I am the custodial parent. Daughter hoping for an Ivy in 2019. My 2017 income was unusually low, maybe 20k. Have non-retirement assets of about $700k. $200k in a 529 account. Currently renting, but thinking about buying a condo for $650k cash before filing FAFSA/CSS. Will this significantly reduce my EFC? I know that home equity is considered by CSS, but isn’t it capped according to income?
Is your income from a salaried job or are you self employed/business owner?
While the FAFSA does not look at the equity in your primary home, many schools do look at home equity when it comes to institutional aid.
With you making 20k, you will most likely trigger a low income verification as the school will want to know how you meet your day to day expenses. You must include any child/spousal support.
Schools will look at equity differently, some may no consider it at all, while others may look at equity as a multiplier of your income !x, 2x. 2.5 times), some schools may consider all of the equity as being available.
Your best bet would be to run the net price calculator using various scenarios. remember if you are self employed, divorced, the calculator may not give you an accurate result.
In addition, they will look at the income and assets of the non-custodial parent.
I don’t think it will reduce your EFC. Please note those Ivies that require the CSS profile will ask for additional information from the non-custodial parent, which can affect your daughter’s financial aid. You can run the numbers on FAFSA caster and the net price calculator for each school to get an estimate.
Your income was below $20,000?
You have $200,000 in a 529…that’s $50,000 a year for your daughter. Add to that the $5500 Direct Loan, and maybe $20,000 a year from your $700,000 savings…and you should be able to pay the college bills.
You will still have $600,000 plus interest when your kid finishes college.
You have to use that 529 for educational expenses…
Another thing…if you qualify for free or reduced lunch, or SNAP…and really have that low income…for FAFSA purposes, your EFC would be $0…
But this doesn’t apply to the Ivies which use the Profile, or their own form (Princeton).
I think you need to look at your financial picture in total…like can you afford the taxes, condo fees, and insurance on a $650,000 condo? On a $20,000 a year income?
Thanks. Self employed. Income varies wildly. 2017 was not a great year. Is there a cutoff for low income verification?
Look…if you want To use your liquid assets to buy a condo…that’s your decision.
Google…simplified needs test. It will tell you the criteria. For that…I believe it’s income below $49,999 a year AND one of the following…
- Able to file 1040A or 1040EZ. As self employed, I don’t believe you can use these forms.
OR
- Qualify for a means tested benefit like free/reduced lunch or SNAP. If assets are considered....you wouldn’t qualify for this.
OR
- Dislocated worker but since you are working, that won’t count.
So…I guess you would need to qualify for 2…a means tested benefit.
BUT this would be for FAFSA proposes only. For those Ivies you want…they don’t use the FAFSA to determine awarding of need based aid. They use the Profile which looks far more in depth than the FAFSA. There is NO simplified needs test for the Ivies.
Many do provide excellent need based aid for lower income students with typical assets. I’m not sure if your assets would be viewed as “typical” or not.
I’m very serious in my suggestion that you use your 529, plus some of your liquid savings, plus the Direct Loan to pay for your kiddo to go to college.
In addition, there are TONS of excellent colleges that cost $50,000 a year or less…and the 529 would cover it all.
Keep in mind also that your self employment status will render the net price calculators inaccurate. Plus you are a custodial parent…implying there is a non-custodial one. The NPCs are not set up for this at all.
There are deductions allowed by the IRS for tax purposes that are not allowed for financial aid purposes…and are added back in as income.
And lastly…if this kid is competitive for Ivy admissions…there are places with guaranteed merit aid…and your costs would be very low…if she got full tuition, for example.
…if you don’t want to be taxed on the earnings portion of any non-qualified distribution.
As a self-employed person, you are probably taking business deductions that will bev added back in on the FAFSA and profile. You may find that you make more than 20k
Your FAFSA EFC will probably be over $40,000 with all of your assets.
Google EFC formula 2019 and you will get a link to the PDF of the FAFSA formula. Print it out and work through as many scenarios as you feel like. Then you will have a better sense of your FAFSA situation.
I don’t think the 2019/20 FAFSA formula will come out until August or so.
But the 2018/19 one should give you an idea.
Your child is hoping to attend a top school…which will use CSS. Profile and not FAFSA to determine aid.
Your deductions will also get added back inn…so before you sink too much into a home, you may find that you’ll need some of that cash…
I think you need to run through a few scenarios.
1- your income stays that low for a couple of years. If so, do you want all your dough tied up in a condo, and can you really afford the ancillary expenses that come with living there if you’re living on 20K per year? You still need property insurance, taxes, etc. which if it’s in a high rent district, is likely going to consume all your cash. How will you eat and who will put gas in your car if your entire income is going into your condo?
2- the housing market tanks (repeat of 2008 et al). Can you afford to take the hit and how long can you wait out a recovery? If you have to sell at a loss (i.e. dump the place) what will that do to your retirement planning?
3- Your income rebounds, your kid loses all the aid for subsequent years and you are stuck with all your cash in a condo.
Figure those out and you’ll have your answer.