<p>I have a question. I reported that my parents are self-employed, that we own a restaurant, and that our income was exceptionally and ridiculously low, because we experienced a profit loss. I received a very generous estimated aid package. Now, say if my parents were to liquidate the property by selling it, and our extra income were to go up. Technically, we had always had the property, so would there be a change in the aid package, if the value of the property was in liquid form? Would my financial aid likely decrease, if the money that my parents currently had in their bank accounts would suddenly increase? I mean, we always had the property, its just been sold, that's all.</p>
<p>I'm sorry, I know it depends upon the school and the situation, but in general, what would happen?</p>
<p>Timing is everything. Your estimated package sounds like it was based on an estimated Profile. In January, you will likely have to file a FAFSA. If the money is “in the bank” when you file that FAFSA, it WILL be viewed as an asset for FAFSA calculation purposes and you will likely have a “different” EFC per FAFSA than the school has computed based on the estimated Profile. </p>
<p>I do not know enough about the self employed and how the assets of the “business” are counted for financial aid purposes. Wasn’t the building listed as an asset for your parents already as part of their business assets?</p>
<p>That’s exactly what I was thinking! See, I did list it as an asset, but they apparently still gave me this aid package. I stated the worth of the restaurant as a couple hundred thousands, and thus, it can be seen as an asset. The problem is, its not liquid, so its not usable toward my college education. But if it were liquid- that’s the problem…</p>
<p>It depends - there could be a couple of scenarios. Let’s take FAFSA first. If your parents owned the restaurant as a small business, small businesses with fewer than 100 employees are not reported on FAFSA. So the building would have been an asset of the business, and when it was sold, if the proceeds remained within the business then it would still not be reportable. If your parents owned the restaurant in their names, then the property’s value would have already been reported on FAFSA using its net worth; selling it and depositing that net worth into a savings account would make no difference to your financial aid calculation because it’s just a matter of moving a reportable asset from illiquid to liquid (ie, you’ve already reported the value).</p>
<p>For Profile, there’s a farm and business supplement. Business assets are reportable on Profile, so the property would have already been reported. Selling the property and receiving cash for it would not change the reported amount.</p>
<p>Note that I’m talking about the net value. If the restaurant’s property was valued at $500,000 and your parents had a loan of $100,000 on that property, the net value would be $400,000. When the property is sold, your parents would receive $500,000 in cash, use $100,000 to pay off the outstanding loan, and deposit $400,000 into a savings account.</p>
<p>It doesn’t matter if this asset is liquid or not; it’s still an asset.</p>
<p>Income has a far larger impact on the FAFSA EFC than assets. The maximum impact assets can have is around 5.6% of assets over the protected asset allowances. The maximum impact income can have is around 47% of income once income goes over a certain amount. So selling a asset and having income from the sale will likely have a big impact on the EFC. That is if part of the sale is profit. If there is no profit on the sale then there is probably no reportable income.</p>
<p>For instance if I buy stocks at $50,000 and they are now worth $100000 then I have a reportable asset of $100,000. The effect of those assets is up to 5600. If I sell the stocks for $100,000 then I will have reportable income of $50,000 (increase in value). That could impact my EFC by up to 47% of the after tax amount (dependig on other income). So say tax is 20% then that $50k could affect the EFC by up to 18,800. Additionally if the money from the sale is sitting in the bank it will also be counted still as an asset.</p>
<p>FAFSA does not care whether a asset is liquid or non liquid. They are treated exactly the same in the EFC formula. I don’t know about profile.</p>