<p>Hi,
My daughter is currently a freshman at a "needs based school". We are in the process of filling out financial aid forms for next year, and we have a question. We are considering getting a home equity loan for some work needed on our house, but wonder if this will help or hurt us. Does getting a home equity loan reduce the equity in our home, therefore allowing for more aid (in the form of reduced tuition), or not? What I don't want to happen is to take this loan, and for example pay $500/mo for the loan, but only affect our tuition by say $100/mo. That would still be $400/mo more we are paying out, so no advantage, only more hardship. Does anyone have a clue about how to balance this?</p>
<p>I don’t think your aid will go down, but I don’t think it will go up either, and certainly not enough to cover the payment on the loan for the house. Say your home is worth $200k, with a $160k mtg and $40k in equity. If you take another loan for $10k, and put in a bathroom or a new roof, then the value of the home may go up $10k to $210k and you still have $40k in equity, but now $170k in loans. </p>
<p>I don’t think they will cover the $500 in payments. If she’s receiving 100% aid based on need, you might be well inside their requirements for need so your aid wouldn’t go down.</p>
<p>OK. If the equity is more than half the value, does that make any difference? The amount of aid we got last year was nothing like 100%, more like 18-20%. </p>
<p>I think that would depend on what kind of aid it is. If it is a Pell grant, it won’t go up. If it is a state grant and the max is $5000 and you get $5000, it won’t go up.</p>
<p>It depends if they looked at your home equity, at your expenses, at your assets. If they didn’t, and the aid was based on your income, and there is no change to your income, then your aid won’t change.</p>
<p>It’s an ivy league school, so it’s aid provided by the school. It’s just really hard to navigate these forms. We feel like we shouldn’t spend anything, but we also want to be smart about it also.</p>
<p>Is it an ivy that considers some/all of home equity? Some don’t consider home equity at all. Some only consider a fraction of home equity. Can you find out?</p>
<p>“What I don’t want to happen is to take this loan, and for example pay $500/mo for the loan, but only affect our tuition by say $100/mo. That would still be $400/mo more we are paying out, so no advantage, only more hardship.”</p>
<p>How much would the home equity loan be for?</p>
<p>When you say that you got about 18% in aid…are you saying that you got about $10k in grants?</p>
<p>I really don’t know if they consider some or all of home equity, but when we spoke to the Financial aid officer last year, the fact that we have as much equity as we do seemed to be a factor. And they don’t really call it a grant. Maybe not 18%. I’d have to figure it out. I guess I’m just trying to figure out if the loan would help or hurt us in the long run.</p>
<p>The school is UPenn, right? Does anyone here know if/how UPenn considers home equity? Is there a calculation? Is there a protection like 2x income or anything (some schools have that.)</p>
<p>UPenn may not call the awarded money a “grant”. Seems like the ivies like to call grants “scholarships” since they don’t give merit, but a grant is really what it is. it’s based on need.</p>
<p>Try this…</p>
<p>Go to UPenn’s NPC calculator and put in a lower amount of equity (based on what yours would be if you borrowed). See if the results are different. </p>
<p>I do see that you posted last year that the NPC wasn’t that accurate for you. Do you take business deductions or anything like that? Does Penn consider large 401k’s? </p>
<p>I would say take out the loan based on whether your home needs work, not based on whether it will help out with finaid. It sounds like you want to get the work done for free, the amount being made up by finaid. As mentioned, it’s going to depend on whether the school considered home equity to begin with and whether they will adjust aid based on a relatively small change such as $10k. If $10k of home equity is assessed as a typical asset, it may only change your expected contribution by $600 or so. And when the work is done the value of your home will have gone up some.</p>