Now that my S is going to attend a “meets 100% need” school and I’ve been thinking about it, I have some curiosity questions about how they determine need initially and for subsequent years. I’m assuming that each schools has its individual methods, but can you generalize? What about if in one family, married parents, one spouse earns $70,000 and the other spouse does not have income because of choice not to work. And in another married parents one spouse earns $45,000 and the other earns $25,000. All other factors the same, would the aid be the same? Is there ever the idea that the other spouse could get a job and contribute?
And from the other side, what if after the freshman year, for example, one of the parents takes a voluntary buyout or voluntary retirement (for example, teacher with years needed for state retirement). Do they figure that person could keep working and continue earning his previous salary or do they just look at the new income and base the need on that?
And last, what is the connection between additional income and reduced aid. If one of the working parents took a second part-time job during the student’s freshman year and earned an additional $10,000 per year. How much would the aid be reduced for the next year or two? By the full $10,000?
If you want to try to reverse engineer a college’s methodology, you can try using the college’s net price calculator with various inputs to see how the college’s FA estimate changes. Note that some relationships between income or assets and FA may be non-linear or piecewise linear.
It’s your total family income that matters. It doesn’t matter if one parent earns it...or both.
If you aren’t working and don’t have income, no one will care if you took an early retirement or not. BUT if there is a financial buyout in the form of severance, that will be considered income in the year received.
Also, if you start to collect a pension, that is also considered income.
Additional income usually reduces your financial need. BUT it’s hard to say what that means for you. For example, at some colleges, all students with incomes below a certain amount get free tuition. If your additional income doesn’t go above that threshold, there would be no change in your aid. OTOH, if your income goes above a certain threshold at some schools, this could trigger loans in your financial aid package when previously that was not the case.
So much if this varies by college.
You could try running the net price calculator with all these different scenarios to see the dollar differences. It will only be an estimate, however…and a very gross one…but an idea anyway.
Remember also that your aid forms use prior prior tax year info.
So for 2020-2021 the tax year will be 2018. That’s all done!
For 2021-2022 the tax year will be 2019. That’s this year.
And for your kid’s senior year…2022-2023, the 2020 tax year will be used.
I will say…I am a retired public school educator…and I did not stop working until one year after my youngest kid finished college. We needed the income.
With NPCs, you can play around with various scenarios Still general, as there are specifics not addressed. There is a thread discussing how accurate some of these NPCs are. It’s up to each college how to assess need.
FAFSA at least has an adjustment for whether the income is earned by one parent or two because the FICA will be different, the costs of two parents commuting and the misc expenses of having two parents work, but it is not a huge difference.
Whether one parent earning $10k more matters might depend on how far under the max for that school the combined income it. If Stanford is meeting 100$ of need for families earning under $100k, and one parent earns $50k and one $30k, that family still has $20k in room to earn more before any adjustment.
First - congratulations to your son for getting into a “meets 100% need school”! Since these schools are able to offer generous FA, they are also very very difficult to get accepted.
You’ve gotten some great answers here. I wanted to add a few thoughts.
We are a single-income family. Due to medical issues, I have been unable to work, and when we went into the college search process, there were several schools that asked why there was only one income. We didn’t consider them as being judgmental, they just wanted to be sure the application was complete. All the meets 100% need schools that I am aware of will use the CSS Profile, but several of them ask some questions that others don’t.
Additionally, since they are using prior prior to determine the FA, the change (decrease) in income due to retirement should be described in the “special circumstances” section. These schools FA offices are VERY willing to help students and families, and a call to them would be helpful. After you explain what is (or may be) happening, simply ask them what is the best way you should report it to them on the CSS Profile for future year’s applications. They have undoubtedly seen your situation before, and they will be glad to help. They aren’t there to give you financial advice, but they will give you information to consider. And it will help you answer their questions and submit your application so that they don’t have to come back with extra rounds of questions.
One thing you not discussed so far is the actual choice of retirement date, and when pension payments may commence. Depending on the employer involved, and how the plans operate, sometimes this can be used to your advantage. If you can afford to do so from a cash flow situation, if you quit working, but there is a lag in the first few months before pension payments begin, you can perhaps “lower” your income to become eligible for more financial aid.
As others have said, this depends on the school and their formula. The rule of thumb is that after a certain point, schools generally expect a percentage (often in the range of 17-22%) of income to become available to pay for educational expenses. The school’s FA department can better answer this.
But there are plenty of families who have decided that adding an additional $10K in income, would mean $2K less FA, and $1800 more in state/fed/local taxes, plus with additional commuting and other expenses it would really be only like net $5K - which is not nearly enough to make it worth all the additional hours needed to earn the $10K to begin with.
Thanks all. Some of these are just ideas I was pondering on a long drive yesterday not necessarily specific for my situation. Both spouses are employed in our situation. Although I have been tossing around both retiring / collecting pension + working part-time and also continue working + doing something I enjoy in addition to supplement income. We have one current sophomore child with great merit aid so income situation has no impact, one who will start in the Fall at in-state school with some merit aid + a little financial aid, and the one who will start in the Fall at the “meets 100% need” school so income, and older child out of college in 2 years, will have an impact there. I’m in a welcome position to possibly make some life changes now that the nest is emptying so I’m mulling over many ideas and their possible impact.
Certain NESCAC schools that meet 100% of need that I have run NPCs for provide less institutional aid if one parent earns 100% of the parent income, as opposed to both parents between them earning the same total amount, all other factors being equal.
So that isn’t necessarily a result of them imputing income to a non-working parent, but perhaps a reflection of the additional ancillary costs of having 2 parents both working - additional commuting costs, etc.
Perhaps, but I think the only way to get clarification on why the NPCs work the way they do is to consult with a school financial aid person. To validate previous experiences I had from several years ago, I used the same two scenarios on three different NESCAC college NPCs. Scenario A had both parents earning $40,000. Scenario B had one parent earning $80,000 and the other parent earning $0. Otherwise, all the other factors were identical (AGI, income tax paid, assets, living situation, tax filing status, siblings, etc.). For all three schools, the scenario A student was awarded anywhere from $1,000 to $2,000 more in institutional grant money than the scenario B student.
FAFSA did have an allowance for the lower paid parent working at one time. Whether the formula had been revised, I do not know.
As for PROFILE schools and how individual schools assess need, just about anything goes. They can count the gold in your teeth.
I do know that some private k-12 schools in my area do assess a stay at home parent “tax” when giving financial aid unless certain situations existed (disability, care of young child, illness, care of elderly, etc )