If you are under the impression that I think maxfunding a parent 401(k) is “cheating the [financial aid] system,” you are mistaken.
No, sorry. Previous posts implied it was just another form of gaming the system.
How are 529s counted for financial aid? I thought they weren’t counted? My parents never wanted their $ gifts to us to go into 529s because they always suspected it would be taken into consideration when calculating financial aid for our children. I assured them it would not be.
Also, I didn’t think children could own a 529, but instead they could only be a beneficiary.
My questions are somewhat moot because my kids won’t be qualifying for financial aid. Hopefully some merit aid.
Someone mentioned the FIRE-type folks who have low income but high assets. CA has sort of addressed this with their middle-class aid. They have both an income limit and asset limit.
Future help from the bio parents/grandparents SHOULD show up on a future FAFSA. Any money the student is gifted needs to be reported as money received and will be treated in more or less the same way income is treated in the formula (no auto 0 EFC for independent students without a dependent other than a spouse, and simplified needs does nothing other than ignore assets). Any money someone else pays for bills IN THE STUDENT’S name must also be reported as money received. A tuition bill is in the student’s name, so if the parents give an independent student any help with tuition, the student has to report it as money received. However, I wouldn’t exactly bet on that happening, given the fact that these families have shown themselves to be less-than-ethical.
I didn’t mean to side track the conversation with those examples. My larger point was sometimes it’s hard to know what is the right thing to do. If a school only has a certain amount of money to use for aid for a given year, anything I do has the potential to take money away from another student that perhaps didn’t understand the system as well as I understand it.
Specific to my examples:
- Child owned 529 - Yes, it belongs to the child. First, you don’t have to tell them that. But even if they knew, I only moved money targeted for that child. If they really want to withdraw it, it would be at my disapproval which could have much larger implications for them (the least of which my will).
- I had a group universal life insurance policy through work. I could put money into an attached cash value account. I can withdraw the money at any time. I literally had the ability to put in over $100K on Monday, file my financial aid returns on Tuesday and then withdraw the money on Weds. Or at least close to that timeline. btw - I didn’t do that. The account paid min 4% so I really just used it all the time with whatever disposal money I had.
- As for the 401K case, let’s look at it a little differently. If one does not max out or contribute to a Roth IRA, one could contribute the max and then withdraw it after you file. Or, how about front load your 401K/IRA contributions for the year before you file.
@kelsmom Of course everything you said about future help from bio parents/grandparents is true. But there are always ways around rules. For example, what you say is true for cash gifts. I don’t believe it is true for physical gifts, such as cars, vacations or anything else that does not count for support. Again, not advocating any of these things. Just pointing out that some know the rules better than others and that makes it tough on financial aid officers to really determine who should get the aid.
HS Counselor did not know anything specific, just thought it was weird for a person from such a neighborhood qualifying.
I attended two different presentations last year by the college consultant who has been implicated in this affair and to put it simply, I am neither surprised nor disappointed that she has a date with karma.
I’m curious about which private schools some of these students attend.
529 accounts owned by a parent who is required to report financial information on a student’s FAFSA and 529 accounts owned by the student submitting the FAFSA are reported on FAFSA as a parent asset. This is well known. See the note on page 10 of the current FAFSA for questions 42 and 91.
https://studentaid.ed.gov/sa/sites/default/files/2019-20-fafsa.pdf
Where did your parents want gift money from them to go to avoid being reported on financial aid forms?
I assume by “children” you mean minor children. A minor child can be the legal owner of a 529 account. This is known as a custodial account, and it works the same way as a UGMA/UTMA account.
Anyone that has the financial insight to think about this years before their kid goes to college will be salivating at the idea of an extra 5.6% “risk free” return on their assets for 4 years.
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Anyone that has the financial insight to think about this years before their kid goes to college will be salivating at the idea of an extra 5.6% “risk free” return on their assets for 4 years.
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My point was that using retirement is not really a way for high income people to get financial aid. If your EFC is 50K on income alone it doesn’t really matter a whole lot for most schools if you can knock 7K off that, unless as was pointed out you’re applying to high price meets full needs schools…and a lot of them use CSS, not FAFSA anyhow.
Again, I’m a total advocate for fully utilizing all retirement vehicles, and assets aren’t even counted for us.
For many schools that use Profile, the result of saving more in a qualified retirement account would be just the same as if only FAFSA was used.
“I’m curious about which private schools some of these students attend.”
Based on the Lincolnshire location of the “advisors”, I would guess the school is Adlai Stevenson, one of the top public schools in the state. It’s a wealthy area and a pressure cooker school. Property taxes in that area are obscene. The GCs would know who does or doesn’t belong in a special low-income program based on the students’ addresses.
The reason this is happening is due to how little assistance middle class families receive from the FAFSA. Wealthy families don’t have to worry about financial aid in most situations, unless of course they’re wanting to teach their children financial independence. They have the money necessary to fund their children’s education without government funding. The lower class obviously needs federal and state aid in order for their children to attend college because it would otherwise be an extreme financial burden, if not impossible. The middle class fall in a strange middle ground. They have enough money to disqualify them from most federal and state grants, but an insufficient amount to actually fund their children’s educations. I’m in that situation, which is why I’m having to financially manage university on my own.
I’m not sure if there is a clear solution to the problem other than simply fixing the exploits in the FAFSA regulations however, the issue of the middle class is still left unanswered. While the Department of Education has a great intent with their student aid system, the bias it gives toward the lower class has created a difficult situation to escape. It is only fair for the more economically challenged to receive more aid than the upper class with much more breathing room in their bank accounts, but as we know with almost everything else, nothing is black and white.
Perhaps the best solution would be to make the FAFSA a financial audit where a family’s income can be analyzed alongside their liabilities since that seems to be the issue most burdening the middle class. While such families have decent incomes, their is much debt to be found in relationship to their income. Mortgages, car payments, and credit cards are just a few examples for potential liabilities to be included in the FAFSA. This would cause two issues though. The first would be ethical. Should the government have that much financial information about a particular family? The second issue is economical. Who would be the person to asses each family’s financial situation? Of course, an algorithm could be developed, but it would entirely change how federal aid works entirely. The parents who have been so controversial recently are only doing what everyone else is trying, and that is to have their students graduate with as little student debt as possible, but I think it may be a little too extreme.
I firmly believe debt must be left out of the equation. We make choices in life, and the choice to avoid or take on debt is within our control.
And in what world is a two-physician family middle class?!
If you truly feel that the “lower class” benefits from a bias in need-based education funding, I suggest that you and your parents can very easily join this class by giving away your reportable assets and reducing your income. Problem solved! Oh, wait…
So many people need to stop using "class" instead of defining income. Children are susceptible to repeating drivel.
Are the courts terminating their parental rights? Are the new guardians notifying the schools that they are now the responsible party for this child and that the bio parents can no longer sign permission slips, report cards, discuss grades, resolve conflicts with teachers or other students? Are they notifying the doctor’s office that they are the guardian and only they can make medical decisions, that the bio parents no longer have any say in medical decisions? Are the guardians helping the students apply for passports or file other legal documents, help them get a DL, pay for car insurance (or notify the insurance company that this child is no longer a member of their household)? Did the guardian sign the ED agreement or any of the college applications (if required)?
If not, I think the guardians are not fulfilling the duties of the guardianship agreement. I hope that when the little darlings get arrested for being out past curfew or get a traffic ticket the cops call the guardians and not the former parents. Those former parents would have no standing to show up to court with these children who are in a guardianship.