<p>In looking at financial aid at some of the more expensive private schools, our family will qualify for some assistance as we are in the 150K annual income range. However, some look at your home equity if it is large as way for you to more more toward the education. I will soon be replacing a vehicle of mine and also purchasing a new car for the college bound student. Is it advantageous for me from a financial aid perspective to borrow the money via a home equity loan, so as to reduce my home equity by about 60K, for the schools who consider home equity available?</p>
<p>Let me make sure I have this right…you are planning to spend $60,000 on two new cars (one for a college freshman) and want to take out a home equity loan to reduce your equity in your home. Your income is in the $150,000 range? And you are doing this presumably in hopes of getting more need based aid? Is that correct? </p>
<p>Unless your child is guaranteed a seat at Harvard, Yale or Princeton (which is a long shot for anyone), Your spending down your home equity is a very bad idea that could backfire on you. </p>
<p>Even if home equity is not taken into consideration, with the 150k income you are going to have a very large EFC which is going to net you very little if any need based aid. You might need the home equity to help pay for your child to attend colelge. Let the cars wait until much much later.</p>
<p>That is correct. $150K income does not cut it when the ECA is $57K and a second child is already in college, albeit at a less expensive school. My son has the scores for merit based scholarships, but unfortunately, these schools provide need based assistance only. So yes, my question is whether reducing the equity in my home will potentially help in the need based equation. By the way, the car for the college freshman will not be new.</p>
<p>Reducing your home equity is not going to help you in this situation. Even if you end up being house poor, you will still have an income that will net you very little if any need based aid.</p>
<p>Many folks in your position would defer the purchase of the cars…or get cars that are far less costly. You are asking if you should take out a home equity loan to buy TWO cars…in hopes that someone else will pay for the college costs for your student? Is that correct?</p>
<p>Your family contribution will largely be determined by your income. You should check the policies on each college to determine what %age of home equity they actually use in their financial aid formulas. You may find that there is NO benefit at all.</p>
<p>If the schools your student is applying to meet full need (and if you are expecting aid with an income of $150K a year…I would guess this to be the case since only three or four schools actually OFFER need based aid to students with family incomes in this range), it WILL help to have two students in college at the same time. During the years that BOTH students are in undergrad school at the same time, your family contribution per FAFSA will be divided about equally between the kiddos. For Profile schools, this varies because the formulas they use to compute aid are all over the place. I would suggest you use an online calculator to see what your estimated family contribution would be with two kids at full need schools.</p>
<p>In addition, if you really do have significant financial considerations, and your child could garner merit aid, it might be prudent to have the student apply to some schools where he could get that merit aid.</p>
<p>I disagree with the assertion that arranging your finances to maximize your chance for financial aid constitute “hopes that someone else will pay for the college costs for your student”. Paying down non-mortgage debt or doing needed home repairs or replacing worn-out cars are well-documented ways to try to improve your FA picture.</p>
<p>For FAFSA, assets are only assessed at 5.6% (and home equity isn’t counted at all), for private schools the rate is probably similar. HE may or may not be counted, it depends on the school.</p>
<p>So bottom line, you could possibly save $3K or so, assuming the school meets full need. Since most don’t, this likely will have little if any impact. The most you are likely to get is bigger loans.</p>
<p>IIRC, the CSS Profile asked about how old my cars are (or whatever supplement I was filling out). Presumably they are trying to close this loophole.</p>
<p>. My son has the scores for merit based scholarships, but unfortunately, these schools provide need based assistance only.</p>
<p>It is your decision if you let your child only apply to such schools and don’t have a few financial safeties in place where he’d get large scholarhips. Going to pricey schools is a luxury.</p>
<p>Thanks for the replies. He is looking at two of the very expensive private schools and 4 good quality state schools, with three of them being out of state. As for the comment that most of these private schools would not offer any need based assistance at my income level, one has told me that the expectation by the family would be no more than 10% of AGI for those in the $100k-$200k range. While I realize that $150k is higher than average income, schools with an ECA of $55K and more are not attainable for those families without scholarships or significant loans. Thus, good quality state schools are there as a backup.</p>
<p>OP, I have 2 kids in college, one at a state school and one in a private that is not HYP but known for excellent financial aid. i get financial aid from both schools with a middle-class income (not as high as yours). With a 150K income, I expect you will get some financial aid, depending on the school. But, I don’t recommend using home equity. A 30K home equity loan at the time only brought my cost down about $500. </p>
<p>I would not spend 60 K on 2 cars and use the money for the majority of schooling that you won’t get financial aid for. But that’s me and my spending priorities. D is the only one in her suite without a car. She does fine.</p>
<p>Folks sometimes do make purchase using their assets prior to filing the financial aid forms…or contribute to retirement accounts (although those do get added back in as income for the year they are made…and some Profile schools DO ask for the value in retirement accounts but no one really knows how those are used).</p>
<p>I would suggest you run the numbers to see how using the home equity loan would/would not benefit you. You will have a monthly interest payment on that $60K loan that will be about $200 a month (no principal…just the interest). How would you finance the cars if you do not use home equity? For example, if you have money sitting in a regular savings that is in excess of the asset protection for parents, you might want to consider using that. Is there any chance you will need access to those home equity funds for any other reason? If so, perhaps using them now might not be as beneficial as you hope.</p>
<p>Perhaps my info is “old” but the most generous need based aid I had heard of was for families up to $180,000 and some of those schools actually reduce the awards for families with incomes over $150,000…so check to make sure.</p>
<p>The other thing…run a financial aid calculator with your income/asset figures and see what your family contribution might be. If the schools have calculators ON their websites, these tend to be more accurate than the generic ones out there. Do it both ways…with the current home equity, and with the additional $60K…compare…use the Institutional Methodology.</p>
<p>You are right…a $50K plus per year college education is very costly…but it’s also a choice. It sounds like you have some other options than the expensive privates…but really there are a lot of schools where a child with competitive stats for entry into HYPS type schools would receive very generous merit aid…and a wonderful education. It might be worth at least checking for some of those. The OOS publics are going to be almost as costly as the private schools (unless you are looking at the SUNY schools…which actually isn’t a bad idea!!).</p>
<p>You should also note that the CSS profile can differ from school to school (they can optionally include supplemental sections). One of the questions I had to answer last year was to provide an explanation for a home equity loan.</p>