Preparing for kids to go to college - FAFSA advice

Paying for College
1

Hi all! Thanks for your considerate and helpful advice. I am a dad of 4 kids. I am an overseas English teacher who works in Central Asia.

We own one house, in Oregon. It is now worth about $270k. We owe about $100k on our mortgage (so $170k equity)
We live mostly overseas, but coming back to the US occasionally. We rent out our house fulltime. Even when we come back, we leave it rented as we have stable renters. Our job provides us a rental stipend that we use overseas.

Our combined income is about $50k a year, so not a lot.

We have 4 UTMA accounts for our 4 kids at about 10k each that we have saved over the last 10 years.

I calculate that our EFC is about $4500 and the max Pell is about $1500.

We are facing a bit of a dilemma as because of the rental (which I thought we could consider as our primary home - since we only own one - woops) adds 170k to our net worth of investments, so…over the next 10 years, we may be sacrificing about $80k in federal, state, and college financial aid + Stafford loans for our 4 children.
Also the UTMA accounts are not helpful either as they are counted.

Any ideas? I am stumped. I brainstormed with my wife and we shot down a bunch of bad ideas.

  1. Sell the house (pay huge capital gains tax) - and then do what with the money? We can't buy in the country we are in as it is not allowed.
  2. Move into the house - then we have to destroy our career plans and live and work in Oregon. Can we make such a career move just because of this FAFSA rule?
  3. Have our daughter live in the house in Oregon - this would limit her college options and we would lose a bunch of rent - which supplements our income.
  4. Here is a creative one: Refinance the Oregon house for $250k. Take the $150k in equity and buy a small studio for our daughter to live in while in college. This would $0 out our investments.
  5. Have our daughter file FAFSA as independent - I don't think this really is possible, but is it if we live overseas?

So, I am posting this…our oldest is 16 and we are looking at her senior year 2018-19 and just trying to think ahead.
Thanks for reading this and sharing your advice.
4kidstocollege75

2

If you buy your kiddo an apartment to live in…that will still be another piece of real estate you own.

Not sure what having your daughter live in the house would change. It’s still an extra piece of real estate YOU own.

NO…your daughter cannot file as independent, and living overseas doesn’t change that.

Your kids get the Stafford loans regardless of your income. You aren’t sacrificing those…at all.

It is what it is. Can you look for colleges that are affordable given your financial situation?

Will your daughter be eligible for merit aid…which won’t take the house or incomes or assets into consideration?

How much CAN you pay annually.

What sorts of stats does your kiddo have?

3

I read somewhere that you primary residence can be lived in by you our your child, so the studio would be considered primary and not be counted.
We can probably contribute 5-10k annually, but it will get harder once the UTMA $ is used up and the 1st two are in college.
We will definitely try for merit aid, and that will help of course…
I really feel like we have to do something with the house as it makes such a big difference to our need based aid.

4

Assets do have a big influence on FA, but so do those UtMA accounts. The Pell grant is only $5900/yr if you get the maximum. You have a $180k asset and the accounts, which you want to compromise to get $5900? If you sell the house, you’ll have a $150k asset. It’s not YOUR primary residence, but hers. To you it is a $150k asset.

She can live in an asset, be a resident, and still be a dependent for financial aid purposes. Plus, how would you know where to buy this condo when you’d have to do it well before receiving financial aid? Are you only considering a few schools?

You do have some decisions to make. You choose to live in a low cost of living country so make a much lower salary than you could make (presumably) in Oregon. That happens in the US too, where a family earning low income in say S Carolina can’t afford to pay for NYU or BC. That $5900 doesn’t get you very far when the COA is $75k. And with a $50k income, it is unlikely you’d get the full Pell grant with only one in college.

5

The primary residence for a dependent undergrad, which you child will be, is the residence of the PARENTS…not some other place.

So…unless you plan to live in this purchased condo, it will not be your kid’s primary residence.

Are you Pell eligible? Now? Even with the house?

You know…even the maximum Pell Grant is NOT going to cover your kids’ college costs. They won’t have instate residency because YOU don’t live in this country.

So…you are looking at OOS costs…or the costs for a private university.

And MOST…read that again…MOST colleges do NOT meet full financial need anyway.

You could give your house away…with NO money in the bank, and at many many colleges, you wouldn’t get a nickel more in institutional need based aid.

The max Pell is $6000 and the max student loan is $5500 for freshmen. Keep that in mind while you contemplate all these financial gymnastics.

6

@4kidstocollege75 Have you looked into a house near a college they could attend affordably? You could have several apartments to rent out to college kids and have your kid in one while attending school. You could get a good sized house in many parts of the country.

7

But @gearmom

This student is 16. Who knows where she…and her siblings will even end up in college.

Plus…then it will not only be an asset, but also will be a rental property, and the rents will be income on the FAFSA for the tax year used on that FAFSA.

It will be an asset the day the FAFSA is filed.

8

@thumper1 You would choose a uni with a high acceptance rate in an area that is more affordable like the Midwest that would be acceptable to all three kids and that is where they would go.

So it’s an asset for FASFA. They still get the Stafford.

9

They would get the Stafford loan regardless! They can be billionaires and own ten houses…and still get the Direct (Stafford) Loans.

I wish I could remember the exact quote…but it’s something like…don’t do anything financially for college that you wouldn’t be doing anyway.

@blossom?

10

@thumper1 OP thinks he’ll lose 80k in aid. Is that lost Pell Grants? Os there something special about thus Oregon house or is there a better rental location or property. A kid doesn’t need an entire house. You could have the kid in a duplex or multi floored home in which she’d have free board and you’d STILL have rental income. Plenty of families do that.

11

@gearmom

I believe the OP is talking about lost aid for ALL of his kids in total.

He needs to back the Direct Loans out of his issues…because his kids will get those.

If this family is Pell eligible…and I mean FULL Pell…they will have $11500 or so…$6000 in Pell and $5500 in Direct Loans…for freshman year…and that is the ONLY guaranteed aid with a $0 EFC.

What college can they attend for this cost? Most of those inexpensive colleges in the Midwest do NOT meet full need for all. They just don’t.

BUT if his kids could get a full tuition merit award someplace…and then add the $5500 Direct Loan…and then his $5000-$10,000 a year contribution…and his kids worked…the finances could work.

12

@thumper1 Yes, my quick calculation had 18k per year per kid IF they qualified for the full Pell. I don’t know how they will get 5-10k per year for their part.

BUT there are places the kids could live and get instate rates.

There just could be a better rental property.

13

OP, you have lot of challenges, which some have alluded to above…

You have no “in state” option. Public in state universities are the lowest priced options for most (but not all) families. Even so, it is difficult to find a public university where you would only pay 5-10K, even for those who are in state, high achieving, and/or extremely low income. Most public universities do not meet financial need, and their limited need-based awards will go to in state residents. You would need more than a full tuition award, and those are rare. In most cases you would have to move back to the US and live their for a year before your daughter starts school in order to qualify for in state tuition. There are a few public universities that may offer an out of state tuition waiver as part of a scholarship offer, but that is not common, and is still very unlikely to bring your contribution into the 5-10K range.

Those with no in state tuition option and those with very low income often look to private schools that meet the financial need for all students (as they define need) in order to find something afforable. You run into problems there, too. First, they are the among the hardest schools to get into. Second, nearly all those schools require the CSS profile in addition to the FAFSA in order to qualify for institutional need based aid, and the CSS profile asks for much more detailed financial info, and many schools will consider equity in the primary home as well as any other assets. The CSS may also add your rental stipend to your income (not sure if the FAFSA does or not - anyone?). Your assets are likely to push your expected parental contribution to an unaffordable level, except perhaps at the most generous schools that are the hardest to get into.

I assume you counted the rental income on your Oregon home as part of your 50K income when you calculated your EFC? Any rental income will be counted as income on both the FAFSA and CSS.

With a 5-10K annual contribution limit and a $5500 Stafford loan and (maybe) a small Pell Grant and a portion of the 10K in her UTMA (if that wasn’t already counted in your 5-10K contribution), it looks like you probably will be limited to schools where your daughter can get a full tuition merit award, and she will need high stats to get those at most schools. They may not be schools that appeal to her. Room and board has gotten pretty expensive in most areas, so even a full tuition award may not make a school affordable. You also would need to budget for travel and for health insurance, since your daughter would not have access to whatever public or private health plan you are currently using overseas.

One other thing to understand (if you didn’t already know this) is that in most schools merit aid does not stack so it will not decrease your expected family contribution unless subtracting the merit award brings the total cost below your expected contribution level.

Pin down an upper limit of how much you can afford to pay each year for everything (for 4 years, considering the kids that follow) and communicate that to your daughter. Run a few Net Price Calculators at some of the private schools that meet full need and require the CSS to see what they spit out for your EFC and see how it differs from the FAFSA EFC. Make sure your daughter is focused on test prep and getting the highest possible stats in order to increase her options. Have all your kids study for the junior year PSAT in the hope that some might score high enough to become National Merit Finalists because that will open up a number of full tuition award options. Once you have an end of junior year GPA and test scores for your daughter, post in the Financial Aid forum with those stats and your parental contribution limit – the members of this community are REALLY good at helping people find affordable options. They have amazed me on a number of occasions, so don’t lose hope!

14

The UTMA accounts only count against the child who is the owner/beneficiary of the account. In other words, the UTMA accounts for the three younger kids won’t be reported on the FAFSAs that your oldest child completes. Unfortunately, student assets take a 20% hit on FAFSA, while parent assets take a much lower 5.6% hit. Depending on how the UTMAs are invested, and since it sounds like they are going to be used for college expenses anyway, it might make sense to liquidate them before the owner/beneficiary child first completes a FAFSA, and invest the money instead in a custodial 529 account, which will make them reportable on FAFSA as a parent asset instead of a student asset. This is a more attractive option if there will be little if any capitol gains to pay taxes on when the accounts are liquidated.

15

Your income is $50k including the rental income and rent stipend???

16

OP, you have lot of challenges, which some have alluded to above…

Thanks so much to all of you for commiserating with us! :slight_smile: I really have my work cut out for me to make some good options materialize! I showed all the posts to my wife and she said, “Did you have to pay for all those people to give us advice?” Really, we are appreciative to this community - what a journey we are embarking upon. Thanks to those that have gone ahead of us!

Your income is $50k including the rental income and rent stipend???

Yes, if you can believe that!? :slight_smile: That is why it is a bit frustrating that our Pell, State, and College award aid is so low…the equity in our only house is really setting us back.

This summer we are coming back to the US and reevaluating our job and lifestyle. We may have to shift gears for the next 14 years in order to put our kids through college. Seriously rethinking alot of things. We are in our early 40s, so we still have good job opportunities in the US. We have enjoyed traveling the world for the past 12 years, but now college age for our kids is not looking so pretty! I had thought that we had planned pretty good with what we had, but now am realizing that we have a long way to go.

Depending on how the UTMAs are invested, and since it sounds like they are going to be used for college expenses anyway, it might make sense to liquidate them before the owner/beneficiary child first completes a FAFSA, and invest the money instead in a custodial 529 account…

This is a great suggestion. The accounts are at Edward Jones and read:
My Name CUST FOR
Child’s Name
UNDER CA/UTMA

They are about 10k each. Is it worth it and easy to transfer them to a 529 account? Would I have to pay taxes on the earnings when I transfer them? Would I need to claim all 4 of them as parent’s assets on my daughter’s FAFSA?
4kidstocollege75

17

You would have to claim the younger children’s 529s if you, the parent, are the owner of the account. One loophole is if the sibling is the owner of the 529 you do not have to claim it for the older child but it still counts as a parental asset on the FAFSA formula.

If the younger child(ren) own the accounts, they control them and could blow it all when they become 18 and not use it on college. My advice would be not to tell them that.

18

When H was nearing 40, we made the decision to move home from our overseas careers as teachers. It was becoming clear that if we were ever going to transition well to the US, in terms of jobs, it would help if we weren’t too much older.

I have friends who are a US family who moved to a college town shortly after returning to the US after some years abroad, when their oldest was nearing college age. In their case they were devoted to a certain private school where they knew their kids were all likely to get merit on top of reasonably priced tuition. They had a large family, so they knew if they bought a house in the same town as they college, they would never have to pay room and board for any of their kids. The kids are compliant and so far it’s working for them. They all live there, parents included.

If I were in your shoes, I might consider the pros and cons of moving back to the US in time to establish residency and move near a decent public university with an already low cost where they might get a additional merit.

This option might also have advantages for you and your wife’s future employment prospects. If you could get jobs at a university, your kids might be able to go for free.

As a family that lived overseas, our D’s college choice has been severely impacted. We thought we were being responsible by saving for our retirement, but never knew the benefit of putting our money in IRAs in terms of financial aid calculations. Our only option was to chase merit, but even with top merit, our state schools still turned out to be the best and least expensive option. Our younger kids might not have the scores for merit so it’s even more important that we have good instate public university options.

Whatever you decide to do, don’t forget about health insurance costs. These can add as much as $2,500 per year to college costs if your existing insurance plan won’t cover your kids where they are in college.

19

I don’t think I’m allowed to share a link, but google this website – it’s a blog called Corporate Monkey CPA. The author is a CPA with useful financial advice. The OP’s situation of living abroad made me think of this blog, because the author moved with his family in another country. OP, you could probably ask the author the question directly. Best of luck to you!

20

Since you have four kids and I assume they all want to go to college in the US, have you thought about moving back to the US?

Are you planning on staying in Asia indefinitely?

Travel costs for the kids might be expensive.

I mean college will be costly, unless they get full tuition or full ride, or are accepted at meets full need schools, but those will look at assets and home equity in more detail.

Are you still considered to have state residency in Oregon?

There will be not much federal aid with the FAFSA EFC you have now.
For state aid don’t you have to live there and have your domicile there? Not sure if that’s possible when you rent out your house.

So now you are down to institutional aid and merit aid.
Unless the school bases their aid on FAFSA EFC alone, or disregards assets under a certain income, the aid might not be enough.

It seems merit aid might be the best thing to focus on. And then your rental income and UTMA accounts can help pay the rest of expenses that merit doesn’t cover.