Dealing smartly with asset-based EFC

@thumper1 Yes, I did know that. In addition, they don’t take home equity into consideration at all. I did not know that when we submitted the application because he really did not think he was going to go there. We just threw that application in because we knew it was a good school and the essay wasn’t too bad. As it turns out, it was a great school for him and he is loving it as a freshman this year. And the price made it comparable to my instate public, which was affordable. That’s why I hate when people make conclusive decisions early on in the process.

One other thing - even meets-full-need varies from school to school. At UVA, they met full need but they included loans and work study. In addition, as many on here have stated, they all have their own formulas using the info from the CSS Profile. Having said that, UVA did make the school affordable and I can’t complain about their generous financial aid.

I agree to not always rule a school out BUT have the conversation with your student that this school is only an option if the financing works out and that it is above your budget. Be clear what your budget is. You also need to be realistic with your expectations. If you can’t pay your EFC even a school that meets full need may not give you what you want and realize some scholarships are really competitive. It’s almost like apply to some highly selective, just because you have the stats, doesn’t make it a sure thing.

In general, I am getting the OP’s question as asking, (presuming the plan is to sell the stock and rental property to pay for college expenses), whether or not it makes sense to sell them before the FA calculation years or during.

Some response are questioning the underlying presumption. Others responses seem overly concerned about the cost of the college used for the example.

The OP may have reasons for planning to use those particular stock and/or rental property assets. There may have been a promise to do so when they became the OP’s. Suppose great grandma’s wish was to give it to the parent instead of the child, but to use for the child’s education. It would be honorable to use it for its intended purpose.

There has been other great advice here but it does not necessarily address this question.

The type of asset that a parent holds can make a difference in needs based aid calculations, because of what happens when it has to be sold.

If the OP has to sell stock or rental property during any of the calculation years, it artificially inflates the income (by the amount of the capital gains) which thereby reduces financial aid. If the stock is worth $150K but has a basis of say $50K (just throwing numbers out there), then selling it now - means $100K of cap gains, taxable now. If he instead sells the stock a couple years from now, in the middle of the FA calc years, his income would show $100K more that year, which, in addition to the taxes, might also disqualify him from getting the aid that year. More likely, using the general estimate that 20% of family income is used for FA assessments, it would mean he loses $20K in FA.

Whether the asset is in cash or in stock, the schools commonly use only a percentage of it when determining need.

So, if you are going to use it anyway, it is generally better to keep it liquid in the year before the first year used for the FA calculation.

Of course, lots of things can happen in the coming years, but OP is right to begin thinking about the implications down the road.

I agree that a discussion with an investment advisor who is familiar with the implications of asset types on college financial aid would be worthwhile.

Yes, thank you, 3 puppies…that’s exactly where I’m coming from. And thank you, everyone else for all the ideas.

What I am trying to say is that because the 150K stocks and 340K condo equity are both highly appreciated, and the condo 96K depreciated,:

a. …the financial aid folks will count them as 490K in assets, yet if I sell them I’d actually have 303.5K in the bank, not 490K

b. …the asset portion of my EFC will be 28K if I keep them versus 17K if I sell them., and…

c. …as 3puppies points out…if I attempt to keep them yet find myself struggling to cover the high EFC expected of me, I can’t just sell 15K per year in stock, as any stock sale after 2020 will be counted dollar for dollar as additional INCOME, thus upping the 28K to something far, far higher each time I do…thus worsening the problem for the year two years down the line each time…

Given all this, and given all the unknowns, I’m thinking one solution is to attempt to keep both, but: sell all the stock sometime before 2020 and either put the proceeds in a 529 plan or just use them to REBUY 85% OF IT IMMEDIATELY with the proceeds (having paid 15% in capital gains), thus avoiding problem “c”.**

Any reason not to do this? Anyone know an accountant good with taxes AND financial aid?

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303.5K=470 (condo value)+150 (stock)-139 (state and fed gains tax)-.05470 (realtor fees)-.25(812) (depreciation recapture)*-130 (principal remaining)

**It’s a hit at 15%, but it’s one I’ll need to take at some point, anyway, and 85% of (100% growing at X%) is the same as (85% of 100%) growing at X%.

And yes, I’m accounting for growth and all that…I have that spreadsheet, too; I’m just simplifying here…and if tax bracket remains the same and everything (tuition, income, stocks, condo) grows at 5%, everything might as well be growing at 0%, relatively.

Yes, the key reason not to do this is that you have no idea what kind of colleges your kid will get admitted to, and if any of this will be at all meaningful from an aid perspective.

Many colleges don’t care. Your EFC is used to determine if you are eligible for a Pell Grant (an entitlement- you either are low income by their calculations or you aren’t). And your aid might be a Pell Grant (if you qualify- which by the way, you don’t) plus the loan which all US citizens can take. Period.

So the financial gymnastics for theoretical aid which may or may not materialize is not likely a good use of your time and capital. There is a high likelihood that you are going to be full pay no matter what you do.

If you don’t want to be full pay-- look at merit only colleges, look at West Point and the other academies (not that serving in the military is a cost-free way to go), figure out what colleges your kid can commute to so you aren’t paying for a dorm AND an empty bedroom.

But you are assuming that your gymnastics will pay off in more aid, and the number of colleges where that might be true is a pretty small number.

The advice I’ve heard again and again on CC is not to make financial decisions based on college. The more time I spend here and the more experience I get, the more I appreciate that advice.

The fact that you are willing to do so much for your kid to be able to attend a certain college of choice is awesome. But it also reflects a high level of emotional investment that may translate into unintended pressure on your child to do well and meet your expectations, which might not be healthy for them and your relationship, even if he s a superstar.

My gut feeling is to not sell the condo if you had a plan to use it for retirement. If things don’t work out as you hope, you or your spouse might feel disappointed or even resentment, and even if you don’t you child might feel like they let you down or negatively impacted your future.

Sorry to be a downer and I’m not a parenting expert, but these are just things possibly worth thinking about.

Find affordable colleges. Do not sell off your assets to pay for college.

There are plenty of more affordable colleges…that do not break the bank. Start looking. Look for merit awards which are not income or asset dependent.

If my older child gets into Caltech or MIT… which is his dream, not mine…and which both meet full need despite being very expensive…it would be extremely frustrating to have to say “no” if I could easily have said “yes” had only I thought things through two years prior, no? Please take a look at scenario 3 and tell me if there’s a downside that you see.

Scenario 1: I do nothing. MIT thinks I can afford 58K: (30K from income and 28K from how my highly appreciated assets look on paper). I say “no” to my son and give my 30K to a state school instead, as an MIT education would mean either 28K in loans per year for my son (ouch) or large stock sales each year which would, additionally, raise the EFC to an impossible 72K in future years.

Scenario 2: I sell the condo and stock in 2019, netting 303.5K. I put 234K into an investment fund and 68K into a 529 plan. MIT says they think I can afford 47K. I say “yes”, by paying 30K from income and selling 17K from the 529 plan each year.

Scenario 3: I keep the condo and sell the stock in 2019, netting 128K, 68K of which I put into a 529K plan and 60K which I put into an investment fund. MIT thinks I can afford 56K. I say “yes”, and we pay this through 30K from income, 17K per year from the 529 fund, and 9K per year from student loans to my son.

At the end of each, I have, if my son got into MIT:

Scenario 1: I have: a condo, stock, a son who was finally about to be challenged for the first time in his life, and achieve his dream, and was told “no”.

Scenario 2: I have 202.5K growing in an investment fund, a happy, easily-employable son with no student loans.

Scenario 3: I have an investment condo, 60K growing in an investment fund, and a happy, easily-employable son with manageable student loans.

No? What is wrong with scenario 3, given all the unknowns? If he doesn’t get in, which is as likely as not, and goes to a state school, it’s great in that situation too, no, as then he’d have no student loans. No?

Have you run the NPC’s at MIT to verify that your numbers are correct?

So…co-sign loans for MIT…and then help your son pay them back when he graduates…if he needs help.

Of course this is all predicated on him getting accepted to MIT.

You are planning to divest yourself of assets now because you sort of think or hope your kid will get accepted to MIT or Caltech? Neither of those schools is a slam dunk for admissions for any student.

So…what happens if you sell off your assets…and your kid doesn’t get accepted to these reach for all schools? Then you won’t have your assets…and junior might still be at your flagship public.

Whoah. I think given your assets that you should proceed cautiously. It would be a terrible thing if you left yourself without funds in retirement. You didn’t mention your age but do you have a retirement plan? If so, that second house looks as though it is a major part of the retirement picture. The equity 75K doesn’t sound as though it is enough to carry you through a downsizing and recapturing equity for later years. Like students who look at 60K colleges but can only pay 15K, you should recognize that you want to do the best for your children but you will not be able to pay for the most expensive options. Nor should you.
FA depends more on income than anything else. So if your income is low your children will likely receive aid and vice versa. The good thing is you do have assets so you could sell amounts of your assets once FA is given without changing the picture. I’d save that 5K per year in a separate account just for this purpose.

If we had no assets, MIT’s net price calculator says we would get a 35K grant and be expected to pay 32K ourselves. And it says that given our 340K (on paper) condo equity and our 150K (highly appreciated) stock:

Scenario 1 (do nothing): It says we would get a 16K grant and would be expected to pay 51K ourselves. [And it says that we would get no grant and pay full tuition in his junior and senior years were we to liquidate stock each of his freshman and junior years to raise the after-tax 19K we’d need per year to raise the money beyond the 32K we could pay from income]. This scenario would not be doable.

Scenario 2 (sell condo and stock before base year): It says we would get a 25K grant and be expected to pay 42K ourselves, if we put the 303.5K after-tax-and-real-estate-fee proceeds into an investment/cash/529. This scenario would be doable.

Scenario 3 (keep condo, sell stock before base year and either rebuy same stock immediately with 127.5K in after tax-proceeds or keep it in cash or put it in a 529b): It says we would get a 17K grant and be expected to pay 50K ourselves. [And then, in contrast to scenario 1, that that there’d be either little or no EFC increase ( depending on where we put the 127.5K) in future years based on any needed partial liquidation of said funds to raise the 18k ish per year we’d need to raise beyond the 32K we could pay from income.] This scenario would be doable-ish…especially if he takes some student loans.

Scenario 3 seems reasonable. And if MIT is not in his cards, which I agree is a very good possibility, then not much is lost…only taxes on gains I’d have to pay eventually, anyway.

As noted upstream…you HAVE these assets. If you sell them, and have the money anywhere…you still have these assets. You would have to spend all of the profits for this bit to show up as an asset…before you file the FAFSA.

So…if you sell a $350,000 condo…where exactly do you plan to donate the money? Because if it’s still yours…it’s still an asset.

Once more…don’t sell,anything. If you did not have a kid going to college…would you be selling anything? It doesn’t sound like it.

So…here is what I would do…

I would wait for the kid to get accepted to college. Then if he gets into MIT, take out those loans if you feel it’s essential for him to attend MIT.

THEN file do your selling…if you need to…when he is a first term junior. Anything doe that year will not be income for you for this kid…because the forms use prior prior tax year. Use the proceeds to pay off loans if you are so inclined to do so.

I’m going to add…if your kid REALLY is a competitive applicant for MIT and Caltech, there are places where he will get an excellent education AND merit aid to soften the blow…guaranteed merit aid.

No kid HAS TO attend a $70,000 Plus a year college. And no family should sell of their assets to make this happen.


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As noted upstream...you HAVE these assets. If you sell them, and have the money anywhere...you still have these assets. You would have to spend all of the profits for this bit to show up as an asset...before you file the FAFSA.

So…if you sell a $350,000 condo…where exactly do you plan to donate the money? Because if it’s still yours…it’s still an asset.

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I understand that if I sell it I still have it and it’s still an asset. But if I keep both condo and stock, I’m counted as having 490K, but if I sell both, I’m counted as having 303.5K…due to capital gains, depreciation recapture, and the like, which the college doesn’t care about, yet reality does.


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I would wait for the kid to get accepted to college. Then if he gets into MIT, take out those loans if you feel it’s essential for him to attend MIT.

THEN file do your selling…if you need to…when he is a first term junior. Anything doe that year will not be income for you for this kid…because the forms use prior prior tax year. Use the proceeds to pay off loans if you are so inclined to do so.

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Thank you. This makes sense to me. Except that I have a second kid starting college in my first son’s senior year…


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I’m going to add...if your kid REALLY is a competitive applicant for MIT and Caltech, there are places where he will get an excellent education AND merit aid to soften the blow...guaranteed merit aid.

No kid HAS TO attend a $70,000 Plus a year college. And no family should sell of their assets to make this happen.

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No kid should sing on broadway either, if that’s their dream, I guess. Just kidding…I really do appreciate the feedback. But it’s hard to convey here what its like for a geek to finally be with their peeps for 4 years and feel like a normal kid, for once…who gets dates…rather having college feeling like 4 more socially painful years of high school…where one is smart, but…still an outcast of sorts. The confidence one can get is life changing, and it can stick after graduation when one goes back into the real world. Trust me.

@thumper1 - In this scenario you wouldn’t sell when the first child is a first term junior. The school term starts in September, but the tax year starts in January, so you could actually sell in January of sophomore year. But OP has two kids and doesn’t want capital gains income for either child’s financial aid forms, so the earliest “right time to sell” would be the January of the second child’s sophomore year.

OP: There are a lot of unknowns here. The state of the stock and real estate markets, the details of the financial aid formulas which change over time, your kids’ college admissions results. You could lose your job or your health. There is a real risk that whatever change you make today will be the wrong choice for one or more of these variables.

If I’m reading between the lines correctly, my family has lower income than you but higher assets. One thing we keep squarely in mind is that any assets we sell to pay for our kids’ college educations are not likely to be replenished. Make sure your safety net and your retirement remain fully funded during this time. Don’t sell everything you own to send your kids to elite colleges.

I see nothing wrong with scenario three, IF you have your retirement sufficiently funded. If I were in your case, would stretch a bit to give my child this opportunity as well, as long as it would not endanger my future or that of my other children.

i guess i’m trying to learn something new by reading this thread, but i dont really understand: why your assets valued at 490K would equal $303K if sold/cashed out.

Why would you take that much loss? And, if sold and cashed out and their value is $303K; why wouldnt you use that as your value now? sorry; i’m trying to follow this just for the sake of learning something new, but i dont understand why you’d take a big loss on purpose.

I think the financial gymnastics are more fun than the actual reality of getting into any tippy top college. Why is this even a possibility? What are the real indicators here? 

Do you want the condo for any particular reason, or are you hanging onto it for the investment value? If you don’t want it for your own eventual use, sell it now and put the money into more liquid holdings for the next few years so the money is easier to access for educational purposes. That is the bigger asset chunk, and would allow you to hang onto the stock a bit longer. You could spend down the condo value with kid1, and if it is all gone before kid2 finishes college, you could revisit the issue of stock sale dates.

If you’d like to hang onto the condo if at all possible, then sell the stock now, and move the money to more liquid holdings. Spend that down for kid1. If it is all gone when the time comes for kid2, you can borrow against the equity in the condo to help kid2 finish college.