<p>Do colleges really expect you to pull your equity out of your house to pay? What if you were planning to use equity to pay for retirement, if you have no defined benefits retirement plan (no pension)? Something seems not right about this "expectation" if it is so.</p>
<p>FAFSA-only colleges do not ask about home equity. However, those schools tend to gap a lot more, expecting I assume that you will close the gap with cash from somewhere, like, your home equity.</p>
<p>Profile schools expect about 3-5% of your equity and other assets to be available each year for educational expenses. If your assets are low, then 3% rising to 5% for more substantial assets. There are two allowances that reduce the asset total before the bite, (1) an emergency reserve allowance approximating 6 months of average family living expenses, and (2) an education savings allowance, so you won't be penalized if, as you should have been, you have been saving as you go for your kid's education.</p>
<p>Also, some schools cap the amount of equity they will consider. This addresses the situation of a lowish-income family "trapped" in home that has skyrocketed in value.</p>
<p>So the shorter answer is yes, they expect you to tap your equity to pay the tuition bill, if that is what you have to do.</p>
<p>NJ_Mother -- note that they expect you to borrow if necessary, but you do NOT have to do so with a home equity loan -- if you have good credit, then you can borrow all needed funds with a PLUS loan. The interest on the PLUS loan is somewhat higher than what you would probably pay with a fixed mortgage on your house, but PLUS loan interest is now fixed and home equity lines of credit tend to be adjustable -- plus home loans often have large initial costs (points, appraisal costs, title check, etc. ) -- so the PLUS loan may be less costly in the long run. There is also a tax credit available for student loan interest, so you do get to write off some of those costs.</p>
<p>Do you know if schools consider the amount of prior parent plus loans (say from fres, soph years) when evaluating for later (jr, sr year) financial aid awards? What about how much students take in Staff loans- does that get put into the formula or is student loan debt not considered?</p>
<p>vt - no, loans like that are not considered.</p>
<p>Wouldn't borrowing against the home be better from a financial aid point of view than a plus loan? For subsequent years the loan would reduce the equity in the house thus reducing the amount you would be expected to provide from that equity.</p>
<p>Yes, but then some people on CC would criticize you for exploiting a loophole and gaming the system. Keep in mind what is really important.</p>
<p>Yes, but then some people on CC would criticize you for exploiting a loophole and gaming the system. Keep in mind what is really important.
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did you know steamed milk is awful when it comes out your nose?</p>
<p>Well it is not really exploiting the system in my opinion. If the home equity is say $200,000 and a person is expected to contribute 5% of it in year one then that is $10,000 which, if they borrow against the house to raise the money, reduces the equity to $190,000 for the 2nd year. (not taking into account house prices rising - though out of curiosity if you have to report your house on profile do you have to have it revalued every year for finaid? We are at a FAFSA only school so I don't know - just wondering). Anyway it seems to me the same applies whether you are borrowing against stocks, your house or producing the EFC from savings. You are reducing the value so the new value is what you use the next year.</p>
<p>yes I am not taking into account house prices rising - though out of curiosity if you have to report your house on profile do you have to have it revalued every year for finaid?</p>
<p>I wouldnt think you have to have it revalued- our equity goes up every year- because the county increases what they feel it is worth every year
But you also can plug your numbers and zipcode in and have one of those real estate sites tell you what it is worth - many areas are going down or at least staying the same</p>
<p>The CSS Profile does ask how much student loan debt you have, so it is very possible that with IM methodology they do take that into account.. though I don't know for sure. But you really have to do the math -- I have found for example there are things that I can do which causes my EFC to go up, but ends up saving me more money in taxes (such as contributing to my IRA) - similarly, depending on amounts borrowed, you could end paying more in loan origination fees for the home equity loan than the amount you will end up gaining in terms of financial aid -- but that of course depends on what you have to do to get the loan. </p>
<p>I would think that if you have a lot of home equity and you plan to sell within a few years after your kid graduates from college, you will be better off with the home equity LOC. On the other hand, if your goal is to pay off your house and stay in it for awhile, you have to keep in mind that home equity LOC's are not amortized in a way that will result in a payoff -- instead they can leave you with a large balloon payment in the end, so if you are not careful you can end up paying a lot of money in interest and still be left owing a lot of principal. The PLUS loan will probably have higher monthly payments, but it will get paid off within the time you plan to pay it off, so long term payout on the loan will probably be less, unless you accelerate payments on the HELOC. </p>
<p>If you just take a regular loan rather than a HELOC -- pull out the full amount and then bank/invest whatever you don't need for the first year -- then the situation is different -- but you don't want that cash sitting in the bank if you are applying for financial aid. Most private colleges do consider home equity, but they also usually apply a cap based on your income -- but they aren't going to do that if you have liquid assets. In other words, if you have $70K annual income, $50K in savings, and $400K of home equity, you are better off than if you have $250K cash and $200K home equity, because based on your income many colleges won't consider more than about $180K of the home equity in any case.</p>
<p>So I might qualify for unsub'd Stafford loan? That would be OK with us.
Thanks for the reply.
Also, in doing some of the online calculators, it did not seem to me that they were taking 529 plan and D's savings for college into account. Or do those amounts go to EFC?</p>
<p>They should take 529s and savings into account. 529s are reported as a parent asset so get hit at about the 5.6% rate for EFC. Savings in Ds name would be hit at about 20% (assets in students name=bad for financial aid). Unless the parent AGI is less than $50,000 and parents are eligible to file a 1040A or 1040ez? Then you come under what is called the simplified needs test and assets are not considered - only income. (This is all for FAFSA - profile is different and I don't know how it looks at the same info.)</p>
<p>"529s are reported as a parent asset so get hit at about the 5.6% rate for EFC.."</p>
<p>Right, for the portion of the parental assets the exceed the asset protection allowance. Typically around 40K-- many families reportable assets fall below the allowance, so they have little or no contribution from assets.</p>
<p>So best to consider the allowance when considering whether to move funds into a 529 or other sheltered asset instrument.</p>
<p>I was feeling pretty down about the fact that my house is in an area that has actually decreased in value (auto industry woes). However, when I filled out the Profile, I actually had a moment of gratitude. Hey, we take our happiness where we can get it!</p>