Parents used to live in a two family house but we moved about ten years ago. The property, worth about 220,000, is now paid off. On the other hand, our primary residence, worth about 330,000, has about a 250,000 mortgage left on it. I recently found this out and it seems to be that I will seriously be hurt by the EFC on the FAFSA for it does not take into account the mortgage on the primary residence. Is there anything my parents can do or an I completely screwed in terms of financial aid at FAFSA only schools?
Sell both houses and buy a 550,000 house.
If it’s a FAFSA only school, it doesn’t meet full need anyway. So all of,this might not matter at all.
I’m not sure your issue. You should feel fortunate that your family has the resources to won two homes. Many families are not that fortunate.
What is your family income? The FAFSA EFC is based primarily on income…and if yours is above a certain threshold, you wouldn’t qualify for need based aid anyway. Or at least not federally funded grants.
Some of your schools require the Profile…so,all,of,this would not matter at all for,those schools.
What is your parents’ income?
What are they doing with that other property? Renting it? Are you including the rent as well on FAFSA?
A second house does affect FAFSA eligibility. FAFSA does not take into account of the primary residential home for aid calculation. But FAFSA takes into account of income and investment assets. The second house is an investment.
Note: I don’t like FAFSA methodology. Unlike CSS Profile which examines all properties, assets, and businesses that parents have, FAFSA has some big holes for asset sheltering.
Yes, the second house equity is considered an asset for FAFSA purposes.
This is the OP who is applying to pharmacy schools…and is wondering how to cover a $20,000 family contribution. Apparently aleady accepted to Rutgers, but the costs are too high.
Student is also applying elsewhere, including Northeastern…but that is a Profile school, and both primary and rental property equity will be considered in the need based aid formula.
To the OP…what is your family income?
My family income is about 65,000, so I am by no means even close to wealthy. The income from the property totals about 18,000 annually but after taxes and expenses it is listed in the “real estate” category on my 1040 form as about 3,500. However, since it is paid off I have to list it’s net worth on the FAFSA even though the mortgage on my parent’s primary residence essentially cancels out the value of it. Sadly, there isn’t much I can do in this situation, correct?
Schools likely won’t give more aid just so that your parents can afford to keep a fully paid off large asset. Why should they?
Could your parents sell the rental and pay off their current mortgage?
But that might not happen in time to matter for FAFSA or CSS profile for school year 2016/17.
I think the rental accounts for a good chunk of the family income…like almost 1/3.
@Madison85 Because my parents are in the same situation as someone with a paid off primary residence. If my parents were to have no rental property, they would have no mortgage. This would not be accounted for on the FAFSA and I would be eligible for about 9,000 in NJ State Grants. For some reason, unlike the CSS, the FAFSA does not even ask for mortgages on the primary residence. Techinically, my parents have no net worth but like a 30,000 mortgage, but sadly it seems that there is nothing I can do about this.
And if your parents had no rental property, they would,also have $18,000 a year less income.
The rental property sounds like their main asset. What is annoying to you is that they can’t afford your colleges of choice.
I think Madison’s point is that if your family sold the $220k rental and put the money toward the mortgage on your primary residence, you wouldn’t have an asset worth almost a quarter of a million dollars counting against you for aid. Colleges tend to think parents should be first in line to pay for college. If they gave students like you money just because your parents tied their money up in property, everyone with any credit would buy a 2nd property, let the colleges pay for their kid’s degree, then unload the property and pocket the profits.
FAFSA doesn’t care about mortgages on the primary residence because FAFSA also doesn’t care about primary residence equity. If your parents were allowed to report the $250k mortgage balance on your primary home, they would also be required to report the $80k in equity that they have in that property. And, like with Profile, the only thing that would matter would be the amount of equity.
The FAFSA formula could take into account the value of a primary residence, but opts not to because then the person living in a $1M home in NJ with a $950k mortgage would be treated more favorably than the person in Kansas with a $100k home and no mortgagey, and really neither probably has extra money for college. Instead, the formula says everyone gets one house to live in and we won’t count it as an asset. Your family has two houses, and they are going to count one.
What your family could do is mortgage the rental house (although it is harder to get a mortgage on a non-owner occupied house) and use the proceeds of the mortgage to pay down the primary residence. Then the excluded asset is worth a lot and the business asset is heavily mortgaged, do not worth as much as an asset.
The FAFSA formula disregards some assets - retirement funds saved before the prior year’s income, children’s 529 accounts (counted as parents), some disability income, and your primary residence. You think it is unfair that a rental property is counted, another student feels it is unfair that a stepparent’s income in counted even though the stepparent won’t pay (or a non-custodial parent who won’t pay). That’s life. The rules are never going to be fair for everyone, just consistent.