<p>Here's my situation, I currently have one in college (sophomore) and another graduating high school this year. EFC last time around was about 25k. We have some pretty significant credit card debt that we need to pay off and the only way we can do it is by selling stock we own. I'm worried how the capital gains (not sure how much yet) will affect the EFC even though we will also be reducing our assets as well but I believe the income (cap gains) will outweigh the drop in assets held. With that in mind, I'm also assuming now that since I'll have two in college as of September, the EFC will be generally split between them so I'm wondering if that fact will help negate the capital gains addition since I highly doubt either school will meet 100% need anyway. Any advice? Thanks!</p>
<p>The best way to determine the effect is to run some numbers through an EFC calculator (of course, you’ll also have to estimate your tax return info to do this). </p>
<p>Here’s the problem: EFC is very heavily linked to income. Capital Gains are income. So you’ll like be hit 20-40% of of those gains towards EFC. Assets are only hit at 5.6% of EFC after your personal allowance. You can run some EFC samples with estimators on line and see what the hits will be. Even more accurate would be running the NPCs for some combo of schools. You know your one’s student’s college already. If the school does not guarantee to meet full need, however, it won’t matter what the results show as they are for average first year students. Some schools will not increase aid at all when EFC goes down. It might be a good idea to discuss this scenario with the current college as to how they handle a situation when a family has a second student in college. Also something to discuss with college choices with the one who is applying.</p>
<p>So looking for a strategy to lessen the blow as much as possible. Here’s my thoughts, this tax year (2014) FAFSA will be for one son’s Junior year and another’s Freshman year. I have two choices, I can either split my stock sales over this year and next taking the hit in two consecutive years but a bit of a lesser hit each time and considering each of those years has two in college, maybe it’s not so bad? The other option is to do the sale in 2015 so that my younger son’s EFC is as low as possible for his first year (no cap gains, two in college, etc.) and deal with the increased EFC for the next year (Senior for #1, Soph for #2). Thoughts?</p>
<p>@DunnMan3 Here are my thoughts…</p>
<p>Do you have any unrealized stock loss that can be taken for 2014? </p>
<p>If yes, sell the same “value” of gain and loss of the respective stocks to cancel out each other, leaving you with the same net income. </p>
<p>If not, consider deferring selling gain in 2015 and maybe you might have loss to wash off some of the gain then.</p>
<p>Some brokerage firms allow clients to borrow against their own stocks (for education, etc., but not to buy stocks). This way you don’t have to sell the stocks (and may even experience appreciation in a bull market). The interest rate varies depending on your account size and based on current low rate environment, it could be under 5%. Generally, no credit check needed. Ask your brokerage firm if they offer this. If not, you can shop around other brokerage firms that offer this and transfer your securities there to hold so you can borrow against it.</p>
<p>Though these alternatives aren’t related to stocks, I thought I throw it out there, just in case,…</p>
<p>Do you have an employer retirement plan (401K, 403B, etc.)? Most allows employees to borrow against it. The interest you pay goes back into your own retirement account.</p>
<p>Do you own a home? Maybe take out a home equity loan (lower interest rate) to pay off the credit cards temporary.</p>
<p>If you have a good financial advisor and accountant, run it by both to maximize your sons’ financial aid.</p>
<p>Hope this helps. : ) Good luck!</p>
<p>Before you do all these gymnastics, figure out what the reward would be. If your EFC for one is $25k based on your regular income, your EFC for each with 2 in college would be about $13k. That doesn’t get you much except perhaps full subsidized Stafford loans. You most likely won’t get any Pell grants. The school(s) might give you some extra financial aid since an EFC of $13k isn’t terribly high, but most likely not. If you do the stock cash in, your EFC will go up, but it may not matter.</p>
<p>Another option is to petition the FA offices for special consideration as this stock sale is a one-time event, proceeds used to pay back debt. If the credit card debt was incurred for medical care or other emergency, they will probably be more sympathetic than if you used those credit cards for a trip through Tiffany’s or a trip to Europe, and private schools are usually a little more giving for a one-time credit crisis, but you’d have to check.</p>
<p>I think dividing it over two years would be worse because your EFC’s would be up for two years, not just one.</p>
<p>The other consideration in this is, what is the cost of the credit card debt? If the interest you are paying or accruing on the credit cards exceeds what you may lose in financial aid and have to pay in additional taxes, then it is still beneficial to sell the stock. </p>