<p>My husband is self-employed, "S" corporation. I've just plugged in our numbers in one of the calculators online and was shocked at the results. They estimate a WHOLE LOT more than we can afford! I know we look good on paper -- but that isn't our actual situation! I think I answered everything correctly, so I don't understand. I'm sorry if I sound ignorant, but when it comes to the financial stuff, I'm afraid I am. Unfortunately, I've been left with the task of filling out these forms and I don't have a clue as to what I'm doing. Please, if anyone can give me any advice, reference, info, etc. I would truly appreciate it!</p>
<p>UNfortunately, welcome to college financing. If your income is upper 5 figures, low 6 figures, particularly, it may be hard to get need-based aid. If your husband is the sole shareholder in the S corp, and it has some real assets (looks good on paper) much of that will count. I'm an S corp shareholder,too, and our corp has very few real assets (just accounts receivable), but our estimate was really high. Talk to your accountant, and after your child is admitted, to the financial aid office, but sadly, if there are assets, you may well have to pay.</p>
<p>We also have a business and are not eligible for aid.</p>
<p>Everyone is shocked when they see the EFC. However, remember that aid is just that - aid. You are responsible for paying for your child's education, and the government is not concerned with giving you an amount that you feel comfortable with while maintaining your current lifestyle. You are meant to sacrifice, and they (meaning the taxpayers who subsidize the loans and the alumni who provide the endowments for grants) are there to pick up the slack for <strong>those who truly cannot afford to go otherwise.</strong> </p>
<p>Also, you are not meant to pull ALL the money out of current income. We pay part out of current income, part out of investments, we've been saving for each kid for 18 years, kids have summer jobs, we pay part each month via the monthly payment plan, kids have gotten outside scholarships from private foundations, etc.</p>
<p>Other people may decide to have their children live at home at commute to a local school for the first two years, etc. It still pays to apply even to a private school, however, as you never know what the final package will be.</p>
<p>DH and I are not self employed...but we are both employed. I can tell you that almost everyone who has a moderate or better income is shocked by the EFC that is calculated. Ours was $41000 per year. The reality is that we CAN pay this, although it has meant tightening our belts a bit with regards to how we spend our money. It helped that DS got a decent merit aid package from his university. BUT one whole salary is used to pay the college bills. It's like our "real income" has been cut in half. The really annoying thing is that for the second year, the FAFSA still considers income. It doesn't take into consideration at all that 1/2 of that income from the previous year was spent on college. The assumption is that we can and will continue to pay if our income remains the same. I guess we feel fortunate to be able to do this. I'm only concerned with what will happen when two of our kids are in college at the same time!</p>
<p>Spare everyone the lecture, Veronwe -- you are missing the point on issues that come up for people who are self-employed, and who are in partnerships and S corporations. I'm self employed without a business - because I'm a freelancer - I work from home, no employees, no business assets other than the computer I work with and basic office supplies.... and for ME my annual income gets counted TWICE, one to represent income and a second time because that's what the financial aid process deems to be the value of my business. (They won't accept an accurate accounting based on value of equipment and accounts receivable, because that's too low). So here I am, single parent, earning on average $50K a year, living only on what I can earn from the value of my own labor... and for financial aid I am also deemed the owner of a business "asset" of $50K..... as if I could somehow sell myself for the value of a year's earnings. </p>
<p>In the past I have been in partnerships where the partnership shows a profit at year end - so every partner gets statements showing income they have to pay tax on -- but the reality is that the partners never got paid anything like that amount. The money shown on a K-1 as partnership profits or loss is something that is reported on top of actual earnings of the individual, which go on a schedule C. </p>
<p>I don't know anything about S corporations so I can't fathom the issues that may be involved there.... but before you go lecturing people I'd like to let you know that the self-employed often can be in pretty iffy financial circumstances, because income can fluctuate wildly from year to year. People who own businesses are not necessarily rich. It isn't always a matter of maintaining "lifestyle"... sometimes its a matter of just managing to keep afloat without being forced into bankruptcy. </p>
<p>I have no knowledge whatsoever of what AllNewToME's financial situation is. But I do know that it is very possible that they are facing a financial aid calculation that is very much out of line with their income. When people are in business they may have "assets" that seem very valuable but are necessary to the business -- like the cost of trucks or special equipment.<br>
They can't sell those assets to raise money -- the assets ARE the basis of their livelihood. So it's not the same as having extra cash lying around in a bank account somewhere. </p>
<p>Financial aid is not welfare -- the EFC is used to determine eligibility for federal LOANS and WORK-STUDY -- which kids have to work for or pay back. (Pell grants are for the very low income -- so for these purposes, probably not relevant). College grants come from private endowments and scholarship funds, and private colleges give students grants because their tuitions are so damn high that only rich people can afford to send their kids there for full cost -- the less prestigious colleges wouldn't be able to fill their classes if they didn't discount their tuition to some people through the financial aid process. And by "rich" I mean to include the "upper middle class" -- people with 6 figure incomes ought to be able to afford to save up for college -- people with lower-to-mid range 5 figure incomes often can barely break even at the end of the year, much less put money aside for savings. </p>
<p>Again, I don't know the OP's situation -- so I don't know whether her husband's business fits the "raking in the dough" or the "barely eking by" profile.... but I just felt that your tone was out of line. She came here asking for help.</p>
<p>Calmom, "tone" is not necessarily what you imagine it is on a message board - even the addition of sadly ironic smiley faces etc. does not help. My tone was, in fact, not what you imagined or judged it to be, </p>
<p>Telling people the truth about how the government regards us is not "lecturing" - it's simple fact. I cannot soften the blow. The government sees college financial aid as just that. They don't care about anything else. They don't even care what zip code you live in, so that if you are in the very expensive areas of California or Connecticut, it is all the same to them, even though it is a LOT cheaper to live in the backwoods of the heartland. They don't care what our businesses cost, what we think we need to live on etc. It's a heartless and soulless calculation, based on rigid formulas, but I didn't think it up and I can't change it.</p>
<p>Suggesting what many of my family members (including myself) have done - from summer work for the kids, trying outside scholarships (very often overlooked, and I don't know why - we've gotten a tremendous amount of money this way), using the "divide-by-ten-months" payment plans that most colleges have etc. - is also not "lecturing" but IS the "help" you say is requested.</p>
<p>My experience with self-employment ranges from when I made $4,000 a year and filed a schedule C to our current partnership. It covers the entire range. I know what it is like to have been on food stamps (yes, I paid the money back!), to have no heat in the house, except whatever wood I could get to burn, and to wonder if I would have a roof over my babies' heads, to where I am now - where I am able to tithe to charity more than the average American makes in a year. I could go back to the other extreme at the drop of a hat - or the economy.</p>
<p>And of course I understand the taxes - I too get K-1 forms, have partnership income counted twice, etc.and it's worse because I pay so much money out to support other people besides myself.</p>
<p>As for student loans, students pay back 2-4% while for the last decade, TAXPAYERS have paid the balance to 12% to the banks. These are SUBSIDIZED loans, subsidized to the tune of billions of dollars.</p>
<p>As a personal aside, I have noticed and wondered at the various times you have replied harshly to me on these boards, and I am at a loss as to why. I have posted before about the serious difficulties I underwent as a single mother before my remarriage, my daughter's current struggle with cancer, the tremendous lack of money my family had as immigrants, etc. so I am at a loss as to the motivations behind your remarks to me. Does all this really stem from my volunteer work with destitute immigrant refugees from war-torn countries, and hence my apparent lack of sympathy for people trying to game the system (the "other people's money" posts), or is it simply schadenfreude on your part (As in "Ha, ha! I don't have a daughter who may die and you-ou do!"). Either way, it is unseemly.</p>
<p>all I can add to this is that I don't think the govt is very supportive of small businesses. I know too many people that decided it was too costly in time and effort to work for themselves and have gone back to working for "the man"
On the other hand I know many, although they are not working in fields they anticipated when they received their degrees ( ex. the owner and operator of the espresso cart where I stop each week has a graduate degree from the UW in pysch.), are doing very well running their own businesses and are managing to send their kids to school as well.</p>
<p>I will agree that FAFSA is quite annoying when it expects you to spend a big chunk of after tax income on tuition and when you have to borrow it, doesn't seem to allow for the monthly payments on that loan the next year. Oh well, we weren't going to retire anyway.</p>
<p>We are both self-employed (two sole proprietorships). We easily make enough each year to pay rent and pay taxes, or to pay rent and buy groceries, but paying for all three takes more careful planning. We do NOT have any financial assets whatever (as an aftereffect from years of living overseas at overseas wage scales). This matter of business valuation based on current business income is something we had better look into more carefully before gauging what's affordable. </p>
<p>On my part, I appreciate what voronwe says on this and other subjects: it is, after all, the parents' personal job, first and foremost, to get kids an appropriate education. My wife and I should be prepared to significantly increase our income, or significantly straiten our lifestyle, or maximize even more our current use of our creditworthiness if we expect our kids to go to college. It's not anyone else's duty to educate our children. </p>
<p>For all that, ALL college students in the United States and in most countries around the globe obtain substantial indirect subsidies from taxpayers whose children never attend college. One of the most eminent economists to research this issue is Mark Blaug, one of the founders of "human capital" theory. Thus we try to tell our children early and often that they should make use of their educational opportunities to make a positive difference for people who are unable to pursue the same opportunities. We want to make sure our children learn how to give and not just to receive.</p>
<p>"I have no knowledge whatsoever of what AllNewToME's financial situation is. But I do know that it is very possible that they are facing a financial aid calculation that is very much out of line with their income. When people are in business they may have "assets" that seem very valuable but are necessary to the business -- like the cost of trucks or special equipment.
They can't sell those assets to raise money -- the assets ARE the basis of their livelihood. So it's not the same as having extra cash lying around in a bank account somewhere."</p>
<p>This is exactly right. The assets ARE the basis of our livelihood. We don't have extra cash lying around in the bank account somewhere. As a matter of fact, we don't have a savings account! My husband started his business 5 years ago, and while we look good on paper, we truly can't afford the $40,000.00 the calculated estimate suggests! Is there anyway I can explain this to the colleges our son has applied to? His sister's tuition alone, in parochial high school, is costing us $8.000/yr. But there's no where on the FASFA to explain this. Please advise. Thank you.</p>
<p>Allnewtome -- I'm no expert, so the first thing I would suggest is that you try to find someone who IS - you might find it helpful to work with a consultant or advisor who can help with the FAFSA. There may be some mistakes you are making about how you complete the form that will change the picture. </p>
<p>Also - the online calculators are not so good at parsing out unusual situations -- so you may find that you do come out better when you fill out the actual FAFSA. Unfortunately, the FAFSA form won't give you an EFC number until after you submit it -- so you can't play around with figures to see how various changes might affect the numbers. I'm not advocating cheating by putting in false numbers - by "changes" I mean looking at how various changes might affect your eligibility. For example - if 2 spouses work but one makes substantially less than the other, the numbers are often better than if only one is working, even though with both working they make more money. My guess is that there is hidden presumption that the nonworking spouse has a greater earning capacity, but if both spouses are employed, then figures are based on actual - not presumed - earnings. That's a guess only -- but I do know that the numbers on the online calculator shift down when spouse #2 goes to work. </p>
<p>However, you can submit an actual FAFSA and later submit a corrected FAFSA - so if you filled it out based on what you know now, and later found out that there was some asset you didn't have to list or that accountants have a different, more favorable formula to use to calculate the value of your business assets - then you wouldn't be penalized because you had made a mistake the first time around. </p>
<p>Other than that, I think that your options for need-based aid may be limited, if it is the FAFSA that is showing a $40K EFC. (The CSS Profile has more room for explanatory material, but the FAFSA is really the bottom line for determining eligibility). So your next-best option is to shift to look for colleges that are likely to offer strong merit-based aid. This means to concentrate the college search in the "match" or "safety" range, and to consider public colleges as well a private.</p>
<p>One thing to keep in mind about the EFC is that it is NOT the amount parents are expected to pay directly out of income and assets. Rather the EFC is the amount that parents are expected to be able to finance - through income, assets AND loans. While many parents are averse to taking out loans, the government and colleges loans into the total equation. Based on current rates for PLUS loans with a 10 year repayment, the payments equal about 1% a month. On a $20,000 loan, the payments would be less than $200/month. I'm not advocating for loans or for how the EFC is calculated. I'm just reporting what I understand the reality of financial aid calculations to be.</p>
<p>We do not have an S corp but significant non-retirement investments an a small, extra income stream from two patent royalties. Result, an EFC of $81k. Our son applied to Oberlin which requires both the FAFSA and CSS. While we did the FAFSA I recalled that there was a charge for the CSS. He called Oberlin, explained the situation and they recommended we skip submitting the CSS. WE did an he was accepted w/o any finaid offer, even merit aid.</p>
<p>While we could have easily paid full freight if he had gon to Oberlin, it would have totally drained his UGTM accound an put a small dent in our savings. He quickly decided against that option.</p>
<p>Allnewtome, those who are struggling with their own businesses are hit very hard by financial aid methodology. Because being self employed allows for all kinds of loophole and opportunities to hide cash, when it come taxes and financial statements, they are scrutinized above and beyond those who work for a company. It is just easier to "cook the books" when you are self employed. Small comfort for those who are taking the straight and narrow path and are getting reamed.</p>
<p>First of all there are so many differences in small businesses, that you need to get somone knowledgeable to look at your financial situation carefully. There are some thing that those who are self employed can do to lower the assets being considered for financial aid, but they tend to be very much custom tailored to those in specific situations. I've yet to see two self employed situations that are alike, but those who work in a corporate involvement do tend to be similar. Also the colleges that are being considered need to be taken into account. For example, if your student is not applying to any schools using the Profile, it may be to his advantage to borrow against the business and pay off the homemortagage with the proceeds. That way the value of the business is offset by the loan and FAFSA does not ask about home equity. But that advice does not necessarily hold for anyone who is filing Profile. Many schools that use the Profile do take into account the schools where siblings are attending, and I have seen some families with reasonably high incomes get aid with a second child at commuer schools. You need an array of options to consider and that way you can see what fits th best.</p>
<p>CalMom:
On business valuation, I have been advised it should be based on the resale value. So, if you are on a free-lance, commission only, type of business, the "value" of hte business may be lower than the prior year's sales. </p>
<p>The system of formulas is flawed, but any changes will merely change the falws to another category. That's why it is ethical to learn the system and while abiding by the rules, set yourself up in the most advantageous way possible....like taking cash out of a bank account and paying down your mortgage for the FAFSA.</p>
<p>In some cases, a small business owner is better off with a FAFSA school.....even though the CSS schools have more flexibility built-in, they can begin to ask some very nosy questions, which while justified to qualify for the aid, may simply be too intrusive for some people.</p>
<p>Allnew - I highly recommend you consult with your accountant who provides your K-1s, and gingerly consult with someone who understands the ins and outs of financial aid. I am very leery of the people who send you unsolicited letters and state that they can dramatically reduce your tuition or your CSS profile - there may be ways to legally do it, but I would want more than one opinion, and I have difficulty comletely comprehending the K-1s as it is. I did the online calculator, and just gave up, assuming we'll have to pay full freight. Our situation is a little different, in that our business has no significant tangible assets other than accounts receiv., and virtually the entire worth of the business is paid out to the shareholders as dividends at the end of the year. If I understand how it works, if I was allowed to calculate the value of my share at the beginning of the calendar year (again, I didn't get that far, so I don't know at what point you should calculate it), very little would be "counted twice" because almost everything has been paid out in dividends. But, with real assets (like a truck for instance) you can't take the business down to zero at the end o the year. You need pro advice, but be prepared for a less than desireable reality.</p>
<p>hi, everyone!
is my essay topic bad?? i wrote about when i made the decision to move to the u.s. when i was ten. it was of my own accord, and i had to leave behind all my family and life as i knew it to come live w/my mother in ohio. i describe being detained in the immigration office with my grandma, then go on expressing how it made me feel bad to make everyone go through the worry and nervousness each year as a result of shuttling back and forth between my mother in the us and the rest of my family in the Philippines. in the end, i tie in how i wouldnt be applying to all these colleges if it weren't for that momentous decision.</p>
<p>i think this falls under the "overcoming obstacles" no-no. am i toast? there's not too much time left! i was banking on this essay...please help!</p>
<p>somemom wrote:
[quote]
CalMom:
On business valuation, I have been advised it should be based on the resale value. So, if you are on a free-lance, commission only, type of business, the "value" of hte business may be lower than the prior year's sales.
[/quote]
</p>
<p>That's the problem - the financial aid people at my son's college refused to do it that way - AND they insisted that they were following federally mandated guidelines. Basically, since I filed a Schedule C, I a was a "business" ... and I think that the last-year's income was considered a minimum valuation. That is - if I also owned tangible business assets or accounts receivable that had a higher value -- they would have wanted the bigger number. </p>
<p>Obviously, there is -0- value in the business of a freelancer -- I'm using that term to include all independent contractors who basically work for hire for others. If something happened to me to prevent me from filling my obligations, the people who hire me would hire someone else -- it's possible that I could hang onto the client by subcontracting the work, but I can't "sell" the business or contracts. I'm not really a "business" - I'm just a person who hires myself out to multiple employers, rather than working for a paycheck. </p>
<p>I've also heard of some schools disallowing many business deductions if they exceed an arbitrary percentage -- I haven't run into this problem, but as I now work from home I've got very low overhead. When I was practicing law, overhead could be extremely high and it would be very easy in a given year to have 80% of income go for expenses -- this is especially true for personal injury lawyers who work on a contingency basis, taking only a percentage of the client's recovery.</p>
<p>I have seen some financial aid sites where they specify, in detail, things they add back...I think it was Bowdoin............I can understand adding back in depreciation, or children's salaries (but not if it counts as children's income on thier part of the FAFSA), but valuing your business by the sales is scary stuff...maybe they'll buy it from you for that! If it is private school, you would think they could be more flexible, but then that assumes they understand how self-employment works & that only happens if you've been there!</p>
<p>Somemom, I think it just comes down to people being stuck with rules and policies -- they really don't understand and they are worried about self-employed people who may inflate business writeoffs or hide some of their income. So if they see a Schedule C ... they simply apply certain arbitrary standards. The problem is that the vast majority of self-employed people really are in situations more like mine -- a lot of companies cut costs by hiring independent contractors (no benefits, no employee taxes) - for many functions. It has its advantages for someone like me - I have 100% flexibiity in scheduling my time & work from home, which was pretty important when the kids were younger -- especially since I'm a single parent. But when it comes down to it, it is still work-for-hire.... not really a "business".</p>
<p>don't forget......in addition to no health benes (I hope you have explored MSA/HSAs), you get to pay both halves of FICA, AND you have no sweet employer-pension, but I am sure that $2000 a year (more now) IRA will take care of you when you retire.</p>
<p>Do I sound bitter? Hope not, just being realistic. I, too, have apprecaite the flexibility to raise my kids and work for myself, I just wish my boss paid me more :)-</p>