<p>I'm the father of 3 kids, the oldest of whom just finished 7th grade. In less than 4 years, I fill out my first FAFSA. I'm 62 now, so I'll be over 65 when they start college.</p>
<p>We are moving to a new house this summer, so we will take out a new mortgage. According to what I've read, it might be a good idea for us to take out as large a mortgage as possible. </p>
<p>The reason is, If any of the kids ends up going to a Profile school, our home equity would be tapped at the rate of 5%/yr. to increase our EFC. We should, it seems, take out as large a mortgage as possible (at today's historically low rates!) and use the leftover proceeds from our current home to fund retirement plans to the max (max out contribs. to 401(k), 403(b), $6K/yr x 2 into IRA, etc.). With both parents being over 59 1/2 by the time the kids are in college, there's no downside: we can withdraw the money when we need to without penalty, and in the interim, it's totally protected from being counted toward EFC.</p>
<p>Is this right? Or am I missing something?</p>
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<p>Notes: By "as large as possible" I mean an 80% mortgage, the most we can get without raising our interest rate. I'm aware of the fact that withdrawing from retirement plans, if and when needed, raises our income base from which the EFC is calculated. I know that I will have to keep enough outside of retirement plans to pay college expenses for a few years, but with the high APA for 65+-yo's., I can do so without hurting aid eligibility.</p>
<p>"We are moving to a new house this summer, so we will take out a new mortgage. According to what I’ve read, it might be a good idea for us to take out as large a mortgage as possible. "</p>
<p>So your oldest wont start college till you are 66? & you thinkit is a good idea to take out a new large mortgage at that age?
I think I see why you dont have any college savings for your children!</p>
<p>You also need to consider whether your children will likely have the TEST scores (not just GPAs) to get into schools that meet need. Many kids have high GPAs, far fewer have the top test scores that meet-need schools expect. And, most schools do not meet need.</p>
<p>At this point, it’s hard to predict how a 7th grader (and younger ones!) will do on the SAT and ACT. </p>
<p>Tying up too much of your money may end up being a problem if a child or two is gapped, and you’re expected to cover that gap. Few people end up having all their kids with stats high enough for full need schools.</p>
<p>Also, your estimated family contribution will be largely based on income. Based on income alone, what will your family contribution be? (estimate about 20-33% of your gross income.)</p>
<p>I agree with EMK that taking out a large mortgage at your age seems risky, but you should be funding retirement accts, so I’m not sure what the best strategy is at this point.</p>
<p>It’s hard to say because it really comes down to which schools your children target. PROFILE schools do look at retirement assets. Few come right out and say so, but because it is their own money, they do not have to be consistent. Many of the financial aid officers look at the over all picture.</p>
<p>Take a look at the various schools that you think might be on the horizon for your kids and see what kind of aid you can expect from them. </p>
<p>As I say to everyone, the most important part of the college search and planning process is developing a list of school that your family can afford and are sure things that provide what your need and want academically. Once that base is covered, you can look at the lottery tickets and pick a batch.</p>
<p>I’d suggest talking to a fee-only certified financial planner.</p>
<p>That said, and leaving the college piece entirely out of the picture, it sounds like a good idea. You are putting as much money as possible in tax-advantaged retirement accounts, and borrowing cheap money (and buying when the market is relatively low). IF you have good reason to believe that your employment/income prospects will remain stable, then sure, that makes a lot of sense. I’m assuming that you have planned for how to continue paying your mortgage after retirement, either by downsizing to a less expensive place or by having sufficient retirement funds to pay for the mortgage.</p>
<p>How are you planning on paying for college? How much are you budgeting? Are there any savings towards college at this time, or are you planning on paying out of current income (meaning disbursements from your retirement accounts)? How long do you plan on working before retirement?</p>
<p>Keep in mind that right now most profile-using colleges exclude retirement accounts from consideration…but there are no guarantees that this will be the case in 5 years.</p>
<p>Treatment of home equity as an asset varies. Some school exempt some home equity, others have maximums. I would suggest putting some numbers into net price calculators and vary the amount of home equity. You may be trying to plan for a problem that is not as big as you think.</p>
<p>Always fund retirement account first.</p>
<p>PROFILE schools do look at retirement assets</p>
<p>Yes, I had heard that some/many CSS schools were doing this because a number of people have substantial amounts in those funds.</p>
<p>Also, keep in mind that both FAFSA and CSS will “add back in” any retirement deposits made during the previous filing year. So, if you make any deposits while your child is a second semester junior in high school, those deposits will get added back in as income.</p>
<p>It’s probably too soon to be looking now, but once your older child is a soph in high school, start looking for financial safety schools. Schools that give large merit scholarships for stats.</p>
<p>They all “look” at them, in that they ask for them on the PROFILE. A family with millions in such funds is in a whole different situation than one with thousands, even hundreds of thousands. How they use the information is often on a case by case basis. BC, I know, out and out says they use the info but would not divulge how they work in the aid formulas. Perhaps, now they are in the net aid formulas and one can get some idea. </p>
<p>The other issue is that this is a constantly changing, ever moving target. The rules change from year to year at the same schools. A FAFSA only school will want to start using PROFILE. A need blind for admissions school will become need aware. Schools that current meet 100% of need may have to say they do this for X% of their students. Loans may become part of the loan package at schools that currently do not give loans or more loans may become the rule at schools that have a ceiling. </p>
<p>However, financial aid is very heavily based on current income. THat is the single most important criteria that drives the EFC and the PROFILE version of it. Before going into financial contortions with your assets, you might want to see what your income gives your family in terms of EFC.i have seen people go nuts about this issue when it makes very little difference in the end. Income is such so that EFC is too much for anything other than some loan subsidies, kid picks a school that gaps, aid from a private school makes that cost exactly what the state school would cost, etc, etc. Unless you are on a brink of getting or not getting certain funds, it may not make a whole lot of difference.</p>
<p>Schools who use PROFILE dont do so to get a better idea of your need. They do it to better see your assets.
If your home is on the high side for the region, they may wonder why you upgraded when you were anticipating increased expenses and decreased income. If you have reduced income because of retirement, they may also wonder why you chose to reduce income when you still had dependent children at home.</p>
<p>Even if your child is accepted to a top school that meets 100% of need- need can be met with any combination of loans, grants and work study.
Schools that dont meet need, which are most schools, gap between aid offered and need.
Schools have gotten very particular about where to apply their financial aid dollars.</p>
<p>Now is the time to reduce expenses not increase financial obligations.</p>
<p>“Schools who use PROFILE dont do so to get a better idea of your need. They do it to better see your assets.”</p>
<p>That is a great statement Emeraldkity, and ever so true. Financial aid offices are limited in funds. They have to make what they have stretch out as much as possible. So the PROFILE form is to get every bit of asset and income and possibility that FAFSA does not include.</p>