FAFSA - will it help?

Paying for College
1

First-time parent poster here… I’m looking into whether to complete the FAFSA for my eldest, so am new to all this. Thanks for any help and pardon my cluelessness…

Son is a senior - ACT 31, weighted GPA 3.6/4.0, Honors/AP student (9 AP). He has about 10 out-of-state schools on his list and all are, I think, somewhat selective, big state universities (e.g. Wisconsin, Indiana, Penn State, Ohio, Colorado…). I feel they are match or reach schools for him, particularly the business schools. I do not know how our FAFSA would affect application decisions, or if it would hurt his chances.

Every school he’s looking at takes the FAFSA, and not the CSS form. We own a business where we do not have to report assets/income on FAFSA, so wondering if we’d qualify for financial aid.

Here is some financial background…

Business
Spouse and I own 100% shares in a profitable business and FAFSA does not require that family business value be reported. This is our most valuable asset, however because FAFSA does not report it, we will look poor on paper. Is that good for financial aid, but bad for acceptance decision?

Income
We did take a low salary for the last 2 years ($120k income for both parents).

Personal Debt
We have $60k personal debt (about to pay off from business earnings - or should we not?)

Real Estate Value

  • 6 rental properties that we operate at a break-even cashflow, though they have equity ($400k).
  • equity in 2 homes (1 primary residence, 1 vacation home) which we’ve greatly improved, but haven’t reappraised. ($400k equity if not reappraised).
  • a home in Canada that’s in a larger, shared family trust.
  • In 2017, I acquired and sold a house for profit.
  • In 2017, I acquired 50 acres of land that is not surveyed/appraised, so difficult to value.

Retirement
Quite a bit in 401k, profit sharing, IRA’s - Is this all reported on FAFSA?

Some misc. stocks/savings
Maybe $60k

Also, we pay our son a salary for working at the business, so he has some savings - maybe $5000. We also have a small 529 college account set up for him.

So would it be worthwhile to complete the FAFSA? Any other recommendations on how I can report/restructure investments?

2

I meant to post this in the Financial Aid forum, but don’t know how to move the thread - first time poster! :frowning:

3

You might want to file the FAFSA because some schools do require it for merit aid, but it is unlikely you’d qualify for any grants, only unsubsidized loans. $120k in income is not low. Six rental properties are assets that will be included in the asset section and even if you only break even in income, the equity in them will hurt. A lot.

4

Yes, your income alone is too high to get any aid from the FAFSA, but it will allow your child to get the Federal loan freshman year, up to $5500. Also, my son applied to a couple schools that would only award merit if you completed a FAFSA. He received a $20,000 scholarship from one that he wouldn’t have gotten if we didn’t do the FAFSA.

5

Don’t count on any aid from UW-Madison.

6

Filing FAFSA will not hurt an applicant’s chances at any of the schools you have mentioned.

7

These schools are need blind for admissions. The admissions folks will have NO idea what your financial need is…or isn’t when your kid’s application for admission is considered.

Every school on this list does NOT guarantee to meet full need for all accepted students. The only guaranteed aid you will receive will be the federally funded $5500 loan.

Your richness or poorness will have NO affect on your son’s admission decision t any of these colleges. However…you need to consider whether you can afford the full cost of attendance.

That is not a low salary. It is twice the annual familynaverage in this country. It completely puts your son out of range for any federally funded grant money.

Personal debt is not a factor in need based aid consideration.

THIS will be your biggest issue. All of the equity in these properties will be considered as assets on the fafsa. Just $400,000 in equity would increase your family contribution by more than $20,000 a year.

If you are completing the 2018-2019 fafsa, your contributions TO your tax deferred retirement accounts will be added back in as income for financial aid purposes. How much did you contribute in 2016?

There is an asset protection allowance of about half this amount. The rest…would be assets.

Your son’s savings as iof the fafsa filing date will be assessed at 20% of value…so for $5000…$1000 would be added to your ffsa EFC

Can you pay the full cost of attendance at the colleges listed above? Report and restructure? Are you willing to give away your rental properties? Are you willing to give away your assets? And I don’t mean temporarily…I mean permanently.

You are very fortunate to be in the position you are in. You own a business, you own rental properties, you have a decent salary.

Your kid is looking at out of state public universities…you likely won’t receive much in need based aid from any…but you don’t know if you don’t apply.

The other option for saving money…look at IN state options in your state. Those would be your cost savings schools. OOS public universities won’t be.

ETA…my opinion…your $120,000 income will yield a family contribution of about $30,000 a year. Add the asset money (equity of $400,000 in rental properties) which will be another $20,000.

And your share of the family trust in Canada will also need to be reported as an asset on the fafsa.

In my opinion…you won’t be seeing a dime of need based aid from any of the schools you have listed as an OOS student…except the $5500 freshman loan.

So back to my question…are you prepared to pay >$50,000 a year for your kiddo to go to one of these colleges?

8

How did you acquire the land? If you bought it as part of an arm’s length transaction, well, the purchase price is the value. If you inherited it, it should have been appraised for estate purposes.

9

He might get the National Buckeye Scholarship at Ohio State. That’s about $12,000. Application has to be received by Nov 1.

Another business school option with possible merit would be Ohio University or Miami University in Ohio.

Not sure what else is on the list, but at Penn State and UWisconsin all he would be offered is most likely the $5,500 student loan.

10

You will not receive FA and filling out the FAFSA will not affect decisions. Completing the FAFSA will allow you to take out the $5500 loan, if you desire.

You can check out the possibility of merit for the schools you listed. I agree that your son may be eligible for merit at OS, although it’s not guaranteed. Without merit… be prepared to pay $45,000-50,000 for OOS schools.

11

Unless your child gets merit from the schools that give merit expect to pay full price.

You have a lot of assets, you have a lot of equity in a non-primary home, you have a good income, and what about the income from the rental properties …how much is that?

12

His weighted GPA is 3.6? What is his UW? I wouldn’t expect merit either if this is the case.

13

I agree ^. For a school like OS it depends on rank, and it’s not guaranteed.

14

OP- my suggestion- plan a sit down with your spouse where you go over your checkbook (last two years), all bank statements, last two year’s tax returns, all relevant statements from your businesses, real estate holdings, credit card statements plus any auto-pays from your bank like your car insurance, cable tv, etc.

Figure out from this how much from cash flow you can pay for college. Then assess what you can realistically pay out of savings and divide by 4.

This becomes your kid’s budget, plus the $5500 loan and anything he can pay out of his savings and working.

Period full stop. You have a lot of assets. Whether you want to liquidate them or not to pay for college is your decision. You have a comfortable income. Whether you want to cut back on expenses in order to free up more money for college is your decision. You have a lot in retirement savings. Whether you want to stop contributing during the years your kid is in college is your decision.

But none of the colleges you’ve listed will care that you’ve filled out the FAFSA, and most likely you won’t be seeing aid from any of them (although taking the ACT again for a higher score and looking at a couple of merit aid schools might get you something).

15

I want to thank everyone for your insights on all this. I appreciate all the information from those who had been through this.

To address a few of your questions-

Thumper1 -

Yes, we are prepared to pay full price if necessary, but will take advantage of any scholarship/loans available.

The reason we are looking at out-of-state schools is because we are in Illinois and our fiscal status is greatly hurting our state universities (investment in structures, programs, faculty, etc.). The one university that’s in good shape is University of Illinois due to their endowments and large # of foreign students (e.g. highest # of Chinese students in the nation), but U of I is not a particularly good program fit for our son. This is based on our visiting the university and many conversations with current/former students, neighbors, and high school counselors.

I asked about “restructuring assets,” because I didn’t know if there are any advantages to putting rental properties under a business, LLC, or a new family trust…

Also, are 401K/IRA and employer profit-sharing treated the same in the FAFSA? It will be an advantage to hold off profit-sharing and 401k contributions until after we submit the FAFSA, right?

16

The family has been taking a smaller draw out of the business than they could…leaving money in the business. However, since assets, income, and rental income is likely going to cause a very high EFC, the family may realize that it will need to pay itself a fair salary in order to cover life plus college. Otherwise, the student will need to focus on schools that will give a lot of merit for stats.

17

Belknap,

I did inherit the land, but did not receive an appraisal from the estate attorney. When I went to sell it last month (in another state), I was told I would need to hire a land surveyor to get an accurate appraisal. A realtor told me it could be anywhere from $4000 to $8000/acre (based on comps in the area - and there are very, very few) which is not at all helpful. My uncle bought it 30 years ago, so that’s the last price I have. I put it on the market for $7000/acre and have had no bites. So I’m not sure how to calculate this asset, or if I need to include it since I just acquired it this month.

18

Mommdc,

Thank you for the information on the Buckeye scholarship.

And Miami of Ohio is on the list. This is actually my very favorite school for him based on our tour, and their business programs. I spoke to admission rep and son will qualify for merit aid based on his ACT/GPA combo. I was surprised by how generous it was, which makes me like Miami of Ohio even more. There’s also a lot of new construction going on at the campus, so looks like they’re in good financial shape.

19

Mom2collegekids,

We are trying to operate the rental property cash flow at a breakeven, so we won’t make much income. We did renovations last year, so I think had a small loss. I need to look back at the exact figures, but I think any income was negligible.

20

Sybylla,

All the schools we talked to said they take his weighted GPA, which is what our high school reports. I don’t think I can even find his unweighted GPA on his transcript…