Is it ever a good idea to quit a job or avoid a raise for FA?
Here are some scenarios to consider:
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A 2 income couple makes $120K, one quits a job reducing their income to $60K which qualifies their kid for a full ride valued at $60K. They break even and one gains some free time.
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A family has a kid who attends a school and gets full tuition because their income is just under $180K. One gets a $20K promotion that pushes their income over the $180K level. They lose the tuition valued at $30K, so they have a $10K loss.
Think about this;
What are your options if your kid does not get into one of these schools?
Having more money gives you more options, especially when there are very few schools with low income initiatives.
If you quit your job, you are not considered a displaced worker.
Now that FAFSA is looking at prior prior for financial aid, how will this help you.
Most of these deep pocket schools also have a 2 year look back for income and assets.
Are you planning on giving up your home as many schools look at home equity
Are you planning on no longer saving for your retirement
Do you plan on also no longer having $$ in the bank in the event of an emergency
More income means more opportunities. Period.
No. Your scenarios assume that need-based financial aid is all or nothing depending an a specific income level. That’s not how it works. Generally, aid will go down as income goes up, but it’s not nearly a one-for-one exchange. In other words, for every dollar increase in income, you may lose $.20 in need-based aid.
To add to the other’s responses, more to consider for the first scenario: What about the loss of benefits from quitting the job? How easy is it going to be to return to the job or find a new one a few years later?
And this all assumes free ride (or free tuition) from need based aid. That’s pretty rare I think. Usually there is a student and parent contribution of several thousand $. Would be harder to come up with at $60k income. And also like others said home equity and assets would also figure in.
Instead focus on full tuition and full ride merit schools, then income won’t matter.
The most generous FA tends to be given out by the most competitive schools.
Very very few schools would offer need based financial aid (partial or full) to $180K family.
This isn’t my idea…it’s another posters. But here it is.
NEVER do anything for financial aid gain that you wouldn’t otherwise be planning to do.
So…if you are not planning to quit your job…don’t quit for financial,aid gain.
If you are not planning to take raises…don’t do that for financial,aid gain.
If your kiddo is a HS Junior now…it’s too late for your first financial aid forms anyway. The 2017-2018 FAFSA and Profile forms will use info from the 2015 taxes…so you would have needed to already quit that job…a while ago.
The 2018/2019 forms will use the 2016 tax return info. Are you saying you plan to quit your job NOW…for financial aid gain? For financial aid in the 2018-2019 school year? Really?
Don’t be penny wise and pound foolish.
Lots to consider.
- MOST colleges do not meet full need for all accepted students.
- In many cases, the only added advantage would be if you got your income low enough to be Pell eligible. That would require a lower income than what you are posting for one worker in your family.
- Is your student absolutely going to get acceoted into one of the colleges that guarantees to meet full need for all...AND is very generous with need based aid for higher income workers? Remember...acceptance rates hover in the below 10% range at these very generous schools. That's very low.
My opinion…it would be far better to take that raise. Since you are currently living on less…and also think you can live on less…put the additional money into a 529 account for your college bound child.
thumper1 post makes some great points…one I’d like to reiterate…
By the time you know where your child is attending for sure, it’s too late to quit that job because the aid is based on the prior year (and now will be the prior prior year!).
In the second scenario, presumably you are already in the midst of the college years. So you avoid the raise and “come out ahead” (maybe) for a year or two of those college years. But after that you’ve missed a big opportunity in your career to be making so much more money for so many more years…
(and yeah, bad example anyway, who’s getting full tuition for being at 160k?! )
I think there are a few (very few) instances where turning down a small raise might be a good financial move. If a single parent is just below $80k in income, a small raise may not cover the lost AOTC (although it is a phased out amount so you’d have to do some calculating). There is a number for the California middle class grants that you don’t want to exceed as it is a ‘qualified or not’ test, with no phasing. If you are right at the $50k mark and can qualify for simplified assets on FAFSA, getting a $1000 raise might cost you.
Most of the time, it is better to have more money and I don’t think most people will be able to plan staying just under the limits now, especially with the two year ‘prior-prior’ accounting now.
My husband was fired in early May of D1’s senior year of high school. The decrease in income did not result in a larger financial aid package for her, despite us asking for more. The continued decrease probably did affect D2’s package, from a wealthier school. But it would have been better for us if H hadn’t been fired.
Thanks to @twoinanddone for the realistic example of a possible financial aid cliff effect.
and to @BelknapPoint for pointing out the flaw in my scenarios.
Acceptance and attendance at selective schools with excellent FA was assumed in the scenarios, but not in real life.
If your child is a recruitable athlete who generated interest from schools with generous need-based finaid during sophomore or early junior year in HS then you may consider doing drastic financial moves to make them more affordable.
And if a family making 120k can actually cut their income, and therefore budget, in half without blinking an eye, then is financial aid that important?
That would be for D3 only. D1 and D2 athletes can’t accept athletic and need based financial aid from the institution.
More realistic scenario is a lower earner in 2-earner family(120K+40K) with expensive commute and dress code in a high-tax area with child care expenses. If you add a finaid bonus then it may really be better to quit this job.
^^ But now you’d have to know to do that 2 tax years before starting school. That is a good deal of calculating and 2-6 years of income to give up. Plus, if the parent is in the normal age range of a parent with college kids, it may be very hard to get back into the workforce after those years out of the market.
^^ok, lower earning spouse is younger and has a psychopathic boss on top of everything above. And you are obviously familiar with girls athletic recruiting.