Need your opinion on financial aid related questions, THANKS!

Parents Forum
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<p>My son will enter college in 2011. I have two options which will expire in 2011 and 2012. Our financial adviser suggested we exercise these two options now to minimize the impact on the financial aids calculations in 2011 and 2012. Here are my questions:</p>

<p>1) When options are exercised, will they be treated as family income?</p>

<p>2) How is family income treated differently from family asset? Our financial adviser said the family income can be calculated at 40% in EFC, is it really true?</p>

<p>3) How do colleges treat these sorts of one off situations? I mean these options are one time circumstances which are not regular family income.</p>

<p>4) Based on your opinion, do you think exercising these two options now a good advice? </p>

<p>THANKS!!</p>

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<p>I recommend you call on Fafsa people anonymously, and get these answered.</p>

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<p>I can only answer for FAFSA only schools. I’m sure someone else knows about the Profile schools.
One time circumstances still count…but they only count in that year. In other words you fill out FAFSA 1/1/2010 based on 2009 income. Child goes to school 9/2010 with EFC based on the FAFSA you filled out on 1/1/2010. The following year if that income is not present it isn’t on your tax return or on your FAFSA. There is no adjustment for the fact that it is one time income.
As far as whether options are counted as income, if they appear on your taxes they are income. You use the AGI from your tax return to fill out FAFSA.
Yes re: 40%. They assume that your ability to contribute to college comes from current income/savings/loans.<br>
Without knowing your entire financial picture I don’t feel anyone on this board could advise on whether you should or shouldn’t exercise the options.</p>

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<p>I would suggest you post this question in the financial aid section of this forum.</p>

<p>Parental assets are assessed at 5.6% but there is some asset protection. Student assets are assessed…at (I believe) 20%. So…don’t put the assets in your kid’s names.</p>

<p>For the FAFSA…the expected family contribution is typically between 25% and 33% of your adjusted GROSS income. So…as an example, if your income is $100.000 in a year (and I believe those “options” would be included in your income for the year in which they are cashed out)…your expected family contribution per the FAFSA (EFC) would be somewhere between $25,000 and $33,000 for that year. </p>

<p>If your child is starting college in 2011, the 2010 tax year will be the information used for the FAFSA and if necessary the PROFILE…for that year. If you take those options, I think they will be counted as INCOME (check with your financial guy on that)…they will also be considered as assets if they lie in a savings, CD or similar type of account for the year of reporting for your kiddo for financial aid.</p>

<p>Re: your fourth question…the one about “one time” situations. You ARE getting this money. The schools are not going to “ignore this” because it is a one time occurance. For THAT year, the money will counted. The assumption is that college costs will be paid out of past earnings (savings…and perhaps things like these options), current earnings (income…and maybe these options would fall here), AND future earnings (loans). </p>

<p>One other thing to look at is what the colleges will be asking for as financial aid application materials. Some schools ask for tax returns for the tax year of the FAFSA/Profile (in this case 2010). BUT some schools will want TWO years of returns. In other words, if you cash out in 2009, some schools would STILL see that extra income because they would see your tax returns from 2009. </p>

<p>You haven’t provided too much info so I’m not sure what “impact” on financial aid means to you. This would certainly vary depending on the school’s financial aid policies for need based aid. For FAFSA, your EFC would need to be less than $5000 to qualify for the “free money” federal aid…Pell grant, etc. </p>

<p>Most schools awarding very generous financial aid to folks with incomes in excess of $120,000 a year…also require the CSS Profile…but that is a whole other discussion.</p>

<p>If you want to exercise these options, you should feel fortunate that you have them. Perhaps you can plan to use some of this to help your kiddo with college costs.</p>

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<p>If the OP makes a high living - which I suspect he/she does since there is also a concern that 40% of family income will be the EFC (it shouldn’t be “that” high, but it can be high).</p>

<p>So, if that’s true, the whole “one off” thing may not even matter much. The OP’s EFC may be high regardless. It sounds doubtful that the OP’s child would be qualifying for any free money from the gov’t. - regardless of the one-off.</p>

<p>BTW…does the OP realize that for many schools, having a mid-to-high EFC typically means FA packages with student loans - not free money. Yes, there are some schools that meet need with no loans or loan caps, but many schools cannot afford that option and therefore their loan packages include loans for whatever gov’t grants don’t pay for.</p>

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<p>I can only speak from our own experience with “one time” situations. We always tried to time them for no later than that year that includes sophomore second semester/junior first semester. Otherwise, the exercise or sale or whatever would show up as parental income for financial aid purposes for the year you fill out your FAFSA for your high school senior, in addition to the money showing up in the assets. We felt that it would not give a true picture of our yearly income. </p>

<p>But you also have to remember not to let the financial aid “tail” end up wagging the dog. Now may be a terrible time to sell an asset–you may not want to sell now just because you may want to do some planning for financial aid purposes. </p>

<p>Also agree with mom2collegekids–you don’t have to be filthy rich to be shut out of the financial aid picture. All your planning may not make a bit of difference.</p>

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<p>There is an asset protection allowance - better to have the money, usually, as an asset than as income.</p>

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<p>*But you also have to remember not to let the financial aid “tail” end up wagging the dog. Now may be a terrible time to sell an asset–you may not want to sell now just because you may want to do some planning for financial aid purposes. </p>

<p>you don’t have to be filthy rich to be shut out of the financial aid picture. All your planning may not make a bit of difference.
*</p>

<p>We hear this happening all the time. People with highish incomes manipulating assets thinking that they’re going to get their EFC’s down low enough to get free money (when their incomes alone will essentially shut them out of the aid that they’re wanting.) </p>

<p>There are so many reasons why that often doesn’t work.</p>

<p>1) The family’s income, and therefore EFC, is too high for fed/state grants, so the FA package is all or mostly loans</p>

<p>2) The family’s income is high enough that their EFC is about the same as the COA, so the difference is a loan.</p>

<p>3) The school doesn’t meet need anyway, so there’s a big gap that must be met with loans.</p>

<p>4) Although some do, many schools don’t have any institutional grants to offer to those who wouldn’t qualify for federal or state grants.</p>

<p>It would be frustrating to go thru all of these financial manipulations (which might “cost” you money), only to find out that you wouldn’t have received any “free” money anyway.</p>

<p>OP - Do you kind of know which schools your child will be applying to? Will they likely be schools that meet 100% of need?</p>

<p>Do you know about what your EFC will be (based on your income/assets w/o the one-off)? Here’s an online EFC calculator to kind of give you an idea [FinAid</a> | Calculators | Expected Family Contribution (EFC) and Financial Aid](<a href=“http://www.finaid.org/calculators/finaidestimate.phtml]FinAid”>http://www.finaid.org/calculators/finaidestimate.phtml)</p>

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<p>Do the finaid calculators to get an idea what your EFC is going to be anyway. Lots of people get offered the availability of a loan as their only “financial aid.” Many, many people are shocked at how low your income can be before you don’t really qualify for any real (non-loan or work-study)financial aid.</p>

<p>Once that reality finally sinks in, then consider your situation.</p>

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<p>Don’t get greedy. </p>

<p>Financial situations can change in a matter of minutes.
In 09/10/2000 we had 125% college costs covered. Thought we should wait so that we could cover possible grad school.
0n 09/10/2001 we had 100% college costs covered. Thought we should wait for market recovery.
On 09/12/2001 we couldn’t do a darn thing.
On 10/01/2001 we had 80% covered.
On 09/10/2002 we had 70% covered and $30,000 in loans.
On 09/10/2003 we had 40% covered, and $50,000 in loans.
On 09/10/2004 we had 30% covered, and $60,000 in loans.
On 09/10/2005 we had 60%, and $80,000 in loans.
On 05/10/2006, graduation date, we had 90% covered and $60,000 in loans, </p>

<p>You know what we shoulda, woulda, coulda, done.</p>

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<p>I would run the sample FAFSA calulator to see what my expected contribution amount come to. If it shows you aren’t going to get any aid, then don’t worry about it. Othersize, stock sales should be done before January 1 of the Junoir year. After that is considered income (the gain) for the year. Once you are over the basic thresholds on the fafsa, they apply over 45% of your income towards college.</p>

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<p>Thanks for all the useful information and advice. </p>

<p>Some additional background info…… Our FAFSA based EFC is about $50K and the Profile based EFC is about $70K. Between 2011 and 2013, we will have two children in college so we are planning for these 3 overlapping years. In terms of what colleges they may attend, we certainly hope they will go to the highly selective schools (estimated cost of $55K/year for each), and this is our assumption for making some of the critical financial decisions for now. But who knows, things may not work out the way we planned for, then so be it (lol). </p>

<p>Here are the two scenarios for not exercising the options now (prior to 1/1/2009):
• The options (currently worth about $80K) need to appreciate by >$40K ($110K - $70K) after tax within next 2-3 years in order to justify keeping the options now and exercising them later. This is highly unlikely.
• The economic situation improves so dramatically that our EFC for future years will be significantly increased thus we will not qualify for any aids at all. Judging from the past several years, we can predict this is unlikely as well. </p>

<p>Does anyone disagree? Is there any likely scenario that we should NOT exercise the options now? Perhaps the better and less risky approach is to exercise only the options expiring in 2011 (about 50% of the total value) and wait for 2012 to exercise the rest? </p>

<p>We certainly welcome parents and financial advisers to share their opinions and thoughts.</p>

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<p>^^^</p>

<p>Well, I hope whatever aid you get is from private endowments, not from taxpayers. People with PROFILE EFCs of $70k should not be getting any money from taxpayers who make a heck of a lot less that the OP does. That may sound harsh, but think about it, should some family who earns $80k per year be providing your kids’ aid??? If you want help with your kids college costs, then you should be looking for merit schools. </p>

<p>That said, the only aid I see you getting (even with both kids in school at the same time) is either aid from Ivies (or similar) who give $$ from their private endowments or an offer of student loans (which I doubt you’d take). </p>

<p>I know that you want your kids to go to highly selective schools. If they’re ivy (or ivy-like) material, then you’ll likely get some help. But, if the highly selectives school does not meet 100% of need w/o loans then you’ll get nothing.</p>

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<p>To the OP…your EFC is quite high. Even with two kids in college, your need based aid might not be a lot. You will only qualify for the Stafford loans via the FAFSA calculations. The aid you get from the schools will be largely dependent on the schools and the generousity of the financial aid they offer. With an EFC of $50,000, your annual income is in the $200,000 a year range which would not even put you in the running for the very generous financial aid at some of the most generous schools. </p>

<p>I’ll say what I said earlier. It sounds like you are very fortunate to have these options to even consider. Given that your income is also very solvent, I think your decision is whether to take these options now…and if so, perhaps you can feel fortunate that some of this money can be used to help fund the college costs of your two kiddos. </p>

<p>And if not…it sounds like you can exercise these options at a later date.</p>