<p>Equity still means value minus mortgage, so that should be the starting place. A cap can be used to reduce the equity to salary times the multiplier, if that turns out to be a smaller number.</p>
<p>Well, that makes sense, but what does this mean:</p>
<p>
</p>
<p>If there is no equity in the home, one can’t take out equity that does not exist. I don’t understand, unless the quote above is not correct.</p>
<p>NEMom:</p>
<p>The different formulas colleges use are designed to CAP equity-- that is, to set a maximum value. If the actual equity is less than the calculated cap, they would use the actual equity.</p>
<p>“sblake, do you mean that if a home is worth 500k, and there is a 300k mortgage, and AGI is 100k, the school figures into the efc 100,000 x 2.4=240,000 (meaning you can pay 6% of 240,00=14,400, even if total equity in the home is 200,000)?”</p>
<p>So in this scenario, for the schools that use the (2.4 X Income less mortgage debt) formula originally adopted by the 586 Group, the assessed equity would be calculated this way:</p>
<p>2.4X Income (actually they use Total Income here, instead of AGI) = 240K. 240K less 300K mortgage debt leaves -60K, so they would show no equity in the home for purposes of the formula, and home equity would have no impact on EFC. (Yeah!)</p>
<p>But for a school that more simply caps equity at 2.4X AGI, without then subtracting mortgage debt, they would compare the 240K with the actual equity, which is 200K, and take the lower. That 200K gets plugged into the formula as available equity and gets assessed at about 6% (on the total asset amount that exceeds the two asset protection allowances: emergency reserve and educational savings, which typically total around 40K). So this scenario could increase EFC by about 12K. You get no benefit from the cap if they use this formula and the 2.4X multiplier. But you would if they used the 1.2X multiplier, for example.</p>
<p>It’s confusing-- and I think some of the finaid people are confused by it as well. A number of the colleges I communicated with had a lot of weasel words in their answers-- like these:</p>
<p>“However, we look at each file on a case-by-case basis and cannot
guarantee that we will cap home equity for each family at 2.4 times income.” (Northwestern)</p>
<p>or </p>
<p>“We do not apply that rule across the board in our analysis of family financial data. As a general rule we apply a cap of 3.0, but on an individual basis we may not apply a cap at all or we will utilize a cap of 2.5, 2.0, 1.5, 1.0 and in some cases zero. The decision as to what we do with home equity depends on other family financial data and the existence of circumstances that we believe are beyond the control of the family and that clearly have an impact on the relative financial strength of the family to meet educational expenses.” (Vassar)</p>
<p>But I also got a couple very clear answers, like these:</p>
<p>“We, as part of the so-called 568 group, actually cap home equity (home
value minus home debt) at 1.2 times total income (e.g. if you have $500k
in home equity and $100k in income, we only look at $120k of home equity
in our calculation).” (Amherst)</p>
<p>and</p>
<p>"Hampshire College uses the College Board organization’s institutional methodology. We count home equity in the computation of assets. Equity meaning the difference between the current market value and the unpaid mortgage. We do not use a cap or any multiplication table. " (Scratch Hampshire off the list…)</p>
<p>So I think in most cases you won’t be able to confidently predict exactly how a particular school will assess equity, down to the dollar, like you can with assets and FAFSA schools using the finaid calculators to predict EFC accurately. BUT if home equity is a make or break issue, you can shift your college search away from the schools that don’t have some sort of cap, and towards the ones that do.</p>
<p>Thanks so much. I see that you really need to call, or better yet, email the financial aid office at every school your child is interested in. BTW, I had a thought about looking further into Hampshire, and now I can quickly scratch off that school.</p>
<p>NE Mom, carefully consider the midwestern liberal arts schools. You will find those who only consider fafsa, have lower tuitions in the first place, and offer merit in concert with financial aid. Having never visited the Midwest until my son chose a school there as his top pick and is now attending, I was more than pleasantly surprised with a part of the country that had been off my radar: I was raised in California, spent some time in South Texas and have lived in Europe for 18 years. To write off the Midwestern schools because of location or preconceived notions is a mistake. Enuf said.</p>
<p>overseas, Thank you. Some schools in the midwest are on our radar.</p>
<p>I guess it depends on which midwest schools you mean. Grinnell, Macalester and Carleton all use Profile and have excellent need-based aid (and some aid for NMF, too, I believe).</p>
<p>Look also at how the FA is packaged… sometimes it takes a lot of sleuthing to find out if colleges cap how much work/study and student loans they award in the packages. For instance, Rice (for students matriculating 2007) caps total student loan obligation at graduation at $14525, with lesser amounts for students from families making less than $60,000 a year. Some schools routinely package loans so that students graduate with over $20,000 of student loans.</p>
<p>anxiousmom, absolutely true. They can meet need with staffords, perkins, and w/s, and the kid can be choked in debt. This is one reason that I pay for USNews. It breaks this down, but of course, these are averages, and not what any individual is being offered.</p>