Question about FASFA and Financials

Parent Cafe
1

<p>Hi,</p>

<p>Thanks for the forums and the information provided. I'm approaching the end of my 11th grader's junior year (oldest child) and suddenly feel like I should have been finding out a lot of stuff a year ago, but here goes.</p>

<p>My wife and I work full time and "don't know what we don't know" (though that's changing quickly now) about the college search process. We feel overwhelmed. I've hired a service company that provides a framework within which my child can take all necessary and appropriate steps toward the best college admissions outcome. Namely, getting her accepted into a quality college that is the best fit for her at the best available price. The service calls this "student positioning". It's very detailed, structured, step by step and essentially prepares and trains her on all facets of the process and how to present herself. It makes a lot of sense and I don't question the value it provides. It's a flat fee for service and we gladly paid the cost. No problem or regrets there.</p>

<p>What wasn't made clear up front was the "financial positioning" portion which is now being pitched in a respectful but aggressive way. By that, I mean that the conversational scripts being used and the process is to me an obvious classic sales funnel designed to achieve a "close". Still not knowing what I don't know about FAFSA and the whole financial side of college education, I'm hoping I can get some feedback on the general assumptions being pitched and whether this sounds like a reasonable approach.</p>

<p>Stated Financial Goal:
Get our FAFSA EFC down to the lowest possible number using ethical and legal financial strategies, such that our daughter can receive the highest possible needs-based awards and grant offers from the candidate colleges to which she applies. </p>

<p>Means of Achieving Goal:
Move liquid assets into financial products, Life Insurance and Annuities, that are exempt from FAFSA consideration. </p>

<p>Stated rationale for moving assets instead of paying outright for the tuition:
Hold the student accountable such that if she doesn't stay focused and complete school, she's stuck with all the loans. If she does stay focused and graduates, the accumulated assets in the sheltered instruments will be used to pay off all loans, leaving her debt free. Also to lower EFC.</p>

<p>Questions:
1) Does the above set of assumptions make sense? Is this a common strategy?
2) How does FAFSA view real estate equity? </p>

<p>We have a substantial amount of real estate equity in rental properties we own, plus our primary residence. I had always planned, from the beginning, on just paying cash for college by selling a rental house or two if needed. When I complete a FAFSA calculator, excluding the equity in the rental properties, we come up at about $45K. Including the real estate equity for the rental results in an EFC $96K.</p>

<p>We have no plans to sell our real estate investments in order to achieve a lower EFC. I suppose they could be moved into IRA holding accounts, but I think that would have needed to happen years ago. We keep all other liquid assets at about one year living expenses, and buy more real estate when we have surplus funds.</p>

<p>Given these facts, is there any possible strategy that wold lower our EFC and if so, would it be the one being pitched (I'm doubtful) or something else?</p>

<p>Any comments or feedback will be appreciated.</p>

<p>Thanks</p>

2

<p>Please head over to the financial aid forum and read - everything you need to know is on there.</p>

<p>Be very leery of insurance products being pitched as a way to lower your EFC - this had red flags all over it. There is a thread on the financial aid forum specifically on ways to legally lower your EFC.</p>

<p>Do an EFC calculator - they are free - FAFSA has one - get an idea of your EFC now.</p>

<p>Read a legitimate college financial aid guide - I like “How to Pay for College” by Gen and Kelly Tanabe.</p>

3

<p>OP - You may be one of those RARE parents who’d benefit by hiring a college consultant. (Yeah I know … what’s a college consultant, where would I find one, and what would I ask the consultant to do? I rest my case.) Gaming the FA system is the least of your issues IMHO.</p>

4

<p>Be aware that most FAFSA only schools provide minimal financial assistance (federal and state grants, possibly small institutional grants, merit scholarships). Even cutting your FAFSA EFC to around $20,000 will not change the package (you won’t get a cent). </p>

<p>Profile schools (private colleges that use both FAFSA and Profile) often have better endowments and can award better financial aid packages – however, the Profile looks at alot more financial information and moving/selling/investing may not have the benefit you think it may have. </p>

<p>Like rockvillemom said – start spending hours reading the financial aid part of the forum. Focus on the difference in FAFSA and Profile and what a merit scholarship is.</p>

<p>I suspect that you are not going to find a legal and ethical way to avoid paying full freight for college – generally if you have the income and assets to be considering it, the school will evaluate your financial situation and expect you to do so.</p>

<p>However – since your stated goal in lowering the EFC and getting some Financial aid is to make certain your student is invested in his/her education, I think you can get alot of advice in that area. </p>

<p>All students, regardless of EFC, are eligible to take out stafford loans. These loans are not subsidized (they start accruing interest immediately) but do not have to be paid back until 6 months after the student leaves school. The limits change, but right now are $5500 for freshmen and sophomores, $6500 for juniors and $7500 for seniors. The loans are in the student’s name and require no co-signer. You could insist that your student take out the maximum amount of these loans and pay them off for him/her when the student graduates. </p>

<p>Campus employment is almost always available at college. Many parents do not provide money for “incidentals” and “personal expenses”. The student can either get a job on campus or do without. This is a great method for teaching budgeting and money management. My son is very stingy with his own money – but spends any money I give him freely.</p>

<p>Summer employment – many parents do not provide money for books, transportation, a car and the insurance/fuel/maintenance needed for that. You can tell your student that those expenses are up to them – they can work during the summer to earn them, or do without. </p>

<p>Between student loans, term employment and summer earnings, your student is well invested in their education – which I think was your goal, correct?</p>

<p>You can always be flexible – if you student has good grades and is doing well and has an opportunity for an unpaid internship in their field after sophomore year, you could supplement the earnings they are giving up, etc. Whatever works for your family.</p>

5

<p>I really doubt that with your assets you could finagle a way to get an EFC low enough to get any real aid. </p>

<p>Even if you could somehow get your EFC down to - say - $30k (unlikely), unless your child goes to a full need school with no or tiny loans, you’ll still likely pay full or near full freight. </p>

<p>And keep in mind, the types of schools that meet need, use CSS Profile, and with your assets, they’ll come up with a higher family contribution and expect you to pay.</p>

<p>We have rental property, too, so our EFC is too high even with 2 kids in college. We don’t even bother with a FAFSA/CSS because for us there is no point. </p>

<p>So, if you’re trying to cut your costs, you may try doing what we did. We looked for schools that would give big merit for our kids’ stats. We did that because we wanted to be able to help them with professional school/grad school. We know that as long as they go to a good school that they like for undergrad that that would work because it’s the graduate degree/med/law degree that will be the ones that count.</p>

<p>By getting good merit scholarships, that directly cuts your EFC when the scholarship exceeds “need” (in your case, there is no “need” so ever merit dollar cuts your costs).</p>

<p>So, if that’s your desire, consider that.</p>

6

<p>personally, my radar would be up. i guessing yours is too, or you probably wouldnt have posted. </p>

<p>Re: Stated rationale for moving assets instead of paying outright for the tuition:
Hold the student accountable such that if she doesn’t stay focused and complete school, she’s stuck with all the loans. If she does stay focused and graduates, the accumulated assets in the sheltered instruments will be used to pay off all loans, leaving her debt free. Also to lower EFC.</p>

<p>do you feel your daughter needs such a “stick” to stay focused and complete school? if not, no need to go down this path. if so, college loans are available regardless of whether you attempt to shelter assets in insurance products. </p>

<p>this sounds like someone trying to earn a commission. especially when the best rationale is to liquidate the products in 4 years.</p>

<p>bottom line, use online EFC calculators to run the numbers with/without the purchase of the insurance products to see if it really buys you all that much.</p>

7

<p>Also keep in mind that depending on what schools your daughter chooses, you may also need to fille out the PROFILE, whcih is a more detailed financial form that takes into account more things than the FAFSA, such as equity in your home, retirement savings, if the parents are divorced the PROFILE asks for financial information on both parents not just the one with primary custody, etc. It’s simple to determine whether the school will require PROFILE in addition to FAFSA, just look at their admissions website under financial aid. </p>

<p>I agree that you should be leery of any service that touts itself as teaching you the tricks to lower your EFC. You’d probably be better off saving whatever that will cost you and spending the savings on your kid’s education. Definitely head to your local bookstore or library and start looking over the wealth of resources there. And the Financial Aid forum here at CC, which is very helpful.</p>

8

<p>There is no way you will get aid if you have substantial equity in rental property. This company is only trying to sell you financial products which would be questionable in all cases, but a total waste of time in yours. Even FAFSA only schools count rental property.</p>

9

<p>*
I suspect that you are not going to find a legal and ethical way to avoid paying full freight for college – generally if you have the income and assets to be considering it, the school will evaluate your financial situation and expect you to do so.*</p>

<p>The legal and ethical way to avoid paying full freight is merit scholarships.</p>

<p>I would regret paying this guy one cent. He’s not going to do anything for you that you can’t learn from CC. And, at least on CC, no one is trying to make a buck off of you.</p>

10

<p>Thanks for all the responses. Pretty much confirms what I thought. </p>

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<p>No. That was what the service provider offered up as partial rationale for parking the money (to be removed from FASFA) until completion. She is a very focused, hard working kid, not perfect, but she’s a very good kid with decent (mostly A, some B) grades.</p>

<p>I’ll go look for the financial part of the forums and try to learn more, but it sounds like theses guys are trying to sell me a solution to an unsolvable problem, if “problem” is even the right word. </p>

<p>We actually always expected to pay full freight, and was thinking, after paying private school tuition all these years, that our expenses would even go down if she attended an in state public university. We weren’t looking for financial services, just guidance on prepping our kid to compete well in the admissions process at the better private colleges. </p>

<p>Thanks again for the feedback.</p>

11

<p>Let’s assume that you do get some form of financial, not merit aid. You will likely have to go through “verification.” I believe this process is mandated if you receive any federally subsidized grants or loans but in any event you’ll be required to submit your actual tax returns and W-2’s. You will also have to sign a disclosure document that states any assets - like rental equity - that you may have left off the Fafsa. So while there may be strategies to minimize EFC, you have to disclose and provide proof and lying subjects you to penalties under law because federal subsidy is at stake.</p>

12

<p>*We actually always expected to pay full freight, and was thinking, after paying private school tuition all these years, that our expenses would even go down if she attended an in state public university. We weren’t looking for financial services, just guidance on prepping our kid to compete well in the admissions process at the better private colleges. *</p>

<p>Most is going to depend on your D, not what some guidance person says. She’ll need the best grades and scores she can get. She needs to take the most challenging curriculum the school offers. But, even with the best stats, best essay, and best ECs, she can still get rejected from elite schools.</p>

<p>However, if her goal isn’t top elites, then she’ll have some wiggle room. If her goal is a private or public in the top 50-100, then the demands won’t be so difficult if she has strong stats.</p>

<p>What schools are you considering?</p>

13

<p>Silverado, most people are not in a category to get a whole lot of money by rearranging their assets. The ones who usually do have certain situations that are often addressed in financial aid forums. </p>

<p>FAFSA gives your family its Expected Family Contribution (EFC). However, that number in itself can mean nothing. If it is below a low threshhold, about $5000, your child is eligible for the PELL grant. The maximum Pell is for $5300, and that is with a 0 EFC. Very few middle class families will fall into this category, regardless of how they shift their assets without throwing in the towel completely. If your child is PELL eligible, other grants MIGHT also be awarded, depending on your school, your child’s major, your state. The other thing the EFC determines is eligibility for some subsidized loans. Again, the amounts are not a lot. Everyone can get a non subsidized loan.</p>

<p>A problem with the FAFSA is that few if any schools guarantee to meet the need calculated from it. The schools that tend to meet the largest % of their defined need, define it themselves with their own apps or PROFILE. Those schools also tend to cost a lot more money.</p>

<p>So what usually happens is that you can either go to a state school with little aid offered or a private school with a need package that brings the cost to close to the state school cost. That is what the usual middle income family faces. </p>

<p>So you read the way FAFSA calculates your EFC, do a few trial runs with on line calculators to see if moving some things around can make a difference, and do the same with some PROFILE calculators from schools that your child might like. That gives you some idea what you can expect to get. You read up on the rules so that you are not right on the border of some cut off that could make a difference in financial aid.</p>

<p>I’ve found that by picking colleges carefully with an eye for cost is the best way to have a good choice of price options. If your student has great stats, and you apply to schools where they are in demand, you get the benefit of some merit or merit within need money.</p>

14

<p>I’m not sure that there’s anything new here that’s going to save you a bundle, but I found this summary helpful:</p>

<p>[FinAid</a> | Financial Aid Applications | Maximizing Your Aid Eligibility](<a href=“Your Guide for College Financial Aid - Finaid”>Maximizing Your Aid Eligibility - Finaid)</p>

15

<p>[Federal</a> Student Aid - IFAP: iLibrary - EFC Formula Guide](<a href=“http://ifap.ed.gov/ifap/byAwardYear.jsp?type=efcformulaguide&awardyear=2010-2011]Federal”>http://ifap.ed.gov/ifap/byAwardYear.jsp?type=efcformulaguide&awardyear=2010-2011)</p>

<p>go to the above link, read the exact EFC formula for yourself adn run your numbers with your 2009 tax return info.</p>

<p>Then rerun it if you follow the suggestions and reallocate assets. Is your income too high for the allocation to matter? Are your assets already beneath the limits of FAFSA protection? Can you simply pay off a bit of your home loan principal with the excess asset values and be money ahead.</p>

<p>Very few families have both low enough income for FAFSA grant aid AND assets in excess of the protected amount (given that your home equity in your primary residence is protected) This is very different for CSS Profile schools.</p>

<p>The only way I can see you qualifying for aid is if your rentals qualify as a family business eligible to be excluded from FAFSA assets, but as I recall RE must include things such as maid/maintenance service to be eligible. If you have many apartments and provide services you may want to read up on this in order to determine if you do qualify for asset exclusion, but from what I have read few RE properties do.</p>

<p>Also, you hired a college positioning consultant, I would suggest that if you have time to spend on this board you will learn more and understand more about positioning than any consultant. I certainly did AFTER my first kid!</p>

16

<p>Just in case it helps:</p>

<p>I ran the FAFSA EFC calculator at [College</a> Calculators - savings calculators - college costs, loans](<a href=“College Board - SAT, AP, College Search and Admission Tools”>Calculate Your Cost – BigFuture | College Board) immediately after filing the FAFSA this year, and the result was exact to the dollar. I also ran the FAFSA EFC calculator at [FinAid</a>! Financial Aid, College Scholarships and Student Loans](<a href=“http://www.finaid.org%5DFinAid”>http://www.finaid.org) and had a result that was about 1000 higher. For our income and asset range this difference wasn’t significant. Your mileage, as the saying goes, may vary.</p>

17

<p>You have gotten good advice here. I would be leary of the “financial” finagling that is being suggested. You mention rental properties. Those properties will be a double whammy…the equity in those properties will be counted as an asset…and the rental income as income…on both the FAFSA and Profile. You don’t mention your incomes, but if your income is fairly high, the amount of your assets may not matter that much anyway. The FAFSA EFC is largely based on income.</p>

<p>I would be asking that college consultant to help you identify schools where your child might qualify for substantial merit aid (without a need component). Search here for the thread by momfromtexas who found very fine merit awards for her kiddos.</p>

18

<p>Don’t hire these people.</p>

<p>Think about your long-term financial picture, not the short term.</p>

<p>A lot of things can happen – your kid could end up attending a college with substantial merit aid, your kid could go to some other college and drop out, etc. Your kid will have “skin in the game” based on whatever expectations you as a parent set – if you want, you can essentially treat your financial support as a form of scholarship, in which you set out expectations as to GPA and course load for continued support. (I don’t think parents should insist on all A’s from their kids, but certainly its reasonable to tell your kid that you might withdraw support if they can’t manage to sustain a C average). </p>

<p>When I say to think of your long-term financial planning, it means: where will you be in 10 years? in 20 years? If the real estate is a good investment, producing good income - you should keep it, and mortgage rather than sell the properties to pay college costs – especially if market value on the property is depressed at the time your kid starts college. On the other hand, if the income to value ratio of a particular piece of real estate is not so good – or if real estate values climb again – then it might be a good time to sell. Depending on your income, you might also elect to borrow using a PLUS loan – you may find that that the income from one of your properties is more than enough to support a loan that will cover the full cost of college. </p>

<p>Your kid will probably be in college for 4 years. It would be a dumb move to liquidate a piece of property at a time when market values are depressed, to “shelter” it in an instrument that produces less income than the real property. </p>

<p>The rationale for this bad advice is essentially the same rationale that you would reject in any other circumstance – to make you eligible for some sort of benefit that is designed to aid people with substantially lower income and assets. I mean – I could quit working and live off my savings, and probably within a few months I would qualify for Medicare and food stamps. This would save me money from my grocery bill and also would be a substantial savings over the insurance premiums I now pay for individual insurance. But obviously that would be a dumb move. The reason I CHOOSE to pay cash at Safeway instead of using food stamps is that my quality of life is better overall when I earn too much money to qualify for food stamps. </p>

<p>So count your blessings. YOU don’t need to worry about planning for FAFSA because you have enough assets to allow you to fully fund your child wherever she chooses to attend college.</p>

<p>I know a lot about FAFSA because I’m a single parent with a much lower income than yours and fewer assets. My children qualify for financial aid. What does that mean? It means that each, in turn, had to turn down their top choice school in favor of a different school that admitted them and offered more aid. They were fortunate in that their financial-aid giving choices were also great colleges with excellent reputations… but your d. won’t have to make that choice.</p>

19

<p>Thanks again for all the comments. Yes, now knowing about these forums, I will be investing time here.</p>

<p>We are continuing with the student services offered since we already paid, but I’ve let the financial guy know I won’t be purchasing any life insurance or annuities. I actually think, though it’s still not clear, that the student positioning and college matching stuff is handled by a completely different outfit and that the financial guy sells that outsourced service as a lead in to sell the financial products.</p>

<p>I feel somewhat like a sucker, but I’ve made similar mistakes my entire life and still manage to recover. I won’t beat myself up. But I will start reading up on the good info contained in these forums.</p>

<p>Thanks again.</p>

20

<p>The one piece of good financial aid advice that WILL help with positioning is that if you have substantial amount of consumer debt, to pay that off. Consumer debt is bad in any case, and since the financial aid formulas consider assets and not debt, then paying off the debt is actually the best way to give them a more accurate picture of your net worth. </p>

<p>However… if you own income producing rental property, it is highly unlikely that you would qualify for much, if any, financial aid in any case. The combination of assets + income would probably push your income too high. (And as already noted, selling a piece of property below market or giving up a good income producing investment for the purpose of hiding assets from consideration is a really stupid move in any event.) One think that these advisors don’t tell you is simply that there is no guarantee of grant aid in any case. Just because a family has an EFC of, say, $15,000, doesn’t mean that the college their kid attends is going to meet it. Sometimes the net result of a reduced EFC is that your kid qualifies to take out more loans and work more hours at a campus work-study job. And sometimes a lower EFC simply means a bigger “gap” when all is said and done.</p>