<p>We're tryintg to get a handle on what our projected IM EFC will be for the upcoming year and curious if anyone has any insight as to how how home equity and business equity valuations factor into the Institutional EFC methodolgy. Background - our family income has dropped significantly over the past three years with the downturn in the economy (my wife and I co-own a small residential homebuilding company). FM EFC looks to be under $500. However, over the more successful years we've been able to save some $$ for the kids' college funds (not nearly enough, though) and made it a priority to pay off the house so we could use a home equity line of credit to fund business projects as needed (not to mention financial peace of mind).</p>
<p>If we have a large chunk of our home equity tied up via a personal loan to our construction company, does anyone know if we then would report the home equity amount on the FAFSA as our total home equity value minus the personal loan amount to the business, ie. for example $200K total HE - $100K loan to business = $100K home equity and +$100K business equity? Correct approach? Using the CollegeBoard EFC calculator, it appears to make a noticeable difference in the expected IM EFC - as much as a $10K difference if we were to max out our HELOC. I've read some of the other threads that discuss how different institutions handle home equity in their school-specific IM calculations - anywhere from not considered to 1.2x -2.4x home equity - but not sure how business equity typically factors into these same institutions' IM calcs.</p>
<p>I don’t think there is any generic answer as every CSS school treats home equity differently. Some do not consider home equity at all, some cap the amount they will consider at a multiple of income, some consider the whole equity value. I would think in the first 2 cases you might actually increase the EFC by transferring some of the equity over to a business.</p>
<p>It is what it is to a certain degree as we have some HELOC funds already tied up in the business that will not be able to be paid back until the RE market picks back up. </p>
<p>swimcatsmom - I concur & understand that home equity does not play a factor in FM EFC and that it varies by institution with regards to CSS/FA Profile schools. Does it not also play a factor in the IM EFC calculations of FAFSA-only institutions as well? I was of the impression that it was not a factor only in the FAFSA federal methodolgy calculations. Please correct me if I’m wrong in this assumption as my head is starting to swim in trying to get my head wrapped around the whole FAFSA/CSS process.</p>
<p>I’m confused. There is no IM EFC calculation at FAFSA only schools. If they are FAFSA only schools they only use FAFSA. IM is the term used for how CSS schools determine how to award their own funds. though some schools may have their own FA forms rather than CSS. </p>
<p>But a FAFSA only school just uses the EFC produced by FAFSA.</p>
<p>Thanks, that makes sense now. In working on both the CollegeBoard EFC calculator - which calculates both FM & IM EFCs - as well as the FAFSA4caster websites, I became confused and of the impression that all of the FAFSA-only schools calculated their own IM EFC separate from the FM EFC. That would then jive with your comment regarding potentially raising the EFC with a higher business equity.</p>
<p>That appears to clarify things much better for us.</p>
<p>The thing you probably need to brace yourself for is schools will often give a ridiculous value to your business. I’ve seen small, money losing businesses given very high values. This also varies by school and is hard to plan for.</p>
<p>2college2college - regarding potentially high business valuations, I assume you speak of this issue in reference to CSS profile schools only? Even with that being the case, that would seem like a very hard thing for schools to project with any degree of realistic accuracy other than from that info provided on the CSS an business property tax receipts, etc.</p>
<p>That would be a schocker to have a money losing business suddenly valued in the stratosphere with regards to college fiancial aid.</p>
<p>From what I have read on CC (no personal experience) a lot of schools will disallow certain business expenses that are allowed on taxes. So that can often come as a shock to business owners when it comes to institutional aid.</p>
<p>Last year my sister and a close friend both encountered the shocker. First, they disallow many deductions the IRS allows and add that back. Then, they see value where business owners don’t.</p>
<p>One college spent half a day showing my friend how they took business and personal tax returns and other info to calculate a much higher EFC than was imaginable. </p>
<p>When my sister looked into whether her situation was unique, the stories she heard were just incredible. They value sole proprietor service providers!</p>
<p>Well, the financial aid packages from these schools ought to be interesting come spring time (thankfully only two CSS schools in S1’s various apps). I can understand how they may very well want to place a high value on sole proprietor service providers, but they’re going to have a tough time convincing me that my business value is high when our volume has gone from $1.5M to under $200K in 3 short years.</p>
<p>Perhaps their particluar nuance of an admit/deny letter…?</p>
<p>Home equity in your primary residence is NOT on the FAFSA anywhere. There ARE schools that use the FAFSA ONLY and the information on it to determine the awarding of their own institutional need based funds. Remember only about 300 schools use the Profile. The rest are either FAFSA only or have their own form added to the FAFSA info.</p>
<p>If the school is a FAFSA ONLY school…they would have NO WAY to use your home equity information for your primary residence in determining need based aid of any kind…their own institutional or federally funded. The home equity in your home simply isn’t provided to them. How would they use information they do NOT have?</p>
<p>NOW…some schools, in addition to the FAFSA, have their own financial aid form. Some of these forms DO include information regarding equity in your primary residence. However, as noted above by someone, there is no one correct answer to how the schools use this number as it varies wildly from school to school.</p>
<p>ON business values for FAFSA, I have consistently heard that you should value your business based on it’s sale price today; I have not heard of anyone having that disputed on FAFSA, at least not in anecdotes on this board.</p>
<p>If the IM is risking, be sure your kid applies to several FAFSA only schools so you have a good selection. On the other hand, some of the IM schools which cap home equity based on income may give you a good deal.</p>