Financial Aid Racket

Parents Forum
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<p>OK, I know I'm venting. I am sure this vent has been aired hundreds of times before here, but I am going to do it anyway. </p>

<p>The "need based" financial aid system used by top tier schools is a racket. Basically this is those using the CSS profile.</p>

<p>The cost of attending these schools if $50K or more. However, the financial aid is based as much on <em>assets</em> as <em>income</em>. So, if a parent has been responsible and paid down their mortgage and saved some money, they are completely screwed by the system. Those that blow their money, take out irresponsible home equity loans, and go into the Financial Aid game "broke" are handsomely rewarded. </p>

<p>Furthermore, siblings who decide to skip a semester at the wrong time, i.e during the other sibling's "base" period, cause another huge hit to FA prospects. Yes, my sophomore son dropped out a few weeks before we had to fill out the CSS profile. HAD I KNOWN the impact of that move, I would have begged him to stay in school another semester. </p>

<p>So, for those of you reading this, here are some strategies:</p>

<p>1) Reduce your assets at all costs. One good strategy would be to completely MAX OUT your 401K/IRA contributions, and cover that by refinancing your house. Had I known this strategy, over a four year period my wife and I could have contributed an additional $120,000 to our retirement, while reducing our "assets" for the purposes of CSS/FAFSA by the same amount. </p>

<p>2) If you have a child already in college who is looking like they may drop out, do everything you can to keep them in school until you have submitted your FAFSA/CSS profile. </p>

<p>3) If you have an employer who can be flexible about compensation, have them give you deferred compensation until after your child is out of college. </p>

<p>4) Under no circumstances should you have a college account in your student's name. There is an extra penalty for assets owned by your child. </p>

<p>5) Take European vacations, buy fancy cars, and otherwise draw down your accounts while your child is in high school. I wondered how all the other parents with similar incomes managed to take two overseas vacations a year and drive new Audis while we "staycationed" and drove beaters, then they were able to send their kids to top schools. Now I know. They were playing the game. </p>

<p>I'm sure some will object to these strategies, but here is the bottom line: my child sacrificed themselves for four years of high school to get into a top school. All along, the websites of these schools implied that financial aid was "need based" and they would do everything possible to get every accepted student through their programs <em>without</em> crushing debt. Now we find that these schools expect the <em>parents</em> to assume crushing debt in the form of "Plus" loans. They honestly, actually expect us to spend 45% of our net income on one student's college costs AND assume $50K in debt over four years. </p>

<p>It is insane.</p>

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<p>Um, you left out the part where some students default on their FA. As a high-income family, you get to cover a part of the defaults through your Federal taxes. (Where did you think need-based FA came from?)</p>

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<p>Absolutely true and great advice…</p>

<p>Our strategy was to save and invest so that we would be able to be full pay no matter where our kids went. I hate having something else like financial/merit aid (which varies widely among schools) determine our fate…</p>

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<p>*through your Federal taxes. (Where did you think need-based FA came from?) *</p>

<p>Not mostly for CSS Profile schools. </p>

<p>*2) If you have a child already in college who is looking like they may drop out, do everything you can to keep them in school until you have submitted your FAFSA/CSS profile. *</p>

<p>I don’t know if this works. If you file in the spring that you will have 2 kids in college the following Fall, and one child ends up not going to school, I’m not sure you’ll still get FA as if two are going to school. Hopefully, someone who knows can chime in here. I’m sure that often a sibling will decide not to go to college.</p>

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<p>OP – you are absolutely right . . . and until parents and prospective students stop the herd mentality that only a handful of expensive schools can bring success in life (at any cost)this will continue-- the effects (and the reality check) of the current economy are causing a lot of folks to reconsider the nonsense that this whole college horse-race has become. IMHO. Our own D is about to make this momentous decision-- and we are proud to see that practicality may just trump the need for “prestige.”</p>

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<p>With all due respects…income is the primary driver of need based aid at even Profile schools. For FAFSA, between 25% and 30% of your gross income will be part of your family contribution (this is a guestimate…not a firm number). The parent assets are tapped at 5.6% of their value. I’m sorry but clearly there is more emphasis on income than assets.</p>

<p>Profile schools have varying formulas for dealing with things like your home equity. Some of these schools do NOT assess one cent of home equity. Others use it all…and there are varying %ages in between. YMMV depending on the school.</p>

<p>Agreed…assets should be in the parent name as student assets have a much higher %age of allocation to the family contribution.</p>

<p>Re: two kids in college…it doesn’t matter if the kid is planning to go to school when you file the FAFSA/Profile. What MATTERS is if the student is in school when the school year begins. In the years our kids overlapped in college, we had to provide evidence to BOTH schools that they were enrolled AFTER the term began in the fall. </p>

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<p>If this is the case, you likely have significant assets AND an income that would not support significant need based aid.</p>

<p>My best advice to folks…take the time to run the finaid calculators using the institutional methodology. This will give you a guestimate of your family contribution. AND better…if the school has a finaid calculator on their website (some of the full need schools do), use that. If you are really in doubt, you can ask for an “early read” on your financial aid possibilities. Some schools will do that too.</p>

<p>Agreed…college is expensive at these private schools…no doubt about that.</p>

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<p>I suppose that increasing your 401K contribution would decrease your taxable income. But aren’t there some schools that add back in 401K contributions? I seem to remember reading that on some CC threads. </p>

<p>I haven’t know any upper middle income family that has saved nothing and gotten lots of financial aid–annual income is the real driver in awarding financial aid. Most of the families with income that I know who haven’t saved up a lot for college have told their kids that they’ll be going to the state schools which are more financially realistic–and between student loans, parent loans, summer work, a parent going back to work, on campus jobs, etc.–the family gets through.</p>

<p>There probably are some families that have managed to spend profligately and get generous financial aid, just as there may have been “welfare queens” in the 70s and 80s. I just don’t think that it is as common as the media would have us believe.</p>

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<p>Oh stop belly aching. The government is helping you. The schools are helping you. And for goodness sake, we’re helping you. We pay full fare.</p>

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<p>OP, you shouldn’t have had children if you couldn’t afford to put them through college. way to fail</p>

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<p>Your 401K (or other pretax retirement contributions) are added back in as income for the year for both the FAFSA AND the Profile. This will not reduce your income for financial aid purposes.</p>

<p>HOWEVER the balances in IRA, TSA and other authorized retirement accounts (not regular savings that you hope to use for retirement…but real retirement accounts) are not counted as assets on the FAFSA. Some Profile schools do ask for the balances in your retirement accounts but there is no evidence that they use this as part of the financial aid asset calculation. </p>

<p>To the OP, I’m sorry that you didn’t get the need based aid you hoped for. Did you really think you were going to qualify for significant institutional need based aid, or where you just hoping?</p>

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<p>When the economy went south, the bank froze out equity line. We had planned on getting it unfrozen by next yr to help cover expenses. If I am reading right, I’m better off not hurrying to pay it down so the equity on my house is lower?</p>

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<p>No–venting is allowed…and then some serious number crunching and making hard decisions. Who could have guessed twenty years ago that the cost of college would be as much as it is today?</p>

<p>Thanks Thumper for the response on how 401Ks are treated in the fin aid process.</p>

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<p>And whatever you do, if you are a single parent, do not get remarried while your children are in late high school or college.They will count the new husband or wife’s income.</p>

<p>Also, be prepared to hear about students whose grandparents pay the family contribution but aid was based on parent income and assets, this is the one that really gets me, and I see it happen ALL THE TIME! Even nice people do this and don’t think it is a problem but it is very dishonest.</p>

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<p>I think the OP was suggesting that in the years PRIOR to college (not the year before) that one could mortgage a a home that was paid for refinance one nearly paid for to max out the 401k so that the home showed less equity. This makes sense to me for schools that count home equity, however with the down turn in real estate and one not knowing if one could pay the mortgage (one does not want to be homeless, I hope) if one lost a job or had less income it can be a dangerous game to play. YMMV!</p>

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A young neo-con in the making. Probably also thinks all children of poor people should be put to the sword.</p>

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<p>There are risks to many of the strategies to maximizing financial aid. You just don’t know what school your child will want, so it’s difficult to strategize. Somethings do make sense to do, such as maximizing retirement, 401K contributions and accounts, and minimizing accounts in the student’s name and ssn. However, things like getting your employer to defer your comp can be a risky proposition. What you might gain in fin aid, you can lose if you end up not getting your money. Also, some schools do look at your qualified pension accounts. Some schools include all of one’s home equity. Also there really aren’t that many schools that are going to meet 100% need anyways especially without loans in there. You are better off if you can pay it yourself via savings and that way not be at the mercy of all of the different rules and definitions.</p>

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<p>This one gets to me too! </p>

<p>We know of a middle class family and an uncle pays for cell phones for 4 neices/nephews (3 are in college) and he covers airfares home for holidays. Whether he pays some tuition or offers pocket money or whatever else, I don’t know! I would like my kids to have an uncle that offered these “gifts”. I doubt this info is on the fafsa/profile, and yes, with 3 children in college at the same time the schools have offered generous packages (that is an understatement too)!</p>

<p>Another loophole is collectable items. Why do they only look at assets in a banks. How many coin, stamp, antique, gem, and art collectors are out there with substantial collections flying under the radar? Not sure if the Profile asks, but I don’t recall the FAFSA inquiring.</p>

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<p>Lindz, what is dishonest is grandparents gifting assets to children and grandchildren so that they deplete their assets just enough to qualify for aid meant for the indigent. It is dishonest for parents to hide assets so they qualify for aid they would not have qualified for. It is dishonest to retitle property to a cousin or brother-in-law before filing for aid with a handshake agreement that after college, the property will go back to the original owner. (usually vacation home or rental property with an income stream.)</p>

<p>These are dishonest. It is not dishonest for another family member to offer to pay a portion of a grandchild’s contribution. Should the family member decide they can’t afford to help, don’t want to help, etc. there is no way the child can force the issue- or get further aid to make up for the lost “gift”. it is just that- a gift. More times than you imagine, it is the parents who are struggling to pay the EFC AND struggling to help out elderly relatives who cannot afford the care they need.</p>

<p>I don’t begrudge people who have family members who are in a position to help. And I don’t resent the demands made on us by other family members. But dishonest??</p>

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<p>I’m sorry, but I would still rather be a position to reasonably pay for my kid’s college at a state school then to have to depend on the system and hope that something works out. </p>

<p>Sure, 50k/year is crazy, but if your EFC says you can pay the 50k, then you probably can easily (or fairly easily) pay the 15-20k/year for state schools. Some families can’t even do that. </p>

<p>And I don’t feel bad that your assets work against you. You HAVE assets which is more than many American families can say. My parents have about 2k in assets (checking and savings BEFORE paying bills) and maybe a tiny bit towards our house. They have no retirement or anything of the sort</p>

<p>We didn’t game the system either. NO fancy vacations, no nice cars or anything. Encouraging people to game the system only screws people who have very little and need the help. </p>

<p>So yes, I see your point that the system isn’t great for you, but it made attending college possible for me. State school was NOT an option without heavy scholarships and still lots of loans. But need based aid at a 53k school made education affordable.</p>

<p>So, yeah, at like 2% of this country’s schools, you’re out of luck, but for the rest, you’re in a position most of us aren’t</p>

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<p>In the whole financial aid “racket” I feel most sorry for the kids whose parents can easily afford to pay 50K/yr, and who would therefore not qualify for any financial aid, but whose parents simply refuse to pay (or pressure the kids to choose an inferior but cheaper alternative). These kids work hard, get into the top schools, and then have to give up those schools because parents have other priorities.</p>