<p>Hi everyone,
Was wondering if you have ever heard of this. We are thinking about doing a HELOC just to reduce our EFC ($34,000). We may never even use it to pay for college. Would this work?</p>
<p>It wouldn't.</p>
<p>For FAFSA the primary home is not a reportable asset so does not affect the EFC. If you have a HELOC but don't actually use it it would be irrelevant to FAFSA. If you actually got money and had not spent it on non reportable 'stuff', it would now be a reportable asset so would increase you EFC.</p>
<p>For CSS it is hard to tell how the home value is affecting the EFC as each school uses that information differently (some don't use home value, some cap it at a multiple of income, some don't cap it). But having a cash asset outside of the primary home is more likely to increase the EFC rather than decrease it.</p>
<p>You COULD possibly lower your EFC by paying down your mortgage, converting reportable assets (checking, savings, or the like) to a non-reportable asset (home equity in the case of FAFSA). And in the case of Profile, if you knew how your school treated home equity, this might help if the school capped home value or equity in such a way that the increase in equity didn't increase your EFC.</p>
<p>BUT, you wouldn't need a HELOC to do this. AND, since there is an asset protection allowance component to both FAFSA and Profile methodologies, this would only be of potential benefit if the parents' assets already exceeded the allowances (and were therefore contributing to the EFC). For many families, their reportable assets fall within the allowance, and so this strategy would have no effect.</p>
<p>Getting a HELOC is a good idea for many families, and it can help to pay for college using home equity, while getting a tax break from due to the mortgage interest deduction. But it won't lower EFC.</p>
<p>So much for that idea! I'm running out of ways to lower the EFC. I just can't believe it's so high. Daughter is a junior in HS. We only have $10k in savings/checking. Everything else is in Roth IRA's, 401K, life ins. I'm guessing it is simply our income that is screwing us.</p>
<p>mama-</p>
<p>Do you show any assets in your daughter's name? College savings? Checking? If so you can open a 529 college savings account with most of those assets, and for FA purposes, they're reported as a parental asset, rather than a student asset. Parents get an asset protection allowance, so they may not contribute to EFC at all. Students get no asset protection allowance.</p>
<p>Most of your EFC is likely from income, though. Since she's a junior, your income for '09 is your baseline, and will have the biggest impact on your EFC. Are you by chance self employed? If so, there are some strategies that might help-</p>
<p>Also, if she's working, best to limit her work income to about $3500 this year and focus on grades. Student income much over that amount starts contributing to the EFC.</p>
<p>Thanks sblake, how do I find out what the asset protection allowance is?
We have been thinking about refinancing our mortgage, from a 30yr 5.5% fixed to a 15yr 4.375% fixed. It means an aditional $380 mo., but we are knocking off 10.5 years. Will this affect EFC in any way? Or, maybe there is a better way?<br>
Luckily, the schools she has looked at so far do not require the CSS.</p>
<p>Daughter has nothing at all in her name, doesn't work yet. I think it is just that hubby(NOT self employed) makes $120K + bonuses.</p>
<p>Refinancing won't have any direct impact on EFC, although it might have some tax implications that indirectly effect the EFC in a small way.</p>
<p>Use one of the financial aid calculators to determine your asset protection amount, both with the Federal Methodology (FAFSA) and the Institutional Methodology (Profile), while getting a tentative EFC under different scenarios. VERY helpful in doing your college financial planning, to see what your EFC might be under different circumstances.</p>
<p>College Board's calculator is a good one, and it's been updated for the 09/10 year:</p>
<p>EFC</a> Calculator: How Much Money for College Will You Be Expected to Contribute?</p>
<p>"hubby(NOT self employed) makes $120K + bonuses"</p>
<p>Well, more money is better than less money. So that's a good thing.</p>
<p>Keep in mind that average family income in the US is just under 50K, so you're in a relatively good place. :)</p>
<p>Remember that paying for college for most folks is expected to come from current income, savings and loans.</p>
<p>Thanks much for the help!</p>
<p>Here is the EFC formula for 2009-2010. <a href="http://fsa4counselors.ed.gov/clcf/attachments/1114EFCFormulaGuide0910Attach.pdf%5B/url%5D">http://fsa4counselors.ed.gov/clcf/attachments/1114EFCFormulaGuide0910Attach.pdf</a></p>
<p>The worksheets start on page 9. You can calculate your EFC yourself and see how the formula uses your particular informaion.</p>
<p>OP- you would probably need to see AGI income below $40-50k to see much of a basic federal aid package. So if you are a little bit about $50k you might as well be over $100k unless you are in at a top school that has income limited packages.</p>
<p>On the HELOC, if you had credit card debt, you could take a HELOC to shrink home equity and pay off consumer debts like car loans & credit cards, but then your home is technically at risk. Plus your income has to be low enough to make that logical, use the formula above to see if any of that would make sense for you</p>
<p>Most of the formulas are heavily income based such that hiding/spending assets would merely make you unable to afford your EFC</p>
<p>HELOC can make a big difference in the EFC of families who have approx. $20,000 to $100,000 in savings. The trick is take the savings and apply it to the outstanding principle balance on your home mortgage, which will cause the home equity to go up by that amount. Then open a HELOC line of credit so you can take out cash for emergencies or whatever. It works because FAFSA looks at savings but not home equity. Obviously this method has some risks, especially in areas with declining home values.</p>