Dealing smartly with asset-based EFC

I’d like to call the evil parent plan the very generous parent plan. Both my kids will graduate with great educations and no debt. Did that mean I would spend any amount? No way! They knew what the budget was and they worked to stay within it.They consider themselves blessed and never once thought we should spend more.

OP - I would suggest talking to an accountant. Moving your stock to a 529 will subject the capital gains to income tax. Sounds like you have had them for a while so hopefully we are talking long term gains.

I understand your problem. If you sell the assets and realize capital gains, it will raise your income and be counted against you in future years. However, as many other posters have said, the EFC is a terrible way to figure out your actual costs. You need to run the Net Cost Calculators at various schools to get an idea of what you might actually pay. Most of the private schools are going to count any equity in your real estate against you whether you sell the property or not. Public schools may not count it, but it won’t matter because they don’t meet full need anyway.

You should start by deciding how much you feel comfortable paying for college, then find a way to make that work rather then trying to move the assets around to get more from financial aid. If your kids have decent stats, they can get merit aid which can reduce the cost quite a bit from sticker price. That is not just for students with the highest stats. Take a look at the threads for B students. Those kids are ending up with really nice merit aid packages at some very fine schools. Honestly, I don’t know anyone who is actually paying full price at a private college. The benefit of merit packages is that they don’t change year over year. If you sell your condo and realize significant gains, that won’t change your merit package for future years, but it could affect your need based aid.

Once you decide how much you can afford, then you have the freedom to choose to fund it in whichever way makes most financial sense for your family. You can choose to take loans, based on the equity of the property or sell the property, etc.

When your mother paid for your school it was a different world. Jobs will depend on major rather than be so school sensitive. Your mom had a recovery time that you will not have being closer to retirement age.

@123Mom456 makes a very good point. If you sell that condo, you will have to spend the all the proceeds and not have anything from them in your bank account when you file your financial aid applications. Otherwise…they will still be an asset.

Same for selling off stocks. Where is the money going to go? If you have it…it’s still an asset.

@jsb2000 - in your charts are you taking in to account year 4 where there (presumably) will be two college students (and tuitions) ? I’m missing something if you have. I second the advice you’ve received so far, of talk to a professional with experience in college financial planning - and one who won’t suggest redoing your entire portfolio.

Please…start looking for colleges with merit aid…or that are within your price point of paying without selling off your assets.

EFC means nothing so there’s not much point in spending a lot of time on calculations around it. Our EFC (FAFSA only) was 21K per kid (we have twins). Other than the federal loans, we haven’t received one cent of financial aid from my kids’ expected schools (in-state publics) even though the COA is over $30K each.

The financial aid game is won or lost in January when applications are due, not when decisions come out in March.

Either your child has applied somewhere you can afford (due to low price tag or with scholarships or financial aid), or they haven’t. With net price calculators, there is no reason to be surprised anymore.

Don’t get into the mindset that some schools are worth selling all your assets for. It almost certainly isn’t the case.

Well…this poster currently owns secondary real estate…I’m not thinking the net price calculators are going to be particularly accurate.

Plus…his kids aren’t going to college…for a few years so the current NPCs would be gross estimates as policies could very well change by the time his kid applies to college.

Another thing you should consider is this: what if your child gets a full ride or even big scholarship (not need-based). If you sell your retirement condo and end up not needing those funds, you’ll feel frustrated. My best friend funded 529s for her kids and only ended up needing about 10% of what was in there b/c both got HUGE National Merit scholarships. Not to say that you shouldn’t plan ahead, but I wouldn’t make drastic changes since you simply don’t have all the info yet (and won’t until they are actually in the college search and decision process).

I feel like there is so much left out of your calculations as to make them pretty much useless.

Two things in your favor - you have 4 years before you start the college spending to: (1) save up as much as you can, and (2) your children have 4 and 7 years respectively, to work at getting the best grades and stats they can, and getting summer jobs, etc. to make money and save up themselves.

Right…and you have four years until the net price calculators for your first kid will be up and running. The ones right now are for 2018-2019 academic year…four years too soon.

The smartest thing you guys can do now- and having the granular numbers discussion right now is the perfect time- is to figure out just how much from current income you can start diverting-- either to beef up your 401K or for dedicated college savings.

Don’t look at the college years as “we’re going to tighten our belts”. That makes everyone miserable. Look at next week as “we’re going to start cutting back gradually to see what we are spending money on that we don’t need”. January of senior year is a terrible time to realize that you are overpaying for cable, data plans, subscriptions to magazines that nobody is reading, low deductibles on your homeowners policy, you meant to challenge your last property tax assessment but could never find the two hours to go to town hall to file the paperwork and so have been overpaying your property taxes by 15% for the last 24 months— etc. Start now.

An independent, fee-based financial advisor could be helpful to you. Ours has been a Godsend to us.

The increase in EFC (from the capital gain income) - upward from $51K - only matters if your actual cost is over 51K, and there is a chance of getting some aid to cover the difference. Possible in the overlap year, when two are in school, but not as likely in the other years (especially the first 3, I guess inflation could drive the cost of full pay at an expensive private well above that by 2025 or so, but your circumstances could also change a lot by then). This would only be an issue at a very expensive school with no merit aid (tippy-top private, like an Ivy, MIT, Caltech, or Stanford). For these schools, your analysis is not too far off - if you’ve considered your business value, the possibility of some deductions, such as depreciation, being added back into your income, and that your home equity might be counted by a Profile school.

I agree that you should help your kids to identify and work toward good merit aid opportunities. While I applaud your desire to plan ahead, I’d wait a little while, and see where their aptitudes and attitudes are in another year or two. Also the borrowing first and selling assets later plan has some advantages (mostly low risk of doing something irreversible that turns out to be unnecessary).

Really, this is the wrong place to get investment and financial advice. You need to talk to a financial adviser for a customized savings and investment plan.

Blossom’s advice is spot-on. Work towards living as though you now were paying that your projected out-of-pocket. The money can go into whatever savings vehicle you feel like and to help pay for the fee-based financial planner. After a few months, you can reconsider how tightly you really do want to have that belt. Perhaps you can crank it in even further.

I agree with the sentiment of most of the posters here, but have some differing thoughts. I am a huge fan of keeping your options open. I do think you need to be realistic with your kids about what you can afford (I hate the dream school where parents don’t think about the cost beforehand), but it’s really hard to know what a school will cost in the future. A simple example was my son who got into UMich and UVA out of state. Both public schools. Before the process began, UMich was high on his list. UVA was really an afterthought. He ended up going to UVA because they gave him much more money (need based, part was an extra $5k/yr grant they threw his way) and the school ended up being much better for some of his particular needs (was able to do a specific double major at UVA). When he was in high school, I did not expect him to go to either school. Was not going to pay full price at either school. That was understood. Things just turned out a certain way. I would say educating yourself about the financial aid process is helpful. Selling a condo and then putting the money in another asset may save a little on income, but the asset is still there. I am a fan of maxing out you retirement accounts if you can afford it. I am also a fan of paying down your mortgage (schools use equity in your house differently). These are good things to do regardless of college costs. And that is what alot of people here are saying. Don’t do something just for college, but perhaps there are things you can do that make sense regardless.

@privateID you do know that UVA guarantees to meet full need for all accepted students…even OOS. Michigan is heading in that direction but isn’t quite there yet.

The only other public that meets full need for OOS students is UNC-CH.