wouldn’t be quick to replace consumer debt with a lien on my home in order to help cosign for student loans for a couple of reasons. First, if the economy/job situation is not looking good right now (and you have plenty of company there), why risk your home? Consumer debt is often negotiable, if necessary, and can be discharged through bankruptcy in the worst case scenario. Unless there was a huge financial benefit, I wouldn’t take the risk that things might get worse before they get better. My philosophy is the home is where you live, so protect that asset first! Second, reducing the amount of equity in your home may only make a small difference, or none at all, in your EFC for Profile schools. So, unless the colleges tell you otherwise, little/no gain of real financial aid (ie. grants) may be given and you still have the risk a lien creates. </p>
<p>Finally, I WOULD (and actually did) consider taking a home equity loan instead of cosigning a student loan if your S is going to need more than the typical federal loans all students can get. Stafford loans do not need a cosigner and are only in the student’s name but are limited to $5500 for freshmen, $6500 for sophomores, and $7500 for juniors/seniors. Beyond that, you have access to Parent Plus loans but the rate is around 7.9%. Plus loans also have no real credit check, they only look to make sure there are no recent accounts over 90 days past due and no bankruptcy. No education loans are currently dischargeable through bankruptcy, except in rare and extreme cases of disability/hardship, so it makes sense to me to take the much lower home equity rate and avoid the risk to one’s credit score that comes with being a co-signer. That’s just my $.02!</p>
<p>Very interesting - we always say on this forum to tell the truth, that there are consequences for fraud, but don’t always have specific examples of what those consequences are. It’s clear that as FAFSA moves closer to a direct link with the IRS, the ability to mis-report income will be lessened.</p>
<p>Here’s one thing that’s very wrong in the article:</p>
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<p>It is not kosher to indiscriminately move money from a child’s account to a parent’s. This is illegal except under very specific circumstances, i.e. the money must be spent for the benefit of the child. So having the parent buy the child a computer and then reimburse herself from the child’s account would be kosher; having the parent move cash willy-nilly from the child’s account to the parent’s would not be.</p>
<p>It is amazing to me how many of the stated people just lied, I was verified so many times, just randomly, I wonder how these other people never were? Although apparently some of them were just submitting false returns, so even verification would not help.</p>
<p>On the spending comments- it is true for FAFSA that spending the money the day before you file is helpful, but I don’t quite get the consummate consumer mentioned. Anyone can see the formula is income based so unless there is an existing boat, an existing nice house with an increased value over time, I cannot see many situations where someone has the actual income to buy this stuff and yet can still get aid. I am sure there are some unusual situations out there, but for the majority that are buying hugely expensive things, how did they pay for them without income?</p>
<p>It’s not something that a lot of people can get away with (Contrary to popular belief, simply throwing away all your savings will not move the college financial aid office to magically conjure up more money to help you attend; if you make the foolish decision to take the $160k you saved for college and, say, bought a tank with it, 99/100 you’ll end up just getting the same Stafford loans that you could have gotten with the savings, and a friendly suggestion to contact Sallie Mae to see what your options are). There are a lot of legitimate complaints about the financial aid system, but the chronic whining about how the system punishes people for saving and rewards profligate spenders with gobs of free money is happily unfounded.</p>
<p>Unless they’re lying about income…the Pell grant and other programs (SEOG, work-study, Perkins, and all the various grants states and schools award) can amount to some pretty serious cash! I’m not usually one for making needy folk jump through a million hoops, but I think that all Pell recipients should be verified every year or two or at least provide a current award letter for one of the federal means-tested programs…it’s really not too much to ask in exchange for that level of aid, especially if the IRS info is verified electronically. This really bothered me because, as we all know, it only takes a few well-publicized cases for a public outcry to ensue:</p>
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<p>I know that 4.4% doesn’t sound like alot, but that’s over 100,000 families in that group alone!</p>