keeping your income low for FA - good idea or bad idea?

Paying for College
21

My daughter was recruited, but she didn’t decide to play in college until junior year, and I was very late to the game of figuring out the best financial options. Money was a factor, so I ran every NPC every which way, based on my income at that time, what I estimated it would be (my job was ending in spring of senior year), with savings and without. Having an EFC of $0 is great and gets you lots of aid at the elite schools, but it doesn’t help enough at the schools that don’t meet full need, and it doesn’t pay the mortgage or electric bill. If you are making $30k less, it might be hard to pay the family contributions or just get the kid to and from college a few times a year. It is also not fun to be the poor kid at an elite college.

I’ve had jobs that pay more and jobs that pay less so that the kids qualified for a discount on team fees or school clubs. Believe me, getting paid more and paying your own way is better. I’m glad that my daughter didn’t take the LAC/D3/financial need based aid school. She went with D2 and merit aid combined with athletic aid, loves the school, and I feel a lot more in control of the aid. The biggest awards stay steady no matter how much I make and I don’t have to calculate that if I make $10,000 more she loses $4000 in aid.

I understand your argument, but think that it would be very difficult to 1) know the financial aid calculations for the best results and 2) do this when your child is a junior in high school so that when you use the prior prior tax year, you have the lower income for the first FAFSA/CSS filings. Also, knowing that your child is going to be a recruited athletic at one of those meets needs schools is a gamble too. I read a newspaper story today about a girl heading to Harvard to play hockey next year. She’s valedictorian, has a 4.6, and spent the last two years living with a host family in Boston to play hockey while attending h.s. long distance (and still is val). That’s the competition! Oh, and she’s also in the state finals for golf.

22

I like @nw2this’ creative thinking. The prior prior thing does make it pretty tough, but I can see it working in some very specific cases, if it makes sense for other reasons.

I like this, too:

I agree that you’d have to worry about the 40K worker re-entering the workforce later, but in some occupations, like teaching, it’s not so unrealistic. I know a teacher who took off for several years to raise her kids. When she went back to work, six or eight years later, she started at a significantly higher union-negotiated rate than when she had left.

I’ve thought about these scenarios myself, but I always come back to “how the heck would we afford to live”.

I don’t see how a family making 120K in an expensive area of the country could afford to send a kid to college at all, without massive borrowing. If you assume no assets, isn’t the EFC approximately 47% of take home pay?

So let’s say a 120K couple brings home 85K. 47% of 85K is ~40K. So that leaves 45K to live on, or $3750/month. I don’t see how anyone could swing that if they have more than one child, unless they’re living in a very inexpensive area.

The only way that I can see where you could game the system by lowering your salary, and still be able to actually afford to pay for college, is if you’re old enough to withdraw from a Roth style retirement account. Then you could take money out tax free and it wouldn’t add to your income for FAFSA purposes. Or would it? Does anyone know?

I know, I know, I’m not advising raiding needed retirement funds to pay for college. I’m assuming there’s plenty of retirement funds.

One other thought on this. Since EFC drops approximately 47% of the drop in take home, not gross salary, you would really have to look at the numbers very carefully to make sure it would be worth it. In the case of the 120K/40K couple, let’s say they actually take home 25K of the 40K. 47% of 25K is 11.75K. Not really that much unless it fits with your plans anyway. ETA: What am I saying. That’s actually quite a bit, since it would be every year. Give up 25K to get 11.75K, and save 40 hours a week.

I think the bottom line is that the number of situations that this type of planning would work in, and be realistic in, is probably very small. But I still think it’s worth thinking these types of things through, in case you happen to be in one of those very specific situations, and you’re still 2 years out.

23

It wouldn’t work at an FAFSA/EFC only school. @CCDD14 is talking about a school like Williams that gives a lot of FA to families with an income of about $100k, but not so much to a family with 2 earners bringing home $150k. If the family is going to pay $40k if the income is $150k but only $15k if the income is $100k, would it be smart to give up the second job, save the commuting costs, taxes, stress and take the extra FA from the school?

It might, it might not, but best be sure that student will get into the super duper school and get that FA or you’re screwed because $100k in family income isn’t getting you much FA at a public school and you won’t have a lot of income left over to pay it yourself. It’s really hard to figure out the sweet spot.

24

“Traditional” college planning assumes that EFC will be paid from savings, current income and loans. It’s a lot harder without the savings, and the time value of money that savings hopefully has enjoyed.

25

Once more.

If you weren’t planning to make a change anyway…don’t do it only for financial aid gain.

Lots of reasons.

  1. Prior prior use of tax returns means that someone starting college in 2017 needed to quit their job in 2014.
  2. So what happens if the student leaves college? Now the family has no financial aid gain...and the second oarent has no job.
  3. You would need to be out of this job for three years. This means not only lost wages, but also lost retirement contributions, lost chance for promotions or raises, lost skills as the jobs DO change.

Like I said earlier…if you think you can live on one income…do that…and put the rest in a 529 to pay for college. Or pay the college bills out of current earnings.

Your kids aren’t going to be in college forever…but you might need that second job.

26

Some try to “look” like their income is low by having income placed , when possible, in delayed compensation. But to quit a job and lose the income in the hopes of getting some greater FA for a student? That’s just a very bad idea.

27

Oy vey.

The idea of forgoing the income, the contributions to a retirement plan, the safety net of a second health care plan and any other benefits (life insurance? disability?) that comes with that second job for the sake of the MAYBE financial aid??? Ugh.

I know at least a dozen women who have NOT been able to re-enter the work force at the point at which they left. A federal employee who knew that if she left as a GS-13 that’s where she’d go back- except her agency had a hiring freeze in place by the time she wanted to return (and no, the freeze never made it into the newspapers). A lawyer whose Fortune 100 corporation had moved its contracts department off-shore while she was gone… any current lawyer got to stay put, but any future hires were SOL unless they wanted to work overseas. A speech therapist who is picking up shifts at a hospital doing swallowing evaluations of elderly dementia patients (very occasional work) because she can’t get a full time job. Etc.

I think it’s bizarre to think that your employer (or a competitor) is going to welcome you back with open arms and let you pick up where you left off, salary and benefits intact, until you are ready to retire for good. The workforce doesn’t work that way.

And what if the higher earner gets downsized and you don’t even have the safety net of the second lower income?

And the kid DOESN’T get into one of the colleges where the plan makes even an iota of sense??

Ugh.

28

This is a very dangerous scenario. I know SEVERAL kids who did not need money but just the hook or tip to get into the school and it did not work out because the kid got injured (torn ACL senior year or repetitive stress fractures) or simply did not advance from 10th -12th as anticipated.

The counter example is the older SAHP whose HIGH STATS kids currently qualify for FA who is thinking about entering the work force, either part time or at a lower rung because their kids will be in middle or high school or leaving and for some with a large family this does not make sense. Unless the parent is doing it for their own satisfaction, or is young enough to still have a career after college is paid, because their income will be swallowed up by college costs. Again these are kids that will attend a meets full needs college. Run the NPCs.

Can you get fired instead? What are your plans for after the kids finish college, will the firing keep you from getting another job in your field?

This is a comparable situation

http://talk.collegeconfidential.com/financial-aid-scholarships/1872807-how-does-a-windfall-lottery-winnings-affect-existing-financial-aid-and-future-reference-years-p1.html

29

At my company getting fired comes in two flavors- downsized, which often has a nice severance package associated with it, plus whatever (not huge) unemployment benefits the employee is eligible for. But in my state, you need to show that you are making a good faith effort to find a job to get benefits- and it sounds like this parent would not want to have to do that.

The other “flavor” is being let go for cause. No severance and good luck finding another job if the place checks references.

“Swallowed up” by college costs- in the same way that YOUR income is likely “swallowed up” by your grocery bill, your contributions to charity, putting gas in the tank of your car. Don’t most reasonable adults hope to do the MOST to cover their obligations, not the least???

30

No one mentioned unemployment benefits.

Absolutely but this was a purely academic question. As someone posted, maybe the OP has a psychotic boss and this is his or her fantasy to get away!

The reality is, assuming your kids qualify for full needs, there are situations where you are essentially working for free if you go back to work and if you have high commuting or childcare or dress costs, you could be losing money on an after tax basis. There are opportunity costs associated with working, even if your child is old enough to get himself home, perhaps there is a sport or other EC such as volunteering they could do if you had more time to provide transportation or encouragement. Even things as esoteric as shopping for groceries at the cheaper place because you have more or less time to do that.

Part of this may be how financial aid is structured, the family of 4 with 100k single income gets need, the family of 4 with 160k dual income gets nothing. Even though from a tax point of view, the 160k family in an expensive area may not come home with much more, if any money. (FICA takes X%, marginal tax takes another 20k or more, commuting costs can be $3600 a year per person, dry cleaning costs can be $800 per person, cost of takeout etc, ordering groceries online). This is a question for the OPs personal accountant.

31

I don’t know about the rest of you but while the bulk of my take-home pay goes to the kids’ educational needs, I also work for my retirement. I’m not foregoing health insurance options, my retirement contributions and whatever small amount of spending money left after paying for tuition just to cut a few thousand off COA. That’s just plain nuts. It’s far better to just figure out your college budget and have your child plan around that. This isn’t counting one’s chickens before they hatch, this is counting one’s chickens before a single egg has been laid.

32

Depends how many kids you have, over how long a period and how old you are and what benefits your working spouse has. Also, what does the NPC show. For top tier full needs schools there may not be as big a difference as you think. Running Penn’s NPC for a family of 4 with 100k in assets and first 100k in income and then 160k in income only changed the EFC by about 14k. Hence the advice to talk to a financial professional as well as your career opportunities. There is probably a break even point for everyone YMMV and a point where it becomes worth it to start or continue working.

Not sure how the prior prior year will change matters and whether people will have options or updates on which year they can use.

33

No options.

34

The world is also filled with folks who get to decide when they retire and those who don’t.

Sometimes it’s illness or an injury and the person who thought they had five or eight more years of income coming in before they had to draw down on their retirement reserves discovers they are on their last paycheck. Sometimes it’s a change in company policy and the plan which was “Retire at 62 but then become a consultant and work 30 hours a week with your former colleagues and get to write off your home office” becomes “here’s your farewell cake, have fun”.

We’re all burnt out by the time we’re done getting kids through HS and have logged however many decades in the work force. But the solution to hating your job and having a psychotic boss is to find another job, not to voluntarily quit in the hopes that financial aid will bail you out of your misery.

You think the donut hole is bad for financial aid? Wait and see what having a disease which requires nursing care NOT covered by your insurance- private OR federal OR long term care… and college costs will look laughable.

I had a relative whose care was over $250K per year in the last two years of life. (not including medical, which was mostly covered or negotiated downward with all the providers.) That’s a donut hole. Someone with assets too high to be indigent, but too low to cover that nut for years and years…

35

Again @BelknapPoint clarified the part that was unclear to me in post #4 by explaining that it is more of a continuum than I had imagined. I even found an example of what of he was saying on page 4 of this document where the biggest drop in FA is only ~7K and it is for having your income exceed 180K.

https://admission.princeton.edu/sites/admission/files/pdfs/Princeton_FinancialAid_2015.pdf

Again, thanks for the clarification.

36

For us we have been able to adjust income somewhat based on planning for financial aid since my kids were both trying to go to 100% need met without loans schools. I had stopped working after a move and had planned to go back to work when the kids got to college just as extra money for that but we had also saved enough for in-state tuition in a 529 for each. We found though with DH’s work colleagues that having a second income would mean we would get nothing from 100% need met schools and we had not saved enough for $70K per year nor would I be able to make up the difference from the kind of part time jobs I had been looking at. For the past year they were having some bonus issues trying to change dates for annual bonuses and they asked people for feedback. DH asked that he get minimal bonus in 2015 since it will be counted twice for FAFSA and some people had to be willing to do that for those who really needed the bonus on a more regular schedule anyway. I’m sure that wasn’t a huge swing in FA but a few hundred dollars for each kid isn’t unwelcome. Some families have been able to plan to pay off house and car loans by the time kids go to college and “retire” early. My son has 2 friends whose parents have done that and by having almost no income and all assets tied up in retirement and their house (for schools that don’t look at home equity) they have worked the system to get a free education even though technically they are well off.

37

I’ve heard that some schools look at cost of living differences, but I have no idea if that’s really true. The IRS certainly doesn’t look at it.

Families who are far from wealthy, and who are living in expensive areas of the country, get hit by the AMT. Meanwhile, there are families who are probably living a much more comfortable life in less expensive areas of the country who don’t even know what the AMT is.

@SeekingPam, I agree, this is not as simple as some people in this thread believe. I think it’s worth looking at with a financial professional if you think you might be in one of the very rare situations where the job isn’t really paying.

I don’t think anyone here is advising giving up a job with the expectation that the Financial Aid will come pouring in, and that you’ll stroll right back into your previous job when the college years are done. But it’s just as naive to assume that there’s never a case where it would pay for one parent to either quit their job, or not go back to work, for the purposes of college planning.

38

Funny how this seems to be an acceptable financial strategy, and I am intrigued by the way posters are viewing financial aid. Isn’t FA a subsidy program? If a poster started a thread about quitting their job because it just didn’t seem “worth it” to work when food stamps/Medicaid/subsidized housing would be available at a lower income level would that poster receive the same support? I am curious, do upper middle class families not view FA as a subsidy or an entitlement program? A pricey private education is a luxury, not a need like food, housing, and medical insurance, yet I can’t imagine a poster getting this type of thought out, strategic advice if they came to the forum asking how to minimize assets and income to qualify for social services. I would love to hear some perspectives.

39

How much need?

40

But think about it. Now that prior prior tax year is being used for financial aid purposes…someone whose kid is starting college in fall 2017…that parent would have needed to quit their job at the start of the 2015 tax year
, which is 1 1/2 years ago.

So…for those of you who plan to quit their job…if your child is starting college in 2018, resign NOW. The 2018-2019 FAFSA and Profile will use 2016 income. Hope you didn’t earn too much in the first half of 2016 :slight_smile: .

Yes…you would need to resign from your job about two years BEFORE your first kid starts college.

And if your kid doesn’t get acceoted to a college that meets full need for all…then all of this financial gymnastics might not net you any additional aid…at all.

Oh…and make sure your kid doesn’t then decide to take a gap year.