low income; high parental assets, what to do?

Paying for College
1

<p>I'm in a strange situation financially where I went through some serious health and other hardships (divorce from my 2nd husband) while my d was in highschool. (She is now a senior.) Had to stop working and sell my house; moved in with relatives temporarily until I could recover. Slept on their couch for 1 1/2 years. Started feeling better last spring and have been going to school to upgrade job skills. Recently was able to move out of relatives into a rental. Its so nice to sleep in an actual bed!</p>

<p>So my income is low (well under 50 K), but I do have some savings, which I'm living on until I can get back on my feet, get a job and hopefully buy a condo or something in a year or two.</p>

<p>Also, since getting the rental last month I have had to totally furnish it as I had to do a major downsize before when I had to sell my house, so I really had very little left to furnish it with. Will FAO look negatively on the spending I've had to do over the past month due to that?</p>

<p>Is it true that straight FAFSA schools will not look at my savings due to my low income? What about PROFILE schools? D has applied to both.</p>

<p>I tried to get d to appreciate the concept of merit safety schools, but she didn't totally warm up to that. Since I didn't know how the aid thing would wash out, I've let her apply to pretty much wherever without regarding finances, but I told her in the end money will come into play. She just wasn't very excited about private schools like St Mary's where she would probably get merit aid, or other schools like that where her stats are on the high end or above the high end of accepted students mid range. She is more excited about match and especially reach schools, which I guess is normal. Also, the CSU's, which are quite affordable, didn't impress her much. The school she attends has some high achieving students, some of whom look down on the state schools, even the UCs, unfortunately.</p>

<p>Any advice on how to handle all this is appreciated.</p>

2

<p>On the schools she choose, all i can say is been there, done that, including the looking down at UC attitude, but due to my Ds lack of interest in merit schools, she had the choices of UCs or USC types....she is at a UC, we have high home equity, so the money issue became doable vs. crazy. I would suggest she throw in some apps in places where she might get money, just so she has some option in the spring, tell her you won't force her to go there, but my D had ONE realistic choice, UCs, and she was never very happy there, might have done wonderfully at a smaller private with merit $ once she got away from her schoolmates attitudes about the prestige factor.</p>

<p>If you can file a 1040 EZ and make less than $50k AGI, I believe there is a program where you do not need to file regarding your assets, you might search this site for any prior postings on this.</p>

<p>The FAFSA does not actually ask you about money you have spent or money that you owe, so what expenses you have had in moving this year are a non-issue.</p>

3

<p>It depends on much in assets you have. Also where did you get the assets? If you pulled them out of a retirement plan, for instance, they count as income. THe FAO is not going to look at the money you spend during the year, but your balance at the end of the year. However, any money you pull out of qualifed pension plans count as income. So do certain other sources. Also any income and realized gains are reported as income. So what you spent is not so much the issue (something that a lot of people feel is unfair since if you furnished your house off the curb or with give aways, as some people do, you would have had that amount to put towards college costs). It is routine advice given by financial specialists to spend down your assets before starting on the college tuition journey on things you may need in the next several years so you won't get hit up for the college costs on it. Like if your roof is going, and the car is struggling, get it now, not after your deadline for reporting the assets. </p>

<p>PROFIle schools have to be examined individually, as there are some unusual situations. BC, for instance, is looking at retirement accounts. Some schools want to see the other accounts that are ordinarily exempt. I suggest you run your numbers through financial calculators to see where you stand. </p>

<p>As for your daughter, you really need to talk to her about your financial situation without being vague and telling her it's going to come into play at the end. Some of the most bitterly disappointed kids are those whose expectations have been raised going through the app process, talking about various schools with classmates and others, and then finding out that the schools are unaffordable. If she wants to turn a deaf ear to what you have to tell her, it is one thing, but she needs to hear you out and get an accurate picture of the family finances and what is affordable for college. You may want to sit with the school counselor during this talk so that there is no misunderstanding here, with the counselor talking to her privately afterwards reiterating the situation. I am assuming that there is a possibility of her getting financial aid, in other words, you don't have so much money, that it cannot be ignored. I say this because a friend of ours whose business is renting out realestate, does not have much in way of income from this, but has huge assets that wiped out any possibility of financial aid. I know another who inherited some low income producing family farms. Borrowing the money in both cases was problematic since repayment based on the incomes was too much for those families to do. A shame, since in both cases, the families were truly prudent in finances and very thrifty, the way more people should live. It is a flaw of the financial aid process that owing certain assets such as those mentioned or your own business can negatively impact financial aid, and there is no way out of the situaton since you lose the income in selling the asset, and you are living off the income, and you owe money if you borrow against the asset, and, again, if your income is not that high, you cannot afford that payback.</p>

4

<p>Thanks for the info. The assets came primarily from sale of my home, and also some from divorce settlement. A small per cent age is in a retirement plan from my recent divorce. So I am trying to preserve assets to enable me to recover my health and upgrade job skills so I can get a better job and buy a home in the future. Previously during my marriages and before my illness I was an at home mom or just worked part-time. I truly feel like a displaced homemaker with the double or is it triple whammy of dealing with a life-threatening illness and depression along with it. Not trying to be a whiner, just trying to figure out how to get my d the education she has worked so hard for through all these hardships, but still take care of myself for the future.
Her bio dad has a decent income, but is house poor, as many are in this area. And doesn't seem inclined or able to help with college, so it's fallen to me to figure it out. So far he hasn't filled out the Profile supplement.
So I don't have the problem of borrowing against assets; it's more about if/how my assets will be viewed, given my low income and health history.</p>

<p>I was concerned about the money I spent because I seem to recall reading threads where people have had to show this sort of thing... or show how they live on such a small income. I guess what I'm asking, is it really true that FAFSA schools will not look at my assets, given my income? That's what seems to be in a gray area...ie not absolutely true.</p>

<p>My d will understand, however it works out...she is very cost conscious; I'm the one that tells her to focus on her schoolwork/grades rather than getting a job that pays minimum wage. I told her her "job" is to try to earn a scholarship if possible.</p>

5

<p>FAFSA is a computer program that looks at four factors: parent(s) income, student income, parent(s) assets, student assets, subtracts some standardized deductions and then pumps out an EFC (estimated family contribution). If a parent’s AGI as reported on a federal tax return is under 50K and the parent(s) file a short form (1040EZ, 1040A), then two of the factors (parent(s) assets, student assets) will be excluded when a family’s EFC is determined by FAFSA. This is called the simplified needs test. </p>

<p>As to your question (is it really true that FAFSA schools will not look at my assets, given my income?), the answer is maybe. The simplified needs test only applies to federal aid programs (Pell grants, Stafford loans, federal work study). When it comes to a school’s own money (e.g school requires PROFILE), a school’s FA has more discretion. An aid package could contain money from various pockets (feds, state, school, other sources, etc). If any part of your D’s aid package comes from feds (e.g. Pell grant), then yes, since you state you AGI is well under 50K, your assets were ignored when determining eligiblity for Pell Grant. If however part of your D’s aid package comes from school’s own pocket, then assets might be considered, especially if the school required the PROFILE. Keep in mind if a school can get fed money for your D, it will probably try to get it as it means less money out of their own pocket, assuming they meet 100% of your need. Good luck.</p>

6

<p>Thanks for the very clear expanation. I guess we will just have to see what happens. What about spending down assets on needed items in base year? Can that cause any problems? Could you for example prepay rent, utilities etc?</p>

7

<p>Put your assets in a Swiss Bank Account, and empty out your savings account.</p>

8

<p>As to spending down your cash, the answer again is maybe. It depends on the school and whether they rely solely on FAFSA or also use their own methodology to determine aid. If the school relies solely on FAFSA, spending down your cash won’t make any difference as it will not be considered if you meet the simplified needs test. Can it cause problems? Yes, you don’t want to go crazy and not leave anything in reserves. Emergencies do happen. On the other hand, spending down cash on upcoming needed expenses is a strategy that people employ to reduce aid. </p>

<p>Keep in mind that especially as to FAFSA only schools, your AGI as reported on your tax return will probably be the single most important factor when your EFC is calculated. There’s probably not much however you can do in the next 4 days to lower your AGI. Again good luck.</p>

9

<p>here is the fafsa formula:</p>

<p><a href="http://www.ifap.ed.gov/efcinformation/attachments/0607EFCFormulaGuideDecFinal.pdf%5B/url%5D"&gt;http://www.ifap.ed.gov/efcinformation/attachments/0607EFCFormulaGuideDecFinal.pdf&lt;/a&gt;&lt;/p>

10

<p>Have you tried running the FAFSA calculator on the finaid website? It will give you an idea of where you stand based on your income and assets and several people on this site have said it is pretty accurate.</p>

11

<p>Spending down assets is recommended by financial specialists, for a number of reasons, particularly for things you know you will need in the very near future. I don't know of any school that uses PROFILE that asks questions about your spending, but I cannot rule out that possibility. You see, PROFILE is individualized by school as to what they want to know about you, so there can be any kind of question there as to what you have been doing with your money. Each year I hear about some new issue, it seems. </p>

<p>You may end up with more income than you anticipate, depending on how your money is tracked for this year. I don't know how divorce settlements, sale of house money, and taking money out of a pension fund is going to be viewed. There are situations where receiving money from certain sources is income. If you got the money in a previous year, it's not a problem as it is already an asset when this year began, for most purposes. The other issue is how much money are you talking about, and again PROFILE definitions can vary from school to school. If you have millions, or billions in assets, it is not right that you qualify for financial aid, I'm sure you agree. I don't know where that threshhold is.</p>

<p>As to your ex husband's situation, you may have a big problem if he refuses to fill out the form or if his income is sufficient to rule out financial aid (they won't care if he is house poor). That he refuses to contribute is considered a family issue, since there are intact families that have this problem as well. If this turns out to be the case, you need to talk to the highschool GC and see if you can somehow put together an appeal of a "deserted child" (the GC will likely know how to do this as it happens all too often). Or you may have to go to court if your state has that recourse for dads who refuse to help pay for college. Some states do and some do not. Some colleges just will not give aid without the father's required contribution taken into account. You can ask each college (the ones who use PROFILE) what their take is on this situation.</p>

<p>I agree with those who are saying you should run the calculators that are available so you can see where you stand. If you have too much in assets and are able to legally shelter or spend down, in these last few days, it may be wise to do so. If you are way over, then there is not much you may be able to do, but to miss a threshhold by a few hundred, or a few thousand, could turn out to be an expensive situation that could have been resolved with a few prepayments that are perfectly legitimate. My husband is holding off a payment for his consulting services until next week, because of where we stand in the way of taxes. THis sort of thing is done all of the time and is just a part of wise financial planning for a number of reasons, not just financial aid. Also, if your daughter has money in an account, it may be wise for her to prepay some things or decide to pay for some things as her assets will be hit at a whopping 33% as opposed to about 5% for you.</p>

12

<p>thanks everyone--sounds like the FAFSA situation should be pretty straightforward. What determines who gets audited?
The Profile schools sound like anybody's guess.
It's not millions (I wish!)...
So which schools might be more likely to be understanding about my finances ? Seems like the money from sale of my home shouldn't count against me...if I had been healthy, not fighting a divorce and able to keep working, I would have already rolled that into another home. But since I had some major curves thrown at me, I'm not there yet. The home was sold and divorce settlement took place prior to base year, and both were excluded from income for tax purposes (except for spousal support).
As far as Profile schools, my assumption is that schools where my d is more on the high end of their stats will be more generous...it gets into the whole merit within need (or is it the other way around?) thing. Just having trouble finding that type of school that my d will still like. d is kind of being recruited and invited for a scholarship weekend by pacific univ in Oregon, among others which seem a little obscure to us. I grew up in NY and am not that familiar with schools in the west outside of CA, and we haven't been able to visit anything north of Humboldt as of yet.</p>

13

<p>Whoa there. Yes, money from the sale of a house can hurt you depending on how much it is. You see, a certain amount (varying among schools) of home equity is excluded from assets. That same amount sitting in cash gets no such exemption. Now your assets may be exempt anyways, due to low income, as long as the amount is not over threshhold, but you will not get the exemption for home equity, now that the house has been sold and the proceeds are sitting as cash or other investment. </p>

<p>Until you actually run your numbers through the formulas, you are not going to know what counts. Amounts, and timing can make a big difference. Though this board is very helpful in giving good ideas, and bringing up different situations, no one should take it as the gospel truth. You need to address your situation directly as it could fall into a niche not covered by generalities.</p>

14

<p>You have to be careful about spending down your assets after your child's sophmore year in high school. The CSS Profile asks about tax and asset information in the prior year and the current year. If they see that assets have been liquidated, they can and will ask what happened to the cash. We had a friend whose parents liquidated assets to buy a new expensive car and it did affect her aid package. They had to borrow what the school calculated as the difference that should have gone to education.</p>

15

<p>In the case of the OP, with all of the transitions occurring in her life, it is understandable that she spent her money getting a new home if the amounts spent are not in the excessive range (luxery car, designer furniture for the apt, very expensive apt,etc). I have seen Profile questionairres that do ask what cars a family has, and I think the schools that want that info, have an amount that they feel is reasonable for car value and beyond that it becomes an asset. Only fair, in my opinion. I have a friend who owns three antique cars, but is income poor and asset depleted. Though the idea of selling the cars is repugnant to her, it is not fair for her to have such luxeries and her child get financial aid, when there are those who do not own such assets in the same financial situation.</p>

16

<p>I didn't word the sentence right about "seems like the money from sale of the home shouldn't count against me"...I understand that it doesn't work that way, but I'm just saying it seems like it shouldn't count so much because if I had been in a better position (instead of unemployed and going thru illnesss and divorce) I would have put it right back into real estate where it would have been sheltered. So I'm asking if any FAO might have leeway to approach it that way...I'm thinking that will depend on how much they want my d to attend ie the merit within need scenario.
I would have loved to buy another home right away ( probably the wise thing to do), but with precarious health and uncertain job prospects, I've been afraid to do that. Also, at that time the market was at the peak and I was honestly hoping by the time I got things turned around there might be some deals out there.</p>

17

<p>If you are under certain thresholds, for the FAFSA, your assets unless they are up there may not be included. But that number is pretty straightforward, and appealing it is not so easy, particularly your situation. However, with PROFILE, many of the schools are smaller, and you can write to the financial aid offices directly, telling them your particular situation. I understand your reasoning, but I can't tell you how that would affect the numbers as I know many, many families who got caught holding the money just at that inopportune time (financial aid determination) and their arguments did not fly at all. They let you keep your home equity intact, because they do not want to disrupt the security of a home, but once you sell that house and have money in hand, you are on the same basis as anyone without a house. What you intend to do with the money has no bearing on the fact that it is money. You see, there are so many out there without house or money, so that it is unfair they even give the home equity exclusion in determining aid. It's a break they give. But to extend it further.... well, it is in the financial aid gurus' hands. You just need to make an individual appeal, and maybe it will affect the merit within aid scenario. With their own funds, colleges do have some leeway on how they look at the financial picture, and the merit part often extends the need portion.<br>
After you've done your best in explaining your predictament and your daughter has submitted her best in her app, you just have to wait and see what unfolds. I do wish both of you the best of luck in all of this, and hope that 2007 finds you on your feet in a new home with your daughter happily at her college. It's going to be a big year for the two of you.</p>

18

<p>Thank you for the good wishes and all the helpful info on the inner workings of the finaid system. You're right, when you think about it, the home equity exclusion really is unfair in a way...it kind of advantages those who already have the advantage of owning a home. By that logic, those with savings but no property should also be allowed an exclusion.... So either they should both get it or neither should get it. Are you a finaid advisor or just a very knowledgable parent? Maybe I'll understand the system by the time my d is a senior.
btw, if I lose out on aid the first year, but then am able to buy property before the second year, will that reconfigure our aid picture, or does the first year pretty much set things in stone?</p>

19

<p>Not a financial aid advisior. Just an experienced parent. The tax advantages and exclusion from college financial aid forms that home ownership has is probably grounded in some economic/political theory. It is unfair. If you have $X in saving, it should be sheltered regardless of whether it is in a house or in something else. In fact you may have the money sitting there for a far more urgent cause than an home--surgery for a relative, money set aside for a layoff that you know is inevitable this year, as some examples. But it doesn't matter. Money is money, and home equity is not considered (up to a point) as money. There are a number of such inequities in the system. Money in a qualified pension plan does not count towards assets. The same money not in a pension plan but earmarked for retirement, in fact the only money for retirement, is not given equal protection. Those who live on their investments, say apartment building owners, or others who have their pensions in realestate, face equal problems when those assets are considered fair game for college costs when if they worked for a company, it would not be the case. THere has recently been some relief for those who have home businesses. If you are an attorney who works for a firm and nets $X a year, the firm's value is not considered as part of your assets. If you are on your own, the value of your book of business is considered an asset, and you could be netting the exact same amount as the company lawyer who has no such assessment. Hardly fair, is it? </p>

<p>The other major short coming of financial aid review is that income history is not taken into account. You can be working for a pittance for years, and then get a small windfall after you are fired, a windfall you need to start your own business, and that windfall is considered your income if it comes in that year that you are applying for aid. It happened to friends of ours. They had to postpone college for their son because they did not qualify for a dime of aid regardless of all of the letters they sent explaining the situation and why they received this largish check that year. </p>

<p>It is also not fair if you save money, year in and year out, and have a nice bit saved for college. Your neighbor who makes the exact income as you blows every single cent on stuff. You have assets that are assessed for financial aid, and he does not because he has none. His need is greater than yours. A big whammy if you put the money into a college account in your kids name, because it gets hit a big 35%. At least if it 's in your name it's about a 5% hit, but still the principle sucks. You get penalized for savings.</p>

<p>But by saving, by having the money, you have more choices than those who did not save, do not have the money at all. Few schools give 100% of need, so when there are gaps, if you have some money, you have some choices. You do not have to buy expensive furniture, you get yours from the curb and friends' giveaways. You can use that money for college instead of a number of consumer goods. You can rent a less expensive apartment instead of buying that house.An easier decision than selling a house which is a home and moving elsewhere, a probable reason why home equity is given a bit of a bye: too few homeowners willing to disrupt so many family members by selling the family home for one kid's college.</p>

<p>The financial aid process is not fair in many ways in many points along the way as you go through it. THink an EFC of zero is something to celebrate? Unless the kid is going to a 100% need met school (and there are not many of these), it is highly unlikely he will get 100% of need met. Even then you usually have to go through the PROFILE or the college's own additional financial statment gauntlet. If you are still zero, you are not going to get scholarships necessarily showered on you. Most packages have self help components, some of them hefty in the way of loans. Unless you have a kid that the college really wants, it is rare, except in the very top schools to get a great package. The merit within need is very important for many families with good students because it is what can make a financial aid package palatable. For those with kids that are run of the mill as far as the colleges are concerned, it is mostly loans that are offered. Maybe a few token grants. You have to be waayyy down there in income and assets to qualifty for any of those govt grants and they do not make much of a dent in a private college tuition.</p>

20

<p>Very good points about the inequities relative to savings...another reason I need to keep as much of my savings as possible is because of health issues and the fact that I will be losing my health insurance from my former spouse in about a year and a half. With my preexisting conditions and employment uncertainties, who knows how expensive my health insurance will be then, or even if I can get it...or without it, how much my medical expenses will be?</p>

<p>The explanation you give about the zero EFC is very well-put. So basically you need to have a top 1 or 2 per cent student who can get accepted at a school that meets 100% of need to really "benefit" from the zero EFC. But this is why I've told my daughter to focus on school and not worry that much about working, even though she wants to work.</p>

<p>The colleges sure don't go out of their way to make the process very transparent, do they?</p>