<p>OK, so a question I asked last week resulted in the recommendation that if I had the choice - we should refinance and use that source of funds for Education expenses . OK got it.</p>
<p>However, now it looks like we will run out of funds from refinancing and I will HAVE to use retirement account $$ in either 2009 or 2010.</p>
<p>In the past, it appears that the colleges have "added" my contributions to my 401k back in to our income, along with Series EE interest btw, in the determination of EFC. With a so called "need blind" private school, our educational contribution has been substantially above the EFC.</p>
<p>Having said that, when I do need to use my retirement $$ to pay for my childrens education, shouldn't they be subtracting those $$ from my income in the determination of EFC. What's your take on this.</p>
<p>And lastly, did you know that the school can get into the federal FAFSA system and change the numbers that you previously input - unilaterally - as they did to us last year and hence change your EFC (We got a new SAR out of the blue). And most importantly, in our case some of the numbers that they input were outright WRONG. When I called them on it, they commented that it didn't make any difference. And of course, you hate to mess with them for fear of generating problems.</p>
<p>Anyway, if you could address the question about using retirement funds and it's impact on EFC, I'd appreciate it.</p>
<p>When you take money out of your 401(k), you'll receive a 1099-R and it will be added to your income for that tax year. If the school was counting the value of the 401k account as an asset, that asset amount would decrease. Since income affects EFC more than assets, it seems to be a double-edged sword - you lose retirement funds and increase your EFC, possibly reducing aid.</p>
<p>When they said it didn't make any difference, did they mean that since they weren't meeting all need above your EFC it wouldn't change the aid offered? I think "need blind" applies for admissions and doesn't say much about "need met"!</p>
<p>You don't know me from Adam, but let me implore you to discuss your mad plan with a financial counselor, or call Dave Ramsey's radio show to get his take on it. Refinancing AND looting your retirement accounts are BAD ideas. The real solution to your dilemma is to find an affordable school -- .</p>
<p>Just saying.</p>
<p>It is easier to pay back loans than it is to replace those retirement funds. Penalties, fees, and such -- be careful what you propose to do.</p>
<p>Trust me, I don't like the idea of raiding my 401K either. We had four kids. We've got 10 semesters paid for and have 6 to go. We saved for 20 years for this specifically and I know that our savings will be depleted soon, hence the need to refinance to obtain about 60K in cash. What's compounding our prob is my wife wants to help my older boy with grad school and that's where a pile of dough (prob about $40K) will go.</p>
<p>S-Mom: I don't think the school was counting the 401K contribution so much as an asset, but rather as income that could have been used for educational expenses hence reducing aid. I don't think the schools consider retirement assets in the calc of aid unless it is very high. What I'm saying is although our income is $95K reduced to $80K with our $15K 401k contribution, our aid is based upon $95K of income.</p>
<p>Linda: You're right. Last year's educational expenses were close to $27K for the college student and $6K for our junior in HS. Unfortunately, having #3 find a less expensive school isn't going to happen as you suggest. The die is cast. BTW, there are no penalties if the $$ are used for qualified tuition expenses.</p>
<p>In checking our records, last year's SAR report showed an initial EFC of $18,029 and when the College changed the input data (erroneously I stress) our EFC went to $20,522. So when I use my retirement funds for educational expenses, I expect our EFC to go up - which is just not fair.</p>
<p>When you stick your hand out looking for a hand-out, I suppose if there's some nibbling of your fingers, you have to live with that.</p>
<p>Thanks for the Whoa Nelly! A smile never hurt.</p>
<p>Just found your thread: seems to me that NO contribution can be made to an IRA during the years just before and throughout college, in order for the EFC not to include the contribution as income. We are currently not making any contributions, and actually have not been financially able to, since before oldest went off to college. </p>
<p>Just wondering: has anyone ever filed a FAFSA, received a much lowered EFC from Federal Aid, and then had their kid’s college turn around and submit your higher estimated figures, creating a new and erroneous EFC, and then base their package upon the higher, wrong amount? To this day, they have not officially corrected their mistake with FAFSA.</p>
<p>That’s what happened to us this year, after the Dean of FA and our FA advisor both said we would probably qualify for more funds because of the lowered EFC. Don’t know if we have a leg to stand on: Junior has as much aid as last year, despite low grades, and the only thing missing from our current package is the Perkins loan, which was taken off the table this year by the government, not our school. </p>
<p>Doesn’t help that Dean of FA and Dean of Admissions both have retired in May.</p>
<p>I’m a little confused; you said that the package is based on the higher incorrect amount, but you also said that his aid is unchanged from last year?</p>
<p>Perkins loans are very limited but are still out there. My understanding (financial aid officers please correct me if I am wrong) is that the Perkins funds a school have are sort of like a revolving fund where new loans are limited to the repayments received for outstanding loans. </p>
<p>My daughter has had Perkins and Stafford previously but only has a small Stafford this year. I am assuming it is because her remaining need after receiving an additional grant this year (the SMART grant) was very low.</p>
<p>Yes…this is done with EVERYONE who has these items and is applying for financial aid. You are not being singled out. The money you put into your retirement account is added back in as income for the tax year of the FAFSA you are completing. Interest you have gotten for cashing out Savings Bonds IS income also.</p>
<p>AND yes…the colleges CAN change your FAFSA and will do so if the numbers do not align with your tax returns. SO if you sent your w-2 forms/tax forms and your IRAs were not indicated on your FAFSA…the school could and WOULD change the FAFSA to reflect this.</p>
<p>If they made a mistake at the school level…you need to meet with them and show them what the error is.</p>
<p>I would suggest that you need to reevaluate how you are allocating funds. If you can’t afford what you are spending…you may need to figure out a different approach to college. Someone has to pay those bills. </p>
<p>Perhaps talking to a financial advisor is a good idea. They might suggest you reduce your contributions to retirement so that you can pay current bills.</p>
<p>I know you aren’t asking for this advice…but if it were me and I was as cash strapped as you are sounding…I would NOT be paying for grad school for one of my kids.</p>
<p>For all intents and purposes, with the exception of med/law school your older boy will be an independent student once he graduates from college. He will be able to apply for a larger amount of sub/unsubsidized loans (especially if he cannot secure a position as a TA/GA where he could possibly get some tuition remission). It is one thing to want to help your child through graduate school, it is another thing if you are not financially in the position to do so. </p>
<p>Check with your prospective/current colleges, while the FAFSA does not necessarily consider students in grad/professional school when calculating your EFC, some colleges may. This means if your EFC is currently 18k with your older son in college, it will go up (a lot) once he graduates unless you have another child starting college.</p>