.
Thumper, I have seen NPCs that give a net cost figure higher than COA. That’s just the way they work.
Edited to add: I should say that I have seen NPCs that give an EFC figure higher than COA. For instance, if you put big numbers for income and assets into Middlebury’s NPC, it’s possible to get an EFC of $99,999.
House is paid off well before retirement.
Income after taxes is at least $70,000.
I’d wager that income is perhaps upward of six figures, and he has been putting quite a lot of before tax income in 401k, which of course will be added back into available funds for his families educational expenses.
In my experience EFC is 1/4th of BEFORE tax income for under $100,000, and 1/3rd of BEFORE tax income for over $100,000.
If you are self employed, own a business, properties, or your kid has a trust fund, it’s likely to be even higher.
It’s great that you are a saver, but you didn’t save for college expenses?
Private schools will rightly assume that since you do not have a mortgage, that you have available funds for education.
What was your FAFSA EFC? And how much do you have in unprotected assets (like non-401k)?
How much WILL you pay for college each year?
Did your child apply to any schools with ASSURED large merit so you KNOW FOR SURE that the remaining costs are what you want to pay?
Oh I realize no college costs $100k but we have heard back on all our financial aid packages now and the schools who typically don’t give aid to OOS all sent a polite email saying they can offer no aid. And the rest offered the $5500 student and whatever the federal loan amount was…but since we researched historical figures for each school, the actual FA packages weren’t surprising.
Back to the OP, I hope he comes back! OP, a parent on CC gave me an excel spreadsheet that changes your EFC as you enter each amount and answer each question so you’d see after each step what your EFC is and how your data is affecting it. Pm me and I’ll share.
“It’s great that you are a saver, but you didn’t save for college expenses?”
I like that question.
“…he has been putting quite a lot of before tax income in 401k, which of course will be added back into available funds for his families educational expenses”
Another excellent point; that can technically raise after tax income by $23,000.
I’m still learning. So a 401k is counted as available assets on FAFSA?
No.
@Madison85 “No.”
You’ve confused me. Post #26 implies that a 401k is counted as available funds for college costs. We would take a 30% tax hit to access 401k money. I’ve saved for college and we are probably full pay everywhere but a girl can dream.
The amount you contribute to a 401k in that year (pre-tax) is added back in to your income for fafsa purposes. The actual 401k balance is not counted as an asset. So for example, your income was 100,000 and you put 23,000 into a pre-tax 401k. The income on your tax return would say 77,000. FAFSA makes you add that back in to
show your actual income for the year was 100,000.
I suspect that the OP has a good bit in non-retirement assets…maybe stocks, additional property?? If not, then his FAFSA EFC shouldn’t be that high.
I don’t know when he’s divorcing, but his assets will likely split in half, and maybe required to pay spousal support.
It is also possible that he or she has “retirement” money in a regular savings.
Wondering if this person is self employed. That can also be a rub at Profile schools. This would not show up on the FAFSA either…but very often schools add back in allowable IRS deductions for self employed…because they are not allowed for financial aid calculation purposes.
^^^
True.
I don’t think the issue is business income, unless he’s seeing a big difference between FAFSA EFC and whatever the CSS school says he should pay.
I agree that like many people, he may have supplemented his retirement (401k) with non-protected “retirement” savings.
I think the rule of thumb is 20% of student assets after the allowable amount and 5.6% of parent assets. But the usual main driver for EFC is (pre-tax) income.
I agree- always pre tax income, is the biggest driver of EFC.^^^^^
That’s why I don’t get people complaining that they are being penalized for saving.
They aren’t, unless they are referencing the money they put into retirement accounts the yr previous to filing aid.
The balance of dedicated retirement accounts, like 401K will not be considered as available, BUT, as noted above, the amount that was deducted say in 2014, for the 2015-2016 school year, will be added back to income.
Even if parents have not managed to save anything for college expenses earlier, they need to consider making smaller retirement contributions for the four years of college.
Since the parents are going through a divorce, ( too bad about the timing), he might also want to consider taking a gap year while the finances shake out, if he doesn’t have any affordable options.
The point is that someone who has zero equity on their house because instead of paying 3K per month of mortgage for 20 years, they went on two 10K vacations each year and bought nice clothes etc. over those 20 years, is in better shape in terms of EFC than someone who used that 3K per month to pay off their house. Because the latter now owns the house, and the colleges want the parents to take equity back out to pay for college. The former frittered away that 3 * 12 * 20 = 720K, and the latter used it to pay off their mortgage, and the saver/payer of their debts gets punished?
I guess you could say that some people weren’t able to pay down their mortgage because they bought too big a house or had too many expenses. But I have friends going on about how much their Disney vacation costs (we went to Disney ONCE over 18 years, they go EVERY year) and how they are also going to the Eastern Shore this year (as they always do) and so on. They are spending at least 15K per year if not more, and they never ever pay down their mortgage. When the time comes, they won’t have that much equity in their house, and their EFC will be lower to reflect that (yes, possibly 300K or more lower home equity would make a difference).
YMMV, obviously there are other reasons people don’t pay off their house or have no investments that have fees to liquidate.
I’m glad someone brought up the point about pre-401k salary - I didn’t realize that. That is probably why were are paying thousands more than our original EFC calculated with the NPC. And I have mandatory retirement contributions because I am a state employee, so there is no way I could access that money for college costs. I can’t just decrease my contributions, they are automatically deducted by law.
It may be the student assets are the problem. Just like a college fund, all of that is supposed to pay for college, end of story. I would like to assume that if the trust fund was 250K, they might have the 70K EFC for year one, but then year two would be somewhat reduced with only 180K left…
Whatever happens, paying for college by reducing the trust fund seems like the best way to decrease future EFC for the OP’s son.
i guess i just dont understand why the EFCs are so high to begin with. Do colleges really think middle income families can afford these numbers? We have 4 kids. We do not live extravagantly. We would have to change our lives and lifestyle DRASTICALLY in order to fully pay our EFC for kid #1; and for 2 EFCs next year when kid #2 is in college.
Its something we did NOT know about when we started our family, started saving for retirement, and moved to our current (modest actually) house. We had no idea that colleges had grown so high in prices. We are making our best choices now; but i do think EFCs are very high.
Rhandco…I don’t believe mandatory retirement contributions get added back as income on the FAFSA.
Well, THAT is EFC Problem 101!
I will be blunt: it is both irresponsible and lazy for anyone not to know the federal EFC to the penny. It does not take a Rhodes Scholar to figure out exactly how the formulas will impact your own situation. Any parent with a sophomore or freshman kid in HS should spend enough time playing with NPC or build a “what if” tool in Excel. I did this when I was 17 and it took me all of a couple of hours from start to finish. Further, there are enough books of the FAFSA for dummies to help the most clueless parent. This is akin to pretend not to understand how the IRS calculates taxes when a program such as TaxAct or others do it for you.
So, that is for the EFC. The revision of the outcome should shed a lot of lights on how it works. Does kiddo have 80,000 sugared away because of GrantAunt Sally? Yep, expect the school to want a lion share of it. After all, was that not the purpose of the donation in the first place? Have you pushed the kids to save religiously for “college”? Yep, here goes that money again. And why should it not?
The colleges will NOT fleece you, but they do consider that the PRIMARY responsibility of the education costs are between the parents and the students. The biggest issue is that most do NOT believe that it should be the case, and have been lulled in the past by the way our country pays for K-12. It is a fact that the poor will receive more aid and that the savers will pay more. But guess what? After the college years are gone, they will still be poor, and you will still be much better off because of your dedication to savings and living within your means.
There are no secrets or hidden formulas. It is just that people refuse to pay attention to what is in front of their nose and turn into Chicken Little when the reality becomes inescapable.