Financial Aid for Upper-Middle Class

Paying for College
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<p>We've heard conflicting information regarding financial aid for upper-middle class parents. I'm talking about urban households located in very expensive urban areas, with high COL, taxes, housing prices, etc. Our household take-home pay, with all taxes deducted, is probably around 40% of gross income, before we address household expenses. We've been to several LACs that promised "financial aid" (not merit award) to households earning as much as $150,000+. But NPC calculations seem to reflect an altogether different scenario: EFC in $45,000+ range for us.</p>

<p>We're in that high-income category. We're an older couple with great salaries currently, but no company pensions, sending our oldest to college in Fall. Either of us could lose our jobs quite suddenly; it's the nature of our professions. We've great savings, but serious medical issues too which could impede future earnings and/or employment prospects, etc. I'm assuming we don't qualify for "financial aid" (though student may qualify for merit aid). Is there a rule-of-thumb, like $100,000 household income translates into $30,000 EFC? $200,000 income translates into $60,000 EFC? I'm thinking there's no reason for us to complete the FAFSA and Profile, because student's selected LACs apparently all grant merit aid without parents' financial info.</p>

<p>I've tried scrolling around and searching for related threads, but haven't found anything specific.</p>

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<p>If you file the FAFSA, your kids will be able to take out unsubsidized federal loans.</p>

<p>Some colleges/universities will not consider students for aid in future years, no matter how drastically the family finances have changed, if the student did not apply initially.</p>

<p>Some colleges/universities require that students apply for financial aid in order to be considered for merit-based aid.</p>

<p>Harvard/Stanford/Princeton/others that offer “super aid” do indeed have some need-based aid for families with incomes up to $XXX,XXX.</p>

<p>It really truly is OK to contact the financial aid and scholarship offices and ask about their specific policies if those policies aren’t clear on the website. If none of these situations are relevant in your case, it is perfectly OK to skip the FAFSA and CSS Profile. Many higher income families do.</p>

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<p>The way it works is that financial aid is heavily based on what the current income is. There are allowances for retirement based on the older parent’s age and qualified pensions and 401k type plans are pretty much left alone. But where you live and what the future possibilities are, do not come into consideration. Your AGI is what pretty much dictates what your expected contribution will be.</p>

<p>With a $45K EFC, there are still school where your student would be eligible for aid since, sadly, some of those costs are in the $60K range. Also, you get access to loans and possibly work study when you fill out the FAFSA. </p>

<p>If your financial situation is straightforward, the NPCs for those schools that meet full need and do not have merit awards, tend to be fairly accurate.</p>

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<p>All true. I called the schools on D1’s list (will do the same for D2) to find out if we needed to submit FAFSA/Profile even though we were certainly going to be full pay for freshman year. For her list, we didn’t need to submit forms. I’ll do the same for D2’s list next year. </p>

<p>General rule of thumb is that EFC runs about 25-33% of household income for families with “typical” assets. Factors like divorce, owning a business and having retirement funds in non-retirement investment vehicles can throw that off significantly.</p>

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<p>FAFSA EFC is not a reliable indicator of aid availability at schools using CSS Profile. Our EFC was >$60K, but we were offered $20K financial aid by one private school.</p>

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<p>I’m new here… single mom with upper-middle-class salary, have one son who’s just been accepted ED to Lawrence University. He has been offered a $7k merit scholarship, and I have set aside almost $100k in a 529 plan, so we have a good start. I’ve not even looked at FAFSA yet, so forgive me if my questions are completely idiotic. Question 1: I am only 6 years from retirement, and haven’t saved as much as I should have, and so am stashing away as much as I can now in my 401k… Do they take this kind of situation into consideration for older parents? Second question: Something I read in another thread left the impression that we would have to use up the 529 savings before qualifying for any aid… Is that right? Also is there any rule of thumb about the proportion of grants vs. loans vs. work-study in a typical aid package? Thank you.</p>

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Are you sure you aren’t counting 401k or other non-tax deductions in this? I’m not aware of anywhere where the income tax rates add up to 60%.

A good rule of thumb on the income-side contribution might be something like</p>

<p>$10,000 + half your income over $80,000</p>

<p>On the asset side it will be something like</p>

<p>5.64% of assets over $50,000</p>

<p>You can see the exact formulas used in the EFC Formula Guide, along with worksheets to calculate your EFC. It is worth going through:</p>

<p><a href=“http://ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf&lt;/a&gt;&lt;/p&gt;

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The FAFSA form itself doesn’t.</p>

<p>You might be able to get a school to give you a break based on your circumstances, you will have to appeal to each school. I think a FAFSA-only school is unlikely to give you a break.</p>

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For FAFSA, 529s count as parent assets and only 5.64% max should be added to your EFC every year.</p>

<p>You may want to use up the 529 as fast as possible to try to increase your aid in future years, but at FAFSA-only schools it is not a requirement.</p>

<p>CSS Profile schools (which Lawrence appears to be) can make up whatever rules they want.</p>

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<p>Our take home pay is less than 40% of gross, due to what we have taken out. To put things into perspective, we have to take into account the payroll deductions that are not tax and understand that the other items are things that we would ordinarily be seeing in a paycheck and physically depositing or paying elsewhere, such as 401K contributions, health care premiums, HSA, life insurance, dental insurance, etc. That they are “goodies” that most people are not lucky enough to have. and because we do have them, we take them for granted. A side effect of having them taken right out of the paycheck, I’m afraid.</p>

<p>But it is also sobering when one is supposed to be making so much money, and yes, it is a lot of money, that by the time one pays for the things that it is respoonsible to do do such as retirement savings, health care, and the required taxes, the small percentage that is left. Throw in a house commensurate to ones earnings (which in many cases, is not so impressive in certain high housing cost markets) and the costs to maintain it and what is left is not what one would expect at that level. </p>

<p>But then consider what those who have to cope with issues not covered by plans for which you are paying, and have far less left, and you gain the perspective.</p>

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<p>Financial aid doesn’t take into acct those who live in high cost of living areas. That’s frustrating for many who live in those areas. </p>

<p>If your “take home pay” is 40% of your gross, then you must have other deductions…401k, flexible savings acct contributions, health insurance payments, other savings deductions (i.e. contributions to a credit union), car payments, etc.</p>

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<p>Regarding the “rule of thumb” notrichenough mentions that EFC roughly equals $10,000 plus 50% of your income over $80,000, does that mean gross income?</p>

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<p>Is there a rule-of-thumb, like $100,000 household income translates into $30,000 EFC? $200,000 income translates into $60,000 EFC? I’m thinking there’s no reason for us to complete the FAFSA and Profile, because student’s selected LACs apparently all grant merit aid without parents’ financial info.</p>

<p>Yes, there is a kind of “rule of thumb” rough estimate, but it’s not as you’ve described above…and assets can change the “rule of thumb” as well.</p>

<p>Those who earn around $120k, often have EFCs around 33%.
Once, beyond $120k, the family contribution can be 50%</p>

<p>Those who earn below $100k, often have EFCs around 20% all the way down to zero (for the low income).</p>

<p>And, those who are self-employed or have “business deductions” often find that CSS schools “add some deductions back in” as income. :(</p>

<p>It sounds like your child needs to apply to some safety schools that give ASSURED large merit scholarships just in case the other schools expect you to pay too much.</p>

<p>We’ve been to several LACs that promised “financial aid” (not merit award) to households earning as much as $150,000+. But NPC calculations seem to reflect an altogether different scenario: EFC in $45,000+ range for us.</p>

<p>Schools are terrible about bragging about all the aid they give which gives the upper-middle class the wrong perception. It leaves too many thinking that they’ll get LOTS of aid. </p>

<p>If you can’t afford $45k per year, let your child know that now. Tell him/her how much you can spend. Insist of a couple of “parent pick” college applications to schools that you know for sure that your child will get large merit for stats…just in case.</p>

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<p>If you’re asking about FAFSA, it means AGI with certain things added back in including contributions to pre-tax retirement accounts. If you want a more precise number before FAFSA becomes available online, you can go through the formula below. It’s not all that bad.</p>

<p><a href=“http://ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf&lt;/a&gt;&lt;/p&gt;

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Yes, gross income.</p>

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That’s getting a little complicated for a “rule of thumb”.</p>

<p>Retirement contributions tend to be the bulk of the add-back IMO, which is why using gross income is close enough for a quick estimate.</p>

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<p>Is there any downside in completing CSS/FAFSA paperwork and applying for aid anyway, even if you are pretty sure your EFC will exceed the COA? For need-aware schools, if you give them your financial paperwork and they conclude that you don’t have need, it theoretically shouldn’t hurt your admissions chances even if you are a borderline candidate. But would schools view even applying for need aid, if it turns out you really, really don’t qualify for it, as inappropriate or overreaching in some way?</p>

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They might view it as a sign that you are unwilling to pay full price if they admit you with no financial aid, and therefore you would be less likely to accept. Or if you are close maybe they view it as meaning you had no way of knowing so you applied for FA just in case, in which case is probably wouldn’t affect your chances of admission.</p>

<p>But no one really knows for sure, it is most likely different at every school.</p>

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<p>Or conversely, if a school really wanted the student maybe they’d be more likely to offer merit aid if the student is perceived as a full-pay unwilling to pay full price?</p>

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<p>Or they might simply view it as an applicant filing for FA in the first year in case things change.</p>

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<p>^^which is why parents need to figure out how much they are willing to pay. In spring 2007 S1’s packages were all tightly clumped. In spring of 2010 they were all over the place for S2. I have no idea how S3’s will look this coming spring, but it doesn’t matter because each kid had a budget to work with they we set. That’s what’s important. Also my advice, be conservative. My H is retired and I DID lose my job during the auto industry crisis for over a year…guess what…our aid didn’t change substantially with the exception of a Perkins loan for two aid cycles and our taxes were horrendous due to lump sum severance… What you can afford is more important than what you guess the colleges might cost so don’t let your kiddo get too focused on one college and be honest with the kiddo about what you can afford.</p>

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<p>Most need aware school do the admissions on a need blind basis, and then let the bean counters in financial aid decide who gets the money using some rating system that admissions uses for the kids. So applying for financial aid is not going to have an effect for 1) Top rated kids even with high need 2) Low rated kids with little or no need. The cuts are generally made to the low rated kids with a lot of need. So in most cases, just applying for aid does not affect admissions chances at all. It comes down to whether the school can give students most or close to most of their need as to whether or not they will accept them. A main reason a school is need aware is because it does not want to “waste” its acceptances on kids who can’t afford to go there, so if the school can’t give the close to what they need to go, they simply reject them rather than having the kid reject the school. </p>

<p>You can ask the admissions officers of school if admissions decisions are affected by applying for financial aid if the student ends up not qualifying–if the very act of seeing if one qualifies affect the admissions process in any way. Most colleges, even need aware ones encourage students to go on ahead and apply for financial aid even if they think they will not qualify. </p>

<p>If you are absolutely sure you don’t qualify, you can just complete the FAFSA and qualify for federal loans and other such programs outside of the college itself. You can fill out "no " for appying of aid and still do the FAFSA for funds outside the school’s such as federal loans.</p>

<p>Miafitte, did you not get some estimate of aid from Lawrence with your son’s ED acceptance? Most every ED program does give an estimated package with ED and that is the failsafe escape valve for getting out of the ED commitment. </p>

<p>To answer you question, yes, there is a bit of consideration given to those who are close to retirement, in that your age gives you a certain protection allowance and the older you are the bigger than allowance is for your assets. </p>

<p>As to how any individual school gives aid packages, it’s up to them and it can differ widely even at the same school depending on how much they want your kid and their policies. CMU, for instance, will give ED accepted students a full need met package but not so for all accepted RD. Most schools “rate” the students they accept and the ones rated the highest get the best packages such as full need met, more grants, less loans and work study. You can see the averages in the common data or in the financial aid seciton of the school in the US News and World Report blurb for it. It gives you the percentage of grants, loans etc. BUt they are averages only. A highly desired student will get more grants than one who is not considered as prize of a catch in many cases. Only at schools that guarantee to meet full need and give out grants only does this sort of hierarchy not exist.</p>