<p>Call me a simpleton or superstitious or just plain stupid, but the practice of refinancing and borrowing against a home's value [that can rise and fall considerably] seems unwise. Let's say someone refinances a home that appraises for 350K this year; and let's say that in two years, that home is worth 225K. That's definitely bad.
I wouldn't borrow against my home because if something happened to me, there wouldn't be a way to make the payments.
Since when did a home become a big, vague, flexible piggy bank?</p>
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Since when did a home become a big, vague, flexible piggy bank?
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<p>I agree to a certain extent. The problem is that you need a place to live. </p>
<p>If I had a choice between an extra $300k in home equity and an extra $150k in stocks, I would take the stocks so fast that your head would spin around.</p>
<p>skinner:</p>
<p>sorry, but your math lost me. If you have $200k of equity, FA expects you to put in 5.6% of it, or $1,120 per year. With three kids, spaced 2 years apart, by simple math, I count $8,960 of less aid over eight years -- assumes 5.6% appreciation per year years.</p>
<p>But, I read on cc that P'ton excludes home equity from finaid calculations...and the 568 group is looking to further cap home equity.</p>
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Let's say someone refinances a home that appraises for 350K this year; and let's say that in two years, that home is worth 225K. That's definitely bad.
I wouldn't borrow against my home because if something happened to me, there wouldn't be a way to make the payments.
Since when did a home become a big, vague, flexible piggy bank?
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<p>Linda, exactly.</p>
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skinner:</p>
<p>sorry, but your math lost me. If you have $200k of equity, FA expects you to put in 5.6% of it, or $1,120 per year. With three kids, spaced 2 years apart, by simple math, I count $8,960 of less aid over eight years -- assumes 5.6% appreciation per year years.
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<p>5.6% of $200,000 is $11,200 not $1,120.</p>
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But, I read on cc that P'ton excludes home equity from finaid calculations...and the 568 group is looking to further cap home equity.
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<p>That may be. Probably because too many middle class parents are saying "enough is enough." And the reality is that despite what people may claim, home equity is not equivalent to other assets.</p>
<p>Doh! Of course, brain freeze.</p>
<p>btw: one area I do think finaid is "unfair" in the treatment of the spacing of children. A family with an efc of, say, $20k, would have to pay ~$80k for twins over four years. The same family and income/assets, would pay nearly twice that much with kids spaced four+ years apart.</p>
<p>"Since when did a home become a big, vague, flexible piggy bank?"</p>
<p>I don't know about that. Whenever I visit relatives (NJ and CA) in high appreciation areas they all seem to gloat about how lucky they are that their house has appreciated 300 - 400%. They make it a point to tell us how much they paid X years ago and what it is worth today.</p>
<p>We will be spectator again in the next 10 days when we visit NJ.</p>
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Whenever I visit relatives (NJ and CA) in high appreciation areas they all seem to gloat about how lucky they are that their house has appreciated 300 - 400%.
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<p>The main way they are lucky is that they bought in the past and don't need to buy now. Unless they are close to retiring and moving to a low price area.</p>
<p>bluebayou, that is also our situation. We have kids spaced 4 years apart. </p>
<p>The other thing that is unfair is that if one gets a pension, one may not need to save as much in retirement. Those without that get hit with an increased efc for every dime that they try to save in a retirement vehicle (ie: IRA). You get punished for trying to save, which is what the government is trying to do since there is a huge financial problem with our social security system.</p>
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Those without that get hit with an increased efc for every dime that they try to save in a retirement vehicle (ie: IRA).
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How is that? The colleges do not include retirement assets into EFC calculations. If you have $100K sitting in an IRA, it isn't counted.</p>
<p>Retirement assets are not included, but current contributions I believe are included. Am I wrong about that?</p>
<p>The "asset" value of the current contribution isn't included -- you simply don't get to exclude the amounts from income. If you earn $75K and make no contribution at all, your EFC will be calculated against an income of $75K. If you earn $75K and contribute $10K to your 401K, your EFC will be calculated against an income of $75K. Same number. All they have done is disallowed the tax deduction you took to reduce your AGI from $75K to $65K.</p>
<p>The only difference is, they will count that $10K as untaxed income. With no contribution you have $75K of taxed income; with a contribution you have $65K of taxed income and $10K of untaxed income. Since your taxes go down, your EFC goes up, very slightly -- but not as much as your tax savings. So depending on your tax bracket and the amount that you contribute, you might end up paying $400 more in EFC the same year you pay $1000 less to IRS. You actually get an added benefit because presumably, if not put into a retirement account, the $10K or whatever would be sitting in a bank account where it would be a reported asset, adding $560 to your EFC. </p>
<p>If you put the money into a Roth IRA, then it makes no difference at all -- except that you have moved that money out of a bank account where it counts as an asset into an account where it is essentially unseen. </p>
<p>If you have discretionary funds to do it, you still come out way ahead maximizing retirement contributions in the years your kid is in college. You are sheltering that money from consideration as an "asset" and you are gaining a tax deduction that always exceeds the hit to EFC.</p>
<p>I don't know about that. Whenever I visit relatives (NJ and CA) in high appreciation areas they all seem to gloat about how lucky they are that their house has appreciated 300 - 400%.</p>
<p>do those areas have a cap on how much your house can be assessed ( how much property tax you pay?)</p>
<p>I am appalled actually at housing costs- because a great deal seems to be fueled by speculators- who buy something- slap some paint on it & plant a few bushes and sell it for twice as much 6 months later to those who are moving from NYC/LA
that price is added to area prices so everyones assessment goes up</p>
<p>I never really thought about the spacing of kids- we just have two- but they are 8 years apart- at first I thought it was great- since it meant they would be attending college at least a few years apart
but not only don't we get to split the EFC- we don't even have the older dependent deduction anymore! ( and she didn't eat much- so its not like a big cost savings- )
I try telling her she should go to grad school ;)</p>
<p>when retirement money does count- is the year you add it
Say I put in $6000 in 2006- it will be added back in to available income for the 2007-2008 school year- otherwise most retirement accounts- aren't added into assets</p>
<p>Re the spacing of kids: keep in mind that even though the FAFSA EFC is cut in a half with multiple kids in college, that doesn't mean that the colleges make up the difference. FAFSA-only colleges usually don't promise to meet full need, and CSS-Profile colleges do what they want in terms of how they treat the EFC.</p>
<p>My kids are 5 years apart, but both currently in college, and last year my daughter's college did increase her financial aid based on sibling enrollment, but only to compensate for the amount of his actual tuition and fees (not full COA). Since he is at an in-state public, that meant about $3000 in extra aid money -- which was great -- but it did NOT meet the FAFSA EFC and did NOT cut our college contribution in half. I'd note that my son was not eligible for any financial aid at his college, due to its lower overall cost and his income from work the previous year -- so it wasn't the huge windfall that parents of well-spaced siblings imagine it to be. </p>
<p>The biggest fallacy that people seem to subscribe to is the assumption that everyone gets their full EFC met. I suppose if every kid went to Harvard, that would be true. Unfortunately, most kids go elsewhere. Most kids are attending colleges where a substantial part of their aid is in the form of loans and work study, and usually there is a gap between the FAFSA EFC and what the family is actually expected to pay.</p>
<p>Calmom, I understand what you are saying about contributing to retirement accounts. So, why do I keep reading over over again, that if you can contribute, say 10k for your retirement, then a college/U sees it as available for COA? The way you are explaining it, the 10k is counted exactly the same way, whether you put into your retirement account, or use it to buy a widget.</p>
<p>I have a question. If you are, for example, a teacher in a public school and you receive a pension upon retirement, is that money taxed and put into a retirement vehicle annually? Is this how it works for any state or federal employee?</p>
<p>As far as kids spaced together vs. apart, I know there is a huge break. I have a neighbor with kids at 2 private schools, and they got a significant break by having them both in together! Kid #2 in at the same time as kid #1 only added 3,000 more out of pocket for them (kid #1 began a year earlier). My second child's education won't be costing me 3,000/year out of pocket! I can only wish, LOL!</p>
<p>Northeastmom, I think what you have read is mostly people's misunderstanding of the fact that there is no financial aid benefit to making a tax-deductible retirement contribution-- some people might think erroneously that they can reduce their AGI that way, but that is added back in. As I noted, it DOES increase EFC slightly (because it is "untaxed" income) -- but the EFC increase is much less than the tax break. </p>
<p>There is a psychological concept called "loss aversion" which means that there is a tendency for people to strongly prefer avoiding losses than acquiring gains. (See <a href="http://en.wikipedia.org/wiki/Loss_aversion%5B/url%5D">http://en.wikipedia.org/wiki/Loss_aversion</a> for an explanation.) I think people perceive any increase in EFC to be a "loss" - and they focus on the loss (more money to the college), rather than the gain (reduced tax liability and long-term benefit of increased, sheltered retirement savings).</p>
<p>As to the discounts available with siblings, my point is that there is no GUARANTEE of a break. The fact that your friend gets a discount with 2 kids at a certain private school has no bearing on someone else with 2 kids at a different school that offers no such discount. So you could correctly state that there "may" be a benefit to "some" families with closely spaced kids.... but that is not the same as saying there "will" be a benefit. Most kids go to colleges that do not meet full FAFSA need, so most parents with 2 or more kids in college are paying out far more than their FAFSA says they should be paying.</p>
<p>Calmom, Thank you for responding so quickly. I hope you enjoyed a nice cup of coffee while reading my post at this very early hour in California.</p>
<p>Most things in life are not guarenteed. I think that if I had 2 closely spaced children I would have them apply to many private schools, to evaluate financial aid packages. Many families with one child do the same. I know that it worked out very well for my neighbor. Basically, kiddo #2 was attending a 40,000+ school, where parents were paying 3,000. I am sure that she had work study and stafford, but still! This was a great deal. This is an opportunity that a family like ours will never have since our kids are spaced 4 years apart. </p>
<p>Do you know how this works:
If you are, for example, are a teacher in a public school and you receive a pension upon retirement, is that money taxed and put into a retirement vehicle annually? Is this how it works for any state or federal employee?</p>
<p>I'm sorry, I don't know the answer to your question about a teacher's pension.</p>
<p>Thanks you.</p>
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think what you have read is mostly people's misunderstanding of the fact that there is no financial aid benefit to making a tax-deductible retirement contribution-- some people might think erroneously that they can reduce their AGI that way, but that is added back in. As I noted, it DOES increase EFC slightly (because it is "untaxed" income) -- but the EFC increase is much less than the tax break.
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<p>Correct as far as it goes. However, don't forget that if the money was not put in a defined pension plan (IRA, 401(k), etc., nor spent, the cash net of taxes, would be an asset for next year's efc. Thus, at least 5.6% of it would be added to next year's efc.</p>