<p>Forgive me if this was covered previously. (If so, perhaps someone could provide the link....)</p>
<p>1) How are loans and/or reductions in assets treated in future year calculations of EFC? For example, let's say you saved $40K for your child's college education ($10K for each of 4 years). You write a check to the college for 10K for year 1, thereby reducing the remaining asset to $30K. Is the EFC for year 2 now based on an asset of $30K; year 3 EFC, based on asset of remaining $20K; and year 4 EFC, based on remaining $10K? </p>
<p>2) On the flip side, suppose that you borrow $10K (Perkins, Stafford, PLUS) in year 1. Have you now increased your debt load by $10K for the year 2 EFC caluculation? </p>
<p>3) In addition to deduction of loan interest on taxes and the Hope or Lifetime Education tax credits, is there anything else tax-wise that can help with financing the kid's college? I'm trying to convince hubbie that a tax credit of $1K is almost as good as merit aid of $1K...! Seriously, looking for any strategies that will make that dream college more affordable Thanks!</p>
<p>Boxmaker, any reduction of assets is simply treated as such. If you had $100K in assets in year one, you are assessed 5.6% of it that year. If you spend every cent during the year whether it is on tuition, gambling, a new roof, new furniture, your assets are 0 for year 2, so yes, to your first question. Debts are not considered in EFC calculations. The exception would be loans against an asset. For schools that use Profile or their own forms and ask for home value, a home equity loan would reduce that value if the money is not sitting as another asset. But FASFA does not care how much in debt you are; it is NOT a consideration. For question 3, you need to look carefully at your financial situation and see what you can do to make your financial picture better for financial aid. Specifics won't help you unless they apply directly to your situation. For example, if your student goes to a school that uses FAFSA only for financial aid consideration, if you have any money sitting around in an account, pay down your mortgage because you will be assessed the 5.6% on the money sitting in cash, stocks,etc, but zero on home equity. You can even refinance to a pittance and reduce your mortgage payment drastically because, remember FAFSA does not care about debt or debt repayment. So it is win-win for someone in this situation. If you have kids two years apart, a gap year might be a good idea cuz then you have 2 in school together for a longer time and each year that is the case, you pay less for each of them, If you have a home business or own a business, and mom is an unpaid helper, reduce dad's pay and pay mom. There is an allowance of how much a second parent makes that is not included in the calculations. As you hone in on the specifics of someone's life and finances, you can see where you can squeeze a little bit more. Another piece of info that can help is that you can take PLUS loans out for back tuition. In other words, you can time the loans more strategically than just taking them at the time the tuition is due.</p>
<p>Jamimom -- Thank you for so much helpful and detailed info! I nonetheless want to clarify with respect to Question #2: If I take out a loan, I understand that this does not affect FAFSA EFC. But how about Profile EFC calculations? If I borrow money and pay that full amount to the college, the money does not go to me but rather to the college. I have not increased my assets. If I now start repaying the money I borrowed, I have acquired a new debt. If I borrow each year, I have accumulating debt but no increase in assets. </p>
<p>If I understand you, the only debt that is considered would be a mortgage or home equity loan, both of which reduce home equity. (Again, applicable just to Profile EFC, not to FAFSA.) So, except for interest accruing immediately, there might be advantages to borrowing against my home...?</p>
<p>Thanks, again, for the very helpful info!</p>
<p>The answer is that the loan will not affect anything in Profile if it is spent. If you borrow money and it is sitting in an account as an asset at the end of the year, it is treated as such since loans are not taken into account even in Profile except against home value or business value. So, if you have lots of debt, any debt and you are using Profile, it does behoove you to pay the debt out of home equity since that is an asset and no consideration is given for the fact that you are in debt but home equity is considered (by most colleges using PROFILE). That is one of the biggest difference people encounter between the the FAFSA EFC and the one from PROFILE is if you own a home. Those that do not may well come out better with PROFILE but many people are "home rich" particularly those in areas that have housing costs that have bought their homes years ago. It is unfair in the sense that though they have benefited net asset wise from those increases, for them to take out that home equity puts them in a situation where they may not be able to repay it and moving is an expensive option and where do you go when everything has risen in price in the area? The best thing to do is to first reduce all other debt with a home equity loan because you are being double whammied other wise. But if you don't have any debt, you are now being assessed for an asset that for you is not liquid.</p>
<p>Jamimom, thanks for the helpful explanation. We may have to sell the house and move into the dorm room with the kid!</p>