^^ That.
Donât kid yourselves, lawyers (and most accountants) know nothing about financial aid. In fact, when one of the parents called their accountant, to get a ball park on whether this would be taxable and what type, the financial professional was shocked that a school would take away D1âs FA just over one yearâs income.
I can see it going both ways. If you enroll in year 1 and then drop out because now you canât afford the school it hurts the retention rate. Whether the school would rather take a 1 student hit on retention vs. yield I donât know.
I hate to put it this way, but that just sounds like a bad financial advisor. Seems pretty obvious to me (and Iâm by no means a finance person) that if a school is providing you money because you canât afford the school that when you get a bunch of money that would now allow you to afford the school they stop providing you with money. Yeah, itâs âone year of incomeâ but it sounds like itâs an amount that at many schools (e.g. in state flagships) would be enough to cover almost an entire 4 year COA. Even if itâs only 1 year COA, why wouldnât the school withhold a year of aid?
To make it more personalâŠif you were supporting a family member or friend financially and they suddenly had a windfall of money, wouldnât you want them to support themselves more? Wouldnât you be a little ticked off if they continued to expect you to support them at the same level you always have?
Huh?
That thread is about a family that makes 90k, has two households, and somehow wants aid from an OOS school. It has nothing to do with the fact that itâs the first year.
Financial advisors come in good, bad and lousy. But a transaction that has some time sensitivity to it; clearly involves a lot of money, where the family is feeling pressured that this is a âtake it or leave itâ offer, AND where they may not have fully explored other arrangements (licensing, incorporation, etc. per my previous posts) is often a transaction where the seller is at a disadvantage vs. the buyer.
And THAT could be more expensive- all things considered- then the loss of financial aid. Buyers take advantage of sellers every day- inventors who get a 100K windfall over the sale of a patent which turns out to be worth tens of millions of dollars. People who sell the rights to a brand or other intellectual property who end up with pennies on the millions of dollars of a revenue stream.
If these are savvy sellers who have an intricate knowledge of this marketplace, the assetâs value, and the various ways to treat the tax implications of its sale- great. But the posts all suggest someone who is about to be taken to the cleaners. And NOT because of their EFC and a âprior priorâ year calculation for financial aid- but because they are entering into a transaction without understanding what their alternatives are.
Saving some ownership going forward- a royalty, a licensing fee, being employed by a corporate entity which buys the asset and getting a salary, getting a finders fee which is paid out over a decade- all of these are ways to change the tax implications of the sale, AND change the financial aid implication. I canât figure out what kind of asset has only a âsell it today or lose it foreverâ nature⊠unless someone is being taken advantage of.
Hence- get a lawyer. Donât sell an asset for 100K or 200K which could be worth a million dollars if structured differently. Even if it means losing financial aid.
@romanigypsyeyes yes the thread did not apply but the specific quote, which explained that need at UIUC (where these kids will not apply) is only determined based on the original reference year FAFSA and then you never have to give it again, hence my concern about the importance of a reference year.
@blossom, they have a lawyer and an accountant and they have a bunch of friends who are lawyers in the area of this transaction.
Their accountant is great, financial aid is not his area as he has never applied for it. Same as you would not ask an allergist about your broken wrist. There are people who specialize in financial aid consulting (interestingly most are not accountants).
THIS IS A HYPOTHETICAL. I gave examples so people could get a handle on what I was asking with regard to financial aid. The premise was that it was a one time asset, that will be sold as is, for a one time fee sometime in 2016 (or not sold). Neither party WANTS an ongoing relationship with the other. THIS IS ABOUT FINANCIAL AID AND ONLY FINANCIAL AID and the effect that a windfall will have.
It is NOT intellectual property, it is not mining rights. I cannot say what it is but it is not. It is much more straightforward than that and does not require a JD from Harvard to understand.
I and they have learned a lot from doing the numbers and some of the posts here. That there are hidden costs, even if spending down the asset immediately, such as for schools that count home equity, it is usually 2.4 X income, with a higher income more home equity gets counted.
No one is questioning that they should not pay more if they get more money, except their accountant who does not pretend to know anything about FA, that is not his function.
The issue is that the ONE TIME $100k they are getting could cost them over $100k between taxes and lost FA and they are afraid could cost them in years after they receive the money and it has already been spent on the increased college costs and taxes, since one of their kids will use it as her reference year and she will have a much higher initial reference year than her siblings. DOES ANYONE HAVE PERSONAL EXPERIENCE WITH THIS WHERE THEIR INITIAL YEAR WAS THEIR HIGHEST?
While everyone is supposed to pay their fair share, no average income family offers to pay more than their fair share. No one calls the school and says, your FA offer was too generous, we do not need all of it!
As for the decision as to whether to sell, think of it this way:
Lets say you have a '67 Mustang convertible that you bought in '77 as your first car for $1000. You live in a good climate and are mechanical so you have taken care of the car. You still enjoy taking it for a ride but have two other cars that you use for transportation. One day someone sees you driving and offers you $100K for your now vintage car. Since you have no real attachment to the car, you say you will think about it. Sounds like a good deal since you do not NEED the car but sure could use $100k (this is just a hypothetical, it is not really a car). That 100K will be a capital gain. So now you spend an additional 60-85k on your 2 kidâs tuition, and get an unfavorable reference year for K3, 30k in taxes and your mustang is gone. So much for the 100k (70k after taxes) you thought you were getting! So either you need to charge more for the car or not sell! Otherwise you are just loaning yourself 100k that you will have to pay back in less than 2 years. Please tell me that my logic is flawed in some way
Since I donât know what your friends are selling I have no idea if your logic is flawed. But based on the Mustang example, clearly, donât sell it- hang on to it, continue to maintain it, and sell it when your kids are out of college and presumably it will be worth even more money assuming nothing catastrophic.
Win win. Car is more valuable over time. Insure it and maintain it. Asked and answered.
I donât have a JD from Harvard, and sorry I offended you by suggesting that your friends get professional advice. But your earlier posts implied that this was a "now or neverâ transaction. If they own a Rembrandt drawing or a Degas sketch worth 100K, then they shouldnât sell. History suggests it will go up in value; waiting yields a higher price (likely) and a better deal in financial aid.
But again- people create complicated ownership structures for selling fine art (and even vintage cars) all the time so itâs never a âsell now or nothingâ situation- unless you are liquidating assets in a bankruptcy, are being compelled to sell due to a court judgement or a divorce, etc.
So still not fully understanding the urgency here- but as a non-Harvard JD- Namaste.
And MOST financial aid experts are trying to sell you something- an annuity, a bad investment, a potentially illegal way to retitle an asset to avoid âownershipâ on the day you file your FAFSA. So getting financial advice from someone who doesnât claim to be a financial aid expert is likely a good thingâŠ
Iâm no expert but here are my questions with your logicâŠ
Would they really end up spending 60-85k more on tuition? Thatâs 60-85% of the windfall! Shouldnât it just be assessed at the parent income rate (whatever that is). Maybe someone more well versed here could answer that for us.
And just how many schools out there use a âreference yearâ? Is there anyone here who knows of a school that does that for FA? Or if so, how common it is for schools to do that?
What answer are you looking for? It is what it is. Sucks, but unless they take another tack, THEY WILL HAVE $100K MORE IN INCOME IN THE YEAR THEY MAKE THE SALE. Thatâs the answer, as much as they might not like it. Here are some ideas for them. Maybe these ideas are not feasible. If not, then they will be stuck. Sorry. There is no other answer. Not sure what you are looking for.
- Do not make the sale until the kids are done with college.
- Have their children only apply to colleges that re-evaluate FA every year.
This is absolutely crazy. Do they think itâs 1955, when everyone had a steady salary? As I said, they need to select only those colleges that require families to reapply for FA every year.
Even for colleges that only use one yearâs information to determine FA for all four years, there must be a way to appeal in future years if income goes down.
@ClaremontMom I cannot believe it either but I ran the numbers on a couple of NPCs, it ranged depending on the school but in a couple of cases NPC went from 32k to full pay, others from 29 to 58k. Assuming both kids are at the same school, that would be mean about 60-85k more in the year the money is counted. They will already have paid at least 30k in taxes too.
I agree it is what it is but before this exercise I would never have believed that it would be possible to sell something for 100k and derive no benefit from it and even lose money. It seems a ridiculous result.
Every school uses a reference year, the question is does every school (other than UIUC above) really reasses FA every year. If they do are they sort of rubber stamping it or do they analyze it the same way they do in year 0 so that your FA changes a lot. Also once it decreases due to a windfall, will it increase the following year or is it just a down spiral and you pretty much got your best FA in Year 0 and assuming no one dies or loses a job that is it?
Again back to the âreference year.â I guess there are some MERIT awards that include a financial need component, and if you donât get that award the first year you wonât get it at all. Like Gates. Are people with a $30k EFC (with one in college) going to qualify for that anyway? I donât think so. In most cases, the merit award is only available to freshmen and is not need based.
Your reference to that other thread about UIUC is not correct. The student wasnât getting need based aid, wasnât getting merit based aid, mostly because UIUC doesnât give much and because he was going OOS. It would not have mattered if his parents had savings, or a windfall, or one house or six - they arenât getting money from UICU.
There are lots of examples on CC of families who did have a one time income increase and some schools have used professional judgment to adjust that aid. A job loss which resulted in a pay out of vacation pay or stock cash in, death of a grandparent, insurance settlement. Schools are going to weigh the amount of the windfall against the regular income. Itâs not guaranteed. Your friends will have to take their chances.
Or they can just decide not to sell. Or they can have their child take a gap year. Or they can pick a different school that they can afford on their regular income (because to have an EFC of $30k, they arenât poor).
UmâŠwhat?! I though you were defining a school that uses a reference year as one that only looks at year one and doesnât reassess. That is your concern with the big windfall happening that first year, right? I thought the norm is that most (or all) schools reevaluate financial aid every year (thatâs why so many of us moan and groan about filling out the FAFSA and CSS Profile every year). I know my kids FA isnât the same each year (especially as they overlap by 2 years, those overlapping years are much different from the singular years) .
Again, Iâm over my head on this one and should probably just give up, butâŠdid you run NPC with 2 kids in school? Perhaps the increase isnât as big.
Thank you for all the advice. Yes ran the NPC, that was what I was quoting from in post 50.
No would not qualify for Gates.
Yes they are realizing that perhaps they either should not sell or will need to keep negotiating! Either way better informed.
No, you are wrong. Only the Scholarship Supplement form needs to be completed once.
From the UIUC site:
This idea of a âreference yearâ is just off and wrong on so many levels. Financial aid is reevaluated EVERY YEAR because FA offices realizes that financial pictures can change year to year.
Please, get over the idea of a âreference year.â
Agree. On itâs face, it makes zero sense. Is there any college that gives the SAME financial aid award every year based on the Fafsa/CSS supplied in advance of freshman year without EVER re-evaluating? Would that make any sense to you?
Families have to RE-APPLY for financial aid every year. (I just submitted the Fafsa for my childâs sophomore year â the college is not just going to automatically give us the same thing as last year.) Just tell your friends to explain the one-time windfall in year one and ask for professional judgment. Show proof. That might entail submitting tax returns from several previous years. Iâm not saying that all colleges will disregard it, but some might. Or only count it partially. Thatâs why they will have to compare the results with many colleges.
The following year and all subsequent years they will submit the Fafsa again, which will show their usual income. Case closed.