Just filed the FAFSA. Our EFC is 20,000, and my daughter has been offered several merit scholarships. We have a 529 for her and our son. Between her 529 and the merit scholarship, we can afford to pay for freshman year at both of the colleges that have accepted her (so far). Having just filed the FAFSA, we won’t know what, if anything they will give us for financial aid. By sophomore year, we will have depleted the 529, or close to it. She will still have the merit scholarships but how will we pay subsequent years? Do we deplete the 529 for year one then move to hefty loans for the remaining years or is there a way to only use a portion of the 529, while it can still be earning money? Or will we get lots more financial aid in subsequent years if we spend down the 529?
Typically, you can use as little (nothing) or as much (all) of the 529 as you want. The FAFSA and other financial aid forms that are completed each year will report whatever the then current balance is in the 529 account.
As a side note, if the 529 is invested conservatively as is usually the case when the beneficiary is at college age, the account earning money should be much less of a factor.
So is one way better than another? Obviously the less loans that need to be repaid is better but is there a beneficial strategy that I’m not thinking of?
Maybe…maybe not.
- The EFC is mostly based on your income. So...assuming that doesn’t change, your EFC could get reduced a little without that 529 asset...but without knowing your income it’s impossible to say...really.
- Will you get more aid when your asset is depleted? Well...a LOT of that depends on the need based aid awarding policies of the college...and whether they guarantee to meet full need for everyone.
- Most colleges that meet full need also require the CSS Profile.
- The colleges will compute your family contribution based on the financial data you provide. Really...your EFC of $20,000 only means that is the minimum you will be expected to pay. It also means your kiddo is not eligible for federally funded grant money.
- You need to determine how much you can actually pay per year. Some folks would add the merit money and 1/4 of the 529 to get their annual contribution...and add in anything from current income to that as well.
- You could try running the net price calculator without the 529 money...it would give you an estimate anyway...but it’s not to be viewed as an accurate estimate...because things change from year to year.
There are too many factors that are unique to every individual to give a blanket recommendation that any one way is better than another.
A few things:
-Don’t forget that the merit aid reduces your financial need. In general, merit money is not for paying your EFC.
-The federal FA formula counts 5.64% of your assets as available to use for college. A 529 is an asset. If you have $100k in a 529 it will reduce your FA by $5,640. Plug in your own numbers.
-How will you pay for subsequent years? That’s the big question. See what kind of FA aid you get at the various colleges, then pick the one you can best afford.
-i hope you’re not thinking that you will be paying $20k per year because that’s your EFC. Not every college will pay everything minus your EFC. Depending on the college, you might only get loans as part of the FA package.
It really depends on your income. If your income is over $100k, you aren’t going to see a lot of need based aid from most schools even if you spend down that 529.
You can run the FAFSA with your current income and the 529 amounts and without the 529 amounts. See if there is a big drop in the EFC. If your son is close to college age, there might be a difference when you’ve spent both accounts and have two in school.
one small thing: if she’s offered from the college subsidized loans, we think those are good to take when you can, even if you dont need the money that year; save it for down the line.
Our daughter is getting subsidized loans this year; won’t in 19/20 as her big bro is out of college; and will again be offered them 20/21 when younger bro starts. She wont take out unsubsidized loans in 19/20; but we will be using some roth ira monies and a little savings from this year to cover that difference.
Or you take a completely different strategy and have her apply to colleges that you can afford without taking on debt. Is it possible that she would qualify for greater merit scholarships at different schools? Or commute to a local university?