I’m talking about those in the donut hole – the $100 - 200 or so K/year folks. I don’t know many 6 figure families living paycheck to paycheck at least in the Midwest. If two families of similar make up have the same income, but one of them saved money each month towards kids’ education and the other spent that each year on, idk, Disney cruises, why should the saver family be disadvantaged when it comes to FA?
EDIT: leaving this up as folks responded, but I see how this is flawed thinking. There needs to be a more equitable way to do FA though.
I totally agree with that and I think I must have misunderstood your comment. I meant that people who can save for college are much more fortunate than those who actually can’t save at all. I think that giving people money based only on AGI would affect low income families negatively.
If this was the case, you could have the situation where a parent with a lot of assets (say, a big recent inheritance, or sold a start-up company for big $$), but a relatively small income, and the student gets a large need-based award. In other words, the parent doesn’t earn a lot of money, but has plenty on hand to fully fund several college educations, and then some. How fair is that, to the colleges that provide need-based aid from a limited budget, and the really needy kids who may suffer because the college is sending grant money to students from families that can easily do without it?
I live in the NYC metro area, there are families making $100,000 - $200,000 living paycheck to paycheck. Median homes are $500,000 with $14,000 a year property taxes. Services cost a lot more than in other areas. Donut hole.
The fallacy in the idea that savers are being penalized because the same income but spent on vacations is going to get a lot of aid-- is that most schools in the US do NOT promise to meet full need. They gap. So if you’re the family who spent your college dollars skiing in Aspen or sunning in Cancun, you are SOL for most colleges-- who really don’t care what your “need” is, because they don’t have the dollars to give you. And the big number of colleges now who are making their FA dollars go further by doling out “5K merit awards” in lieu of need based aid- good luck crying poverty to them, even if you are “low income” but asset rich.
Saving for college gives your kids MORE options, not fewer. Saving for anything- retirement-- gives you more options.
Nothing is fair in love or financial aid. At the time my kids started college (2 of them at the same time) I was working for the government. Family of 3. The guy who sat next to me, same job, similar salaries, also had a family of 3, but two adults and 1 child. Everything was different about our FAFSAs or taxes. He was Married filing jointly, I was HOH. He could get an asset exemption of about $50k, mine was $12k (there was something wrong with the formula years ago and singles really got screwed). His qualification for AOTC was about $150k, mine was $110k so I didn’t qualify even though I had 2 in college and he did with just one. You have to figure most of our other costs were similar - housing, transportation to work, groceries for 3, utilities, cost of 3 airline tickets… He could protect more savings in a 401k because he could save for his wife too.
Fair enough, except it seems that schools look at home equity, sibling college savings, and retirement funds as all pools from which to parents should borrow from to meet EFC. That seems punitive. Of course, none of this would be a big deal is the cost of college hadn’t increased to such levels.
Ummm, yes. Presumably that would be reflected in income (at least income vis a vis COL where they live). Yes, $75k in mid-Missouri is not the same as that salary in NYC. My point was that focus on assets, especially those not related to that student, creates an inequity in the FA system.
As someone who had more than $100k of non-home debt in her 30s, I get it. I just want a bit more equity in the FA system for the donut families and not to have saving disincentivized.
@Mom2SandG the schools do NOT look at savings that belong to the siblings. They DO look at things like 529 accounts with siblings as beneficiaries because the beneficiary can easily be changed in most cases.
If a sibling has a savings account or money market fund in their name, that is NOT listed on their siblings financial aid application forms.
And your balances IN actual retirement accounts is also not considered in the financial aid calculation. Please tell us where you find evidence that this happens. The amount you contribute to tax deferred retirement accounts in the FAFSA year is added back in as income but the account balances in those retirement accounts are not used.
Now…if you have a regular savings account that you plan to use for retirement, that’s a different story.
No idea. Unless an argument is being made that parent-owned assets are “not related to the student,” there are no assets “not related to the student” that I am aware of that count against the student for need-based financial aid.
No I agree with you about assets but this thread seems to be leaving out the low income families. I mean people in rough communities and under funded schools, not middle class America. I was just reminding the original commenter that people who are in poverty can “cry poverty”.
Need based aid is limited. There is no financial aid tree. As a result, the federal government provides grants to students whose families are very low income. There’s not enough money to expand it to middle or higher income families. Public and private schools may be able to afford to give need based aid to families that earn a bit more, but they typically can’t give enough to close the gap. Only a very few schools are able to completely meet need, but even they have to put a financial cap on who they can help. I am certain every school would like to do more, but there just isn’t enough for everyone.
Maybe it wasn’t in the FAFSA, but CSS certainly asked about all that information. I just don’t get how they could get that we had an EFC that was essentially half our AGI without looking at those investments (529/IRA/401K) and home. I purposely didn’t pay myself for a few months before FAFSA so that we had limited funds in savings/checking. It was just shocking. If S21 didn’t get some merit aid, we’d be in a bad situation.
Anyway, we are fortunate to have the savings and funds for good schools with the merit. That isn’t lost on me, but the pending schools, including his top 2 choices, won’t have merit, so I guess those are out. I’m just venting. Sorry if it sounds all “poor me”.
Yes, and I see that my posts could have come off as “poor us” when we are fortunate to have been able to save some. It is good that more schools are providing full and partial tuition for low-income kiddos. I just wish the folks in the middle got thrown a bone.
It sounds like you are self employed. There are many deductions allowed for tax purposes but are added back in as income for financial aid purposes. Perhaps that contributed to your net cost.
I’m not aware of any school that requires you to take money out of your retirement funds. It just doesn’t want you to continue contributions to those funds while you’re receiving FA. May I ask which colleges ask for redemption of these funds to pay for college? The issue with home equity is well known. Only a dozen or two schools ignore home equity on primary residence in calculating FA. The rest don’t but many of them cap the amount of home equity considered to some mulitiple of your income (e.g. if your income is $100k, the college may only consider the first $125k of your home equity if it uses the multiple of 1.25). The idea behind using the home equity is the assumption that home equity is an asset you can borrow against and about 6% of that home equity is added to your income every year for FA calculation.
Of course they aren’t going to force you, but if COA for 1 year is more than what’s in the 529, and more than half your income, where does the money come from? I guess they just assume folks take a break from saving for their retirement or their other kids’ education while kid #1 is in school?
