CSS Profile and child assets - Is there an asset protection allowance?

Paying for College
1

From what I read, the institutional method uses 25% of a child’s assets to determine the expected family contribution. I also read that there is no asset protection allowance for the child’s assets. However, I was just playing around with the NPC for my child’s future school and there seems to be some kind of allowance. When I plugged in value less than $4,900 (may not be exactly that), I saw no change to the EFC. However, for every $100 I plugged over that amount, I saw $25 added to the EFC. Trying to understand why the NPC seems to be showing me something different that what I have read on a few sites.

Anyone know?

2

There is no set formula for Profile as there is for FAFSA. Every Profile school is free to use the data enetered on the form in any way they see fit. So the answer to your thread question, as with so much here on CC, is “it depends.”

3

Thank you @BelknapPoint.

So I played around with some other schools to get a feel for whether certain schools do have an asset protection allowance. As you said, it did vary by school. Some schools had no asset protection, meaning for every dollar I changed in the student assets, it had an affect on the EFC. Other schools seemed to have a similar affect as I saw above but at different amounts, meaning there was no affect on EFC till a certain dollar amount was hit and then every dollar above that had an affect but the amount was different depending on the school. I tried this at schools that met full need.

If this is indeed the answer, that it depends on the school, I sure wish the articles about this process would state that. I have not seen a single article (and I looked around) state that some schools have a protection allowance on student assets. I wonder how accurate NPC is for student assets. The fact that I get different results, as far as modifying student assets, at different schools makes me think it may be pretty accurate.

4

OP, I think the reason you were’t able to find specific articles is that you’re looking for the ‘asset protection’, ‘protection allowance’ or ‘safe harbor’ for the students assets, where there isn’t any. That is specific to the parent assets, and even that might be limited to the fafsa. For the schools where it matters (that require the css profile), the student assets are simply handled differently from school to school (as you’ve noticed from running the NPCs).

Here’s an article from 2013 that specifically lays out differences. Notice the difference in wording when talking about the assets of parents and students. And also notice the ‘consensus methodology’ described. You can research that separately.
http://www.forbes.com/sites/baldwin/2013/02/28/college-aid-formulas-fafsa-profile-and-consensus/#54d0b2f83244

All that being said, last year I actually researched the effect student assets have at a variety of schools, and there doesn’t seem to be any ‘consensus’. NPCs might not be totally accurate, but for the actual schools my kids were admitted to they were pretty close. Here is a listing of the schools I looked at and you can see that some use quite low % thresholds for the student assets. I also listed whether the school packages loans or not since this affects the amount of grants significantly. (Disclaimer, your mileage may vary since other data might factor in, but a quick sanity check of HYPS on one end of the spectrum and Boston College on the other should give you some confidence.



            % Student   Loans
School      assets req'd    in Package?

Princeton    5%     No Loans
Harvard      5%     No Loans
MIT         12%         No Loans
Penn        15%     No Loans
macalester  20% 
CMC     20% 
Scripps     20% 
Yale        20%     No Loans
Stanford    20%     No Loans
Richmond    20% 
UChicago    25%     No Loans
Northwestern    25%     No Loans
bryn mawr   25% 
Swarthmore  25%     No Loans
FandM       25% 
Cornell     27%     No Loans
Williams    32%     No Loans
Rice        32%     No Loans
Pomona      33%     No Loans
w&l     34%     No Loans
Pitzer      35% 
St Olaf     35% 
colby       36%     No Loans
colgate     36% 
Vassar      36%     No Loans
Brandeis    37% 
smith       37% 
Amherst     37%     No Loans
Brown       37%     No Loans
mt holyoke  37% 
Wellesley   38%     No Loans
Haverford   38%     No Loans
grinnell    >40%<br>
Columbia    >40%        No Loans
Boston College  >40%
5

@privateID

Maybe you didn’t read that there was a different asset protection allowance for students at each college…but certainly you must have read someplace that Profile Schools have varying formulas…and can use the info you put on the Profile any way they choose to.

For FAFSA purposes, there is no asset protection for student assets.

For Profile Schools…the formulas vary wildly. Even schools that “meet full need for all” can have net prices which very by THOUSANDS of dollars. Because the formulas use the Profile data in different ways to compute need.

6

@iz57c4 Thanks. Interesting chart. I didn’t really search on ‘asset protection’ or any of those terms. Just never saw anywhere where it said there is a reserve for student assets. From the linked Forbes article:

"Maximum rates on student assets: Fafsa, 20% per year; Profile, 25%; Consensus, 5%. If he or she is going to a Profile school, and that would be most of the good ones, any money your kid has saved—from mowing lawns, from an inheritance, from a Bat Mitzvah—is going to be snatched away.

What to do? Park the kid’s savings in a safer place. Before filling out the aid application, he should hand the cash over to you, since the effective tax rate on your assets is only one-fifth the rate on his."

Don’t really see where it even implies anything about a reserve. Earlier in the article it talks about a “safe harbor” for part of the parents income/assets, but nothing really about the student.

@thumper1 Yes, I have always understood they have varying formulas and therefore varying results. For items that vary from school, like home equity or even 401ks, I have usually seen a mention. Just never read that about student assets.

Regardless, not upset learning this, just surprised.

7

From the conversations I had with FA officers prior to my pup’s acceptances/decisions, it was made clear to me that the schools all seem to treat parents and students’ assets differently. I asked them all questions like - if grandma wants to help and give $2500 as a HS graduation present, is it better if they give it to the parent or to the child? This of course presumes their might be some of it left as of the time the child is filling out the FA application. I got varying answers from the different schools - some said it made no difference, some said since they assess children much higher than parents, it’s probably better to give it to the parent.

The most comprehensive answers I got were from the schools who told me that the NPC’s were really just an estimate of the expected freshman year costs, and unless your financial situation materially changes, the amount of aid is pretty consistent for all four years. But some schools were up front about the fact that if the child earns a lot the summer before freshman year, and has some leftover, it actually hurts the student financially. One FA officer gave me “an example” where they “theoretically” had a family with twins both attending - he used “air quotes” during our conversation. The child A who earns $10K in the summer, and uses $4K of it for the first semester, has $6K left (for the spring semester). Then child B who earned $4k and spent all of it on the first semester, and the parents paid the second semester. The way their formula worked out, child A got $4000 less aid than child B for the sophomore year’s package. The happy ending of course is that the school provided sufficient aid for both students to attend, but I really appreciated the FA officer providing this “hypothetical” information this way, about how their particular school’s formula worked.

Other schools told me similar things about the NPC’s, and it became clear to me that for our family’s situation, where we had some meager savings and 529, but sill had a single income and a lot of need, that every one of the profile schools were committed to doing what they could to help our pups afford to attend. I told them part of our goal was to try to get a sense of the 4 year costs, etc. as I wanted to avoid the problems I had in college, when jr and sr year aid was cut back materially, despite tuition increases, and I had to work and borrow more to finish where I started. I told them I realized that some things may still be unknown - like transportation costs 2 years from now, D flies across the country to Stanford, but I want to be sure I had the information to do the best we could. I can’t afford a tax advisor or investment planner so I tried to ask the right questions for our situation. Every school I talked to was very helpful, and all were happy to give me the information I asked.

It was also clear that the differences between schools ended up being THOUSANDS of dollars apart, even though all of the schools met what they determined was full need. Some made it clear that for us, they were willing to review how other schools determined need, others (like Brown) were up front in that they couldn’t match aid offers from Yale, Harvard, or Stanford, but they would “probably” match Dartmouth or Amherst.

8

@3puppies You are dealing with schools that meet full need and you have multiple kids in school. Most of us have big gaps between the EFC (either fafsa or CSS) and the need aid. The student having $3k in a savings account isn’t going to change the how much we actually get from the schools, and the $3k is actually needed to get through the school year.

With FAFSA and CSS now being filed earlier, it’s more likely students are going to have more left over from summer earnings in their savings accounts when they file in sophomore, junior, senior years.

9

Interesting. Amherst has a lower low-income expected student contribution than Harvard or Yale. IDK about Stanford but for Amherst it’s about $2200 and that’s on the entire COA including travel and books. Yale and Harvard are nearly double that.

10

I found that Amherst more than makes up for the lower expected student contribution, by expecting a higher family contribution - at least for families in our income bracket. And we always looked at what the total net cost to the whole family - including loans - would be. It was always frustrating to me to see how some schools consider loans or work-study as part of their financial aid offer. We are a single income family, with negligible savings, but not at the very low end compared to many families. Dartmouth, Brown, Cornell, Pomona, Williams, Swat, and Amherst were all far more expensive ($2K - $13K per year more) for us than Yale, Columbia, Princeton, MIT or Stanford would have been. Some of the reasons for these differences are how the schools treat family income, home equity, 401K, etc. all differently.

For students at the lower end of the family income scale, who don’t have to pay anything anyway, I have read that Amherst might be as cheap, or even a cheaper option. I didn’t bother to run numbers at income levels lower than our own.

@twoinanddone - yes, I was doing comparisons for full-needs met schools, and for multiple students, as that is our family situation. Now that S graduated, our family cost for D increased, but at Stanford they didn’t skyrocket as bad as they would have at some of the other full needs schools. It was important to me to figure out how much this could have jumped, because even among great FA schools, there can be a lot of variability. Running the NPC’s with a smaller number of family members in undergrad can make little to no difference, or a huge difference, depending on the family income.

And @privateID , I agree that for many of us, it makes perfect sense for the children to give all their cash to the parents, to appear as poor as possible, since the parents are assessed at a lower rate than the child. This was the distinct impression that I got from the example of the family with twins - if child A had given his remaining earnings to his parents before he applied, while child B might have gotten a little less, child A could have gotten a lot more aid. The schools are clearly aware of this, they know how their formula works. I suspect that they are surprised when families don’t do so.

11

What evidence do you have that reasonable balances in qualified retirement accounts will be treated differently by different schools?

Unless the child is making a bona fide gift to a parent (not likely), there’s a term for this: financial aid fraud.

12

Sorry, not the 401k balance itself, but the amount you contribute to a 401k. Some schools seem to expect that the parents will temporarily suspend 401k contributions to help pay for college. Others seem to be okay with allowing 4-6%, but will consider 10% to be “hiding” income.

All I am suggesting is that parents should play with the NPC’s using multiple scenarios, to figure out what is the best approach for their family.

And perhaps I should not have said the children should give to the parents - but instead, the family should recognize that it is better that the student pay as much as possible out of the child’s funds before the parents pay anything. In the twins’ situation, if the parents had not paid the same amount for child A that they paid for child B to the same school for the same year, then child A could have legitimately held lower assets at year end, and child A could have gotten better financial aid for the following years. @BelknapPoint , do you at least agree that there are common strategies that families can take to maximize financial aid? Things like, instead of the parents buying clothes, a cell phone, computer, or a car for their child, why can’t the child pay for it himself, and pay for insurance, to reduce his assets?

If child’s assets are assessed at even 50% (and some schools are higher) and parents at 5%, then reducing a child’s assets by $4,000 means $2000 in lower student assessment, and $200 additional assessment, or $1800 net difference to the family. For many of us, that’s real money. I respectfully maintain that not enough parents think ahead and properly plan for things like this, when it isn’t always that hard to figure out

13

@3puppies

Why makes you think parent assets are ONLY assessed at 5.6% by all colleges? That’s simply not true.its true for fafsa but not for institutional,aid purposes. We had friends whose kid’s college assessed 100% of home equity. Their home was totally paid for. School expected them to borrow full pay for that college.

Kid went elsewhere.

14

A teenager buying his or her own clothes and paying for a computer with the funds from a job is perfectly legitimate. A teenager “gifting” his or her earnings over to the parents in order to increase financial aid is fraud- unless it is truly a transfer of assets with a legitimate purpose- i.e. to help pay rent, contribute to day to day living expenses.

Surely you can see the difference?

Not enough parents think ahead in general. They have high credit card balances and think that because they are in debt up to their eyeballs the colleges will subsidize their consumerism. They haven’t saved much (or at all) for retirement and every year give back “free money” from their employer by not qualifying for matching. They pay big premiums at work for vision and dental coverage, even though it would likely be cheaper to forgo the insurance and pay out of pocket every year. They buy an expensive TV and pay for an extended warranty.

Etc.

15

Of course. Some things are no-brainers, like paying major expenses immediately before completing FA forms to decrease asset levels, or delaying distributions from grandparent-owned 529 accounts (or outright gifts) until the student is a second semester sophomore . Some things clearly cross the line (like temporarily moving student assets to a parent account purely for FA reporting purposes). What’s hard is when something falls in the inbetween gray area.

Students shouldn’t be asked to spend their discretionary dollars on essentials that parents are obligated to provide. A cell phone, computer or car is probably not essential. Clothing probably is, unless we’re talking about stuff above the basics.

16

@3puppies , in your Child A and B example, remember that the 10k v 4k income will have an even bigger impact than the child’s savings. There is ~6k income exemption for dependent kids, but the remaining 4k income for child A will be assessed at 50% for FA purposes. Then whatever % of the 6k in savings (will vary by school). As others have mentioned, for the profile even the income % might vary by school. Income potentially has a significant impact.

BUT … money earned and saved is always a good thing. Never avoid income or savings just to save a nickel (or even a few thousand) in FA. Wisdom from wall street is instructive: “Bears and bulls make money, pigs don’t”.