Just downsized: now what?

Paying for College
21

<p>...special circumstances adjustment for loss of income</p>

<p>If an adjustment is made, and it looks like it done by a FAO from a college, is it made to the FAFSA that the college has in its records, or the FAFSA that is 'out there'; in other words, woud the adjustment be seen by all other colleges?</p>

<p>Or would I need to present the special circumstances to each college, and request a spec. circ. adjustment from EACH college?</p>

22

<p>You need to notify each college. There is a difference between asset and income. An asset can be a truck, a wad of cash, a home, but income is income. Colleges do treat them very differently. They may look at your income and assess it at, say, 30% and deduct that percentage of income from the financial aid you'll qualify for. Ouch. A parent asset will be assessed against you at 5.6% generally. If you're 46 years of age and married, you have an asset protection allowance of $44,200, which means that an assets you have whose value is under $44,000, the school considers that emergency money. Of course, I'm assuming that all colleges are equally as "fair." There are more variables that make the financial aid process more complicated than it needs to be. If a car dealer made you fill out such financial forms to buy a car, he's be on the front page of the local paper and be out of business in a heartbeat.</p>

23

<p>thank you swimcatsmom. I now understand the process, thank you!</p>

<p>**You do not adjust anything. You file FAFSA with the correct figures from your tax return. Then you apply to the financial aid department of your school for a special circumstances adjustment. You provide supporting documentation to the financial aid department. If they approve it they go into your FAFSA and adjust it. (The link is to help you understand the rules to see if you may be eligible. It talks about the rules for financial administrators to make adjustments - it is not a do it yourself guide).</p>

<p>Again - do NOT adjust your FAFSA figures yourself**</p>

24

<p>gotcha on letting the FAOs do the adjustment. But I make the request to the FAO. I just got back from a FAFSA presentation at the HS, and she said as much. You cc-ers are good. She said that I need to make up some kind of estimate of what my 2008 income will be.</p>

<p>I wonder how I would estimate this?</p>

<p>Now I know my income for first quarter of the year. The last three quarters could be zilch or I could get a job in a month. I'm pretty sure I can get 'a job' - I can greet at walmart, probably. What if I estimate no income, then there is a change, income? Would I make another adjustment in September, or whenever I find a job, or just work it out in 2009-10?</p>

25

<p>bad news from a 'recessionaire' with a child wanting to go to college: still no job, and no good prospects. </p>

<p>I talked with two FAOs about my situation, and if I understood them right, they each said that the severance amount would be treated as income and folded into AGI for 2008. My severance was a full yrs salary, so I would not have grounds for a special circumstances adjustment for this year, they said.</p>

<p>It looks like HS seminar FA expert was totally wrong about FAos giving the best assumptions for an applicant.</p>

<p>There seems something really wrong in a situation where there is no predictable regular source of income and treating a rapidly sinking lump sum the same way as regular income. Would you spend $20k on COLLEGE if it were your LAST $20k you got?</p>

<p>I wonder if it were the telephone game and the FAOs understood what was going on. I simply told them the facts and let them advise. They were nice and rational in their tone vs officious and imperious.</p>

<p>Notes in this case: estimated hh 2008 INCOME (the regular kind) if sev not taken into acct: $43k;
if sev is used as income: $43+80 (sev, before taxes; after withholding it made it $50k,btw) = 123 (I guess the math would make it)</p>

26

<p>further fyi, fyi: we are a family of five, one in college (the new one). </p>

<p>Here is some info from finaid.com, with my emphasis added on the need to file a 1040, which seems to be the important criterion here:</p>

<p>FinAid</a> | FinAid for Educators and FAAs | Simplified Needs Test Chart</p>

<p>Thus to determine whether the applicant is eligible for the simplified needs test, we need to determine whether a tax filer was required to file a Form 1040 instead of a Form 1040A or 1040EZ. A tax filer was required to file a Form 1040 if line 42, Taxable Income, is greater than $100,000, or if amounts other than zero appear on the following lines:</p>

<p>Section Line # Description
Income
10 Taxable refunds or credits of local or state taxes
11 Alimony received
12 Business income
13 Capital gain or loss (ignore if Schedule D not required)
14 Other gains or losses not reported on line 13 (Form 4797)
17 Rent, real estate, royalties, partnerships, S corporations, trusts, etc. (Schedule E)
18 Farm income
21 Other income (e.g., Net Operating Loss carryforward, etc.)
22 Only if using Foreign Income Exclusion (IRS Form 2555 or 2555EZ)
Adjustments 23 Archer MSA deduction (Form 8853)
24 Certain business expenses (reservists, artists & government officials)
25 Health Savings Account deduction
26 Moving expenses
27 Half of self-employment tax
28 Self-employed health insurance deduction
29 Self-Employed SEP, SIMPLE and qualified plans
30 Penalty on early withdrawal of savings
31a Alimony paid
35 Domestic Production Activities Deduction
Taxes & Credits 40 If itemized deductions from Schedule A were used
42 If taxable income is more than $100,000
45 Alternative Minimum Tax
47 Foreign tax credit
54 Other tax credits (Forms 8396, 8859)
55 Other tax credits (Forms 3800, 8801, etc.)
Other Taxes 58 Self-employment tax
59 Social Security/Medicare tax on tips
60 Tax on IRAs and other retirement plans
62 Household employment taxes
Payments 67 Excess social security and RRTA tax withheld
69 Amount paid with Form 4868 (extension request)
70 Other payments from Form 2439 or Form 4136 or Form 8885</p>

<p>The IRS required families that took the Tuition and Fees Deduction in 2006 to file IRS Form 1040, even though they would have been potentially eligible to file IRS Form 1040A in 2005 and before. However, if this was the only reason the family filed an IRS Form 1040 instead of an IRS Form 1040A, they are still eligible for the simplified needs test and auto-zero-EFC, per a margin note on page AVG-37 of the 2007-2008 Application and Verification Guide. Such families should answer "yes" to the question on the FAFSA that asks whether they were eligible to file a 1040A or 1040EZ.</p>

<p>If none of the above conditions apply, the tax filer was eligible to file a Form 1040A or 1040EZ but chose to file a 1040 for other reasons. (For example, some tax preparers file a Form 1040 even if the taxpayer is eligible to file a Form 1040A or 1040EZ.) In this case, the tax filer should be treated as if he or she filed a Form 1040A or 1040EZ for the purpose of determining eligibility for the Simplified Needs Test.</p>

<p>Note: Since 1999-2000, taxpayers who itemize deductions on Schedule A of Form 1040 are now considered to be required to file a 1040 and hence ineligible for the Simplified Needs Test.</p>

<p>Note: If the parent takes a Form 8814 election, whereby they elect to include interest and dividend income from a child under age 18 (age 14 in 2005 and before) on the parent's income tax return, they cannot file an IRS Form 1040A or 1040EZ. This makes them ineligible for the Simplified Needs Test.</p>

<p>This page is based on a chart prepared by Pam McConahay, <a href="mailto:pmcconahay@ou.edu">pmcconahay@ou.edu</a>, of the University of Oklahoma's Office of Financial Aid Services.</p>

27

<br>


<br>

<p>I'm sorry...but you DO have an expected source of income...your one year of severance pay. You are very fortunate to be in the position that you are being compensated for a full year of salary. It also gives you a full year...with pay...to look for other employment (keeping my fingers crossed that this comes through for you). </p>

<p>The financial aid department is not going to make an adjustment to your finaid when, in reality, your income is not changed. </p>

<p>I know this sounds a bit harsh on my part...and I do hope you find a new position. But I hope you understand that getting a full year's pay does not entitle you to more financial aid.</p>

<p>P.S. If you get that severance check in 2008, it will be viewed as income for 2008 and if it's more than the amount, will not qualify you for the simplified needs test. That is for folks who have a low income report for the 2008 year.</p>

28

<p>joecollege - Why did you post the simplified needs rules? They don't seem relevant to your situation - unless I am completely missing something.</p>

29

<p>at the risk of showing the www my financial internals -who cares, anyway?- I went to the finaid site and modeled two ways of viewing or treating the money sitting in my checking account, the money from the lump sum severance payment, one as an asset, with the truncated regular income as income, and the other way bundled into regular income.</p>

<p>EFC with sev as an asset=$2,992
EFC with sev a part of 2088 AGI=$33,097</p>

<p>I thought the SimpNeedsTest might be relevant here for explanation. I still need to read and understand it. I don't know what the heck is going on. </p>

<p>The FA expert that our HS hired to give a seminar said that FAOs would mae the best assumptions for the applicants (her words), and treat the sev lump sum payment as an asset, and not income (please be clear on this, thumper - it is not 'salary'; it is some money sitting in my checking account and rapidly being reduced for real living expenses with no salary to replenish it; you don't spend almost all of this fund on college unless the fao of that college wouldn't mind putting the other four of us up in the dorms; we can clean the floors and wash the dishes. :) ).</p>

<p>The FA expert was wrong apparently.</p>

30

<p>From reading the finaid site
FinAid</a> | Professional Judgment | Job Loss or Income Reduction
a financial aid officer *can * exclude severance pay from income. A lot of it is up to their own judgement though.</p>

31

<p>Joe...
It all depends on your employers. If you are issued a W-2 form for 2008 with your severance listed as income...it will be income. In addition, any amount you still have sitting in your savings accounts (if any) on the day you file your FAFSA, will be considered an asset as any other savings would be considered.</p>

<p>I will tell you that in 2003 when my husband was laid off, his severance monies were included on a W-2 as income for 2003.</p>

<p>If this severance dealing is at the discretion of the finaid officer, then you are at the mercy of the finaid officers at your child's school. My guess is that they have a policy for dealing with this. In addition, if this is a Profile school, you will have additional "layers" with which to deal.</p>

32

<br>


<br>

<p>What would you have done if you were still working? The cost is the same. Your severance is a year's salary (view that as getting your full year's pay at once). Yes, you have living expenses but you would have had those with a job. Yes, you don't have a paycheck next week...instead you already GOT next week's (and next month's and six months from now) paycheck already. </p>

<p>I really hope your job prospects improve rapidly. In the meantime, maybe you could consider a temporary job just to fill in the gap. </p>

<p>You don't mention a spouse. Is your spouse working?</p>

33

<p>swim, the FA expert from the hs seminar said as much. She said it is in their discretion to make such assumptions. As I said, my conversations with them were quite civil. I certainly did not presume to know anything so I was deferential. It was interesting that both of them had similar interpretations, albeit over the phone. </p>

<p>One thing that gave me pause was that one FAO said that it really does not matter whether money sitting in a checking account is treated as income or as an asset. I later gave him, the director of FA and not a clerk, the results of the efc estimator calculator site, the results of which I showed above.</p>

34

<p>what wd we have done if still working? pay for college somehow. The key difference is that it there would be an expectation for a dollar replenishment commensurate with the EFC calc, which drove the FA award based on 2007.</p>

<p>yes, spouse is working. That income, along with unemployment and a ft (fulltime) min wage job to finish out the yr, gets us to something like 45k. Yeah, joecollegedad, formerly joemiddleclassdad, can, and will, get two or three more ft min wage jobs....while we are destroying and then rebuilding Bahgdad...but I digress. also Write to your congressmen to limit H1B1 visas. My company hired them to replace about 85 american (ex-)joemiddleclassdads.</p>

<p>Yes, thumper, the FAO did say it would be meaningful on how the company will report it in next yr's w2. That wd be a question to the company. But I suspect it would be as your case was - rolled into a w2.</p>

35

<br>


<br>

<p>I'm confused....I thought your severance after taxes was $42K. Where is that?</p>

<p>I still do not see how your EFC would be changed when you have the same available income now (with one year's severance) as you did when you filed your finaid application. The dollars are the same...you're just getting them in a lump sum instead of getting them every two weeks for the next twelve (or is it now 10) months.</p>

<p>What am I missing?</p>

36

<p>Joecollegedad, I'm sorry to hear of your situation. I can't help, of course, but I'm very sorry nevertheless. </p>

<p>BTW, what line of work are you in??</p>

37

<p>Hey, joecollege - you have my sympathies, too. The same thing happened to me in 2007: my employer closed my research site and laid off 2500 people. I got 1.5 years severance (since I had been there 20+ years) which was nice, of course, but not as nice as that job was.... (... and oh yeah, a lot of those jobs were outsourced overseas.)</p>

<p>Yeah, the severance messed up our FA for this year - although we filled out all kinds of Special Needs forms, the bottom line was that the severance was treated as regular income. Next year, when my family's salary looks much more realistic, we'll try again.</p>

<p>And one more thing to keep in mind - even though my old company took out a huge chunk of that money for taxes, they still underestimated the tax burden. we had a HUGE tax bill to pay this April.</p>

<p>Good luck with the continued job hunt. I finally found something in a completely new field paying less than half of what I used to make, but all in all I'm just glad I did find something.</p>

38

<p>some companies will also pay for you to be retrained.
My Hs company, pays for workers who are laid off, to go back to school, in my hort classes I have lots of others my age ( middle) who are changing careers.
Especially with the safety net of knowing that you will be laid off , months in advance, combined with a whole years salary, that really gives you lots more options towards career change or renewal.</p>

<p>Could be really exciting.</p>

39

<p>THe financial aid officers are probably seeing that not only will your income in 2008 be similar to that of 2007, but with it only being April you also have the potential of having a higher income in 2008, even if you only get a minimum wage job. If you end up with a higher paying job, you will be in better shape than last year. Are you eligible for unemployment? That would also add to your income. </p>

<p>If your circumstances don't change by next year, you will file your FASFA and profile, get a package based on the higher numbers and then you will have the opportunity to appeal based on "change of circumstances" (Hopefully it won't come to that and you will have a great job) </p>

<p>However, appealing a financial aid package doesn't mean you are home free for the year. We just appealed, our Fall package is in place, and our Spring package is "pending" a review of our 2008 income tax returns. If we earn more than we projected our aid will be adjusted and reduced. </p>

<p>Also, our revised package was based on a very very low projected income (qualified for a Pell) However, the school still considered our home equity as being available for college expenses. So, despite a $50K reduction of income, we only got 4K more in financial aid. An appeal can only do so much, and I understand that. I'm hoping that if our situation doesn't change that when next years numbers are on our FASFA and profile that the school may do better (but I'm not betting on it)</p>

40

<p>Your severance would be 2008 income if I am reading this correctly. Your FA for 2008-09 would be based on your 2007 income. Your 2007 income as reported to the IRS is what will determine your 2008-09 FA package. What were the actual packages offered at the prospective schools? May 1 is right around the corner, so I am assuming you have the packages in-hand and have come to some type of a decision regarding which school your child will attend.Your change in circumstance will really effect 2009-10, if you don't replace your job with one of the same income. That is when the severance pay is going to look like "double" income, if it is treated as income.</p>

<p>My husband and I are both self-employed with one in college and one going next year. Our income is very unpredictable. We just have to go with the flow and really talk to our D's about how much debt they will have when they sign for those loans. I hope you get a great job so that you will not have to worry about this!</p>