Assets - what 'counts' on FAFSA?

Paying for College
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<p>First off, I'm a parent who will be sending TWO kids to college next fall.</p>

<p>Okay, quick rundown on our financial situation.</p>

<p>We own our home, but still owe a substantial amount on it...just like most people I'm sure. We've owned it for just over eight years.</p>

<p>We also have a home equity loan that we can't get any money from at this point...we're just paying it down. (We had to tap into that about eight years ago when my husband was hospitalized and couldn't work to full potential for about two months.)</p>

<p>We (I) also own a chunk of farmland that was given to me by my parents, so there is no debt associated with it. I don't know the current market value for it, but it's about 112 acres, only half of which is tillable. I get about $5600 per year in rent from that property.</p>

<p>My mom wants to invest in some land and she was talking about buying our home from us and then leaving the house to us in her will. I'm not sure how soon she might be able to do that since she is in the middle of settling my dad's estate. (He died this past summer.)</p>

<p>If we do go ahead and let my mom invest in our land, would we be better off selling her the farmland and then paying off (or at least down) our home mortgage with that money?</p>

<p>Even if the sale of the land to my mom doesn't happen (she's notorious for saying she'll do something and then not following through unless pushed) should we think about borrowing against the farmland and paying down our home mortgage, thus lowering the 'investment' value of the farmland? Don't you exclude the value of your home from the assets you list on the FAFSA?</p>

<p>Or would it be a wash and we shouldn't bother?</p>

<p>Oh, and neither my husband or I have a job at the moment. I worked for the last two years at a day care and when they changed my pay scale so that I would have to pay full price for child care I had to quit. I have two young children (kindergarten and 21 months) so finding another job isn't something I really want to do. </p>

<p>And, despite the fact that my husband doesn't have a 'real' job at the moment he is self-employeed. He's spent MOST of his adult life self-employeed and only worked an outside job this past year, mostly to get away from the crazy cost of health insurance. But with the economy the way it has been residential remodeling has stalled to a standstill and so he's been laid off. But he can easily support us without me working, however him being self-employeed throws us into a non-conformist loan category which makes it much harder to get loans. Even if we qualified for any PLUS loans I'm just not sure if we could handle another monthly payment. Our income is so unpredictable that we often struggle with getting payments made on time.</p>

<p>Anyway...any opinions?</p>

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<p>OK...I'll bite. How can he do this without some kind of income?</p>

<p>On the FAFSA, you will need to report the value of any property you own that is not your primary residence. In addition, you will have to report any income you receive from rentals or the like (so that farm income would have to be reported). </p>

<p>With no income or jobs, I doubt seriously that you will be able to borrow against the farm property. There is no way you can show that you can reliably make the payments.</p>

<p>Your situation is very complicated, and it is complicated more by the fact that neither of the parents is earning a wage at this point in time. I'm not sure what to tell you...but that farmland value is going to be assumed to be available for either sale (which you could try to do) or equity (which you may have difficulty doing). </p>

<p>If you file a 1040 (which I think you have to do if you have rental income), you do not qualify for the simplified needs test (I don't think...others here are more knowledgable about that than I am).</p>

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<p>Thumper1 is correct. If you file the 1040, you won't qualify for simplified needs test (which eliminates assets from the equation for those with AGI less than $40,000) - unless someone in your family has received federal means tested benefits within the past 2 years (TANF, WIC, SSI, or free/reduced lunch). </p>

<p>If you have income, it will be counted, regardless of whether or not it's from a "regular" job. </p>

<p>As far as loans are concerned, your kids will each qualify for $5500 in subsidized and unsubsidized loans freshman year, as long as the cost of attendance - all aid awarded is $5500 or less (it's more complicated than that, but that's a good way to think of your eligibility). In addition, if you apply for a PLUS loan and are denied, they can each borrow another $4000 in unsubsidized loans. If they choose relatively inexpensive schools, they may be able to swing it with the loans.</p>

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<p>The main thing that determines your EFC from FAFSA is your income this year. You need to come up with your income for 2008, and that does include the income you got from your land. FAFSA does not take into account primary homes, nor does it recognize debt. Your assets will have to be listed other than your home, so the land has to be valued. Since it is income producing, I believe there is a formula to come up with its market value. Yes, borrowing against your farmland and paying down your mortgage would reduce the value of the land.
If your students are considering some PROFILE schools (those schools tend to be private), your home equity will likely be taken into account, though there are schools that cap that amount. </p>

<p>Be aware that FAFSA only gives you an EFC that makes your students eligible for government aid. FAFSA only schools do not tend to meet your need 100%. </p>

<p>I am not a financial advisor, cpa, and even those on this board cannot really advise you on your specific situation. You need someone who can get a hands on view of your finances. Just because something may net you some more financial aid may not necessarily be the best situation for you altogether. All of the possibilities need to be balanced in the context of your overall situation. I suggest you write each financial aid office and let each know your H and your employment situation since your numbers will not directly reflect current earnings since you are not working.</p>

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<p>You missed the part about my husband being self-employeed. He is a one-man business (cabinetmaker) and so we're lucky in the respect that he will never be completely 'unemployeed'. He can always easily step back into self-employment because he's got the tools and the truck and everything. He just took an outside job just this past year because he got tired of scrambling to pay for health insurance and the uncertainty of income that is part of being self-employeed.</p>

<p>Plus, it seemed like every time our income took any sort of jump all the expenses jumped too...things like business insurance premiums are figured by your income level. So he took a break and got a 'real' job. About the time he got the shop backed off to 'hobby' level he got laid off and now is in the process of getting business back up to a level that will support us.</p>

<p>However, even though he can support us, his being self-employeed throws us into the 'non-conformist' loan category, which is part of the reason I doubt we'll even qualify for a PLUS loan...but of course I don't know that for sure.</p>

<p>I'm just trying to figure out if we'd be better off seeing if we could swap our debt on the house to debt on the farmland, since that will be considered, for the purposes of the FAFSA, as 'investment' property.</p>

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<p>I agree with cptofthehouse. You should seek the advice of someone who can look at your personal situation & give you advice based that.</p>

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<p>By the way, what triggered this speculation was the part on the FAFSA worksheet that notes that asset value is 'investment value minus investment debt' or something like that. Since my farmland has NO debt associated with it then we'll have full market value as an asset rather than just a portion of the market value. </p>

<p>To me it just seems silly to have all the equity in something that will count 'against' us as far as need goes, and have the debt associated with something (our home) which would be exempt from consideration as an asset. </p>

<p>One of my sons, at least, will be going to a relatively inexpensive state college. The other, not so sure at the moment. He SHOULD be going to art school, but that remains to be seen. </p>

<p>The boys dad is unlikely to be able to contribute much to their education (this is my second marriage) due to having already put two kids through college and DOES have PLUS loans taken out for them. So he's sort of tapped out already. However, he does fall within a more 'normal' credit profile as he has a 'regular' job.</p>

<p>I'd also like to point out that I'm not trying to do anything underhanded. I'm just trying to figure out if we need to move some debt around before we file the FAFSA...or at least contemplate whether or not it would be beneficial. I know the boys dad said that his farmland ended up working against him because it converted some of his older kids grants into loans or something like that.</p>

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<p>By the way, if I'm getting any of my assumptions wrong please let me know!!!</p>

<p>(Like my assumption that our home value was exempt from consideration as an asset. I didn't realize that some schools DO consider the value of your home.)</p>

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<p>For FAFSA you are better off if your debt is against the farmland rather than against the house. The house is not a reportable asset. The farmland is a reportable asset. </p>

<p>Schools that use CSS or their own financial aid forms will have their own individual ways of treating the house for financial aid purposes.</p>

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<p>You might try going to a book store & looking at the books on maximizing financial aid that are in the college section. There are some good books that explain how to legally move money around to maximize your ability to receive aid.</p>

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<p>I got some books from the library already. Are there any that are better than others? I notice that most of them have a version that comes out every year and fortunately the library had most of the latest versions, but of course some were more general and therefore outdated on the specifics.</p>

<p>I will have to call the bank and see what it would take to move our debt around a little. Not sure what hoops would need to be jumped through.</p>

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<p>You really need to understand the tax implications of having your mother buy your home. You have no way of knowing what the tax consequences will be at the time of her death, but Dems definitely plan to raise inheritence taxes. You could easily end up having to sell the house to pay the tax bill. </p>

<p>There are tax implications for all of the things you are considering. If you sell the house any cash not spent is an asset and you will pay cap gains on anything above the simple deduction.</p>

<p>Bottom line: hiding assets usually backfires.</p>

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<p>Yeah, tax implications is definitely something I need to investigate before I ever proceeded with that plan. My mom is struggling with inheritance taxes at the moment given that she's trying to settle my dad's estate. They had a living trust but it's turned into a major nightmare. Not sure how much her 'lawyerphobia' is contributing to the problem though. She's convinced that they're all out to get her.</p>

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<p>"Paying for College Without Going Broke", by Princeton Review. Very clear and helpful on getting your finances in the best position before filing the FAFSA or Profile. New edition each year.</p>

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<p>I think I have that book from the library. Need to check the date on it, but I'm fairly certain that I didn't get any of the books that are revised every year unless they were the current edition. Need to go dig that out of the monster pile of books I have!</p>

<p>I was discussing the possibility of, essentially, moving our debt around with my husband last night and his head was spinning by the time I got done! (Of course he'd also just come in from the shop where he'd been attempting to bid a job for a contractor who hadn't sent all the relevant information for him to put together a coherent bid, so his head was ALREADY spinning before I got hold of him!)</p>

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<p>Assume your home is worth $100,000 and the mortgage is at $50,000 owed. Also assume your farmland is valued at $100,000 and that you are able to obtain a loan against the farmland. If you take a $50k loan against the farmland and pay off the primary home mortgage you will be better off from a FAFSA point of view.</p>

<p>But before you spend a lot of time shifting assets, you should run the formula and see where your income puts you- use your AGI- as the formula is income driven. If you don't have much aid coming based on income there is no reason to put energy into complicated asset reallocation ideas.</p>

<p>Federal</a> Student Aid - IFAP: iLibrary - EFC Formula Guide</p>

<p>run the numbers with different options to determine whether it is even worth doing- many people talk about 'hiding' assets not realising the formula is primarily income driven, thus with a middle class income, you may not benefit from stashing assets in unreachable places, as you may need to utilise that money for your EFC.</p>

<p>Also, that EFC is only for FAFSA, profile schools count home equity, though recently some have begun to limit how much of your equity they count, based on your income</p>

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<p>Mary - I think the web site FinAid (finaid.org) is better than books. It's like a combination of encyclopedia and tutorial. It takes a little while to get enough of a handle on the financial aid issues to know the kinds of questions you should be asking, but if you stick with it, I think FinAid will take you as far as you can go without paying for advice. Also, it is kept up to date and books get out of date pretty quickly.</p>

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<p>Most schools that use the Profile also will ask for a non-custodial parent form to be completed. This means that for a Profile school, in addition to your primary home equity, the incomes and assets of the kids dad (your former husband) and his wife (if he has one) will also need to be reported.</p>

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<p>How can you tell if a school uses the Profile?</p>

<p>The schools in question are CCAD, Cleveland Institute of Art, Kent State and BGSU. I checked CCAD's financial aid page yesterday and saw no mention of the Profile. Didn't check CIA yet, but I'm guessing that BGSU and Kent are probably FAFSA only?</p>

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<p>The above is off of the CIA website. You can go there yourself for the specifics. They do not use the Profile, but the DO have a CIA Institutional Financial Aid Application. You will have to check to see what it asks. Many school financial aid forms ask for similar info to the Profile...but go and read it. It's a download on their site.</p>