<p>That’s also something I never understood. Why someone thinks another family making a much lower income is “lucky” to get financial aid and they themselves are “screwed.” But that has been hashed out on CC for years and not the topic. </p>
<p>OP, obvious, the advice of most posters is not to spend your liquid cash on your wife’s business as it probably won’t be helpful for financial aid with generous schools. For those less generous FASFA only schools, it may reduce EFC by a little, but you’ll need the money. Also, what will happen, god forbid, if the business “goes under.” There are certainly many scenarios in which that can happen and you will have no emergency fund. </p>
<p>You are much better off to re-invest some of the profits of the business into infrastructure or personnel. But, it is foolish IMO to do it with your own money unless you have it to spare. But, your wife can take a portion of her salary and reinvest that into the business. For example, at the end of the year I look at profits and give a large portion of that to yearly bonuses for the staff and buy equipment that we want/need.</p>
<p>Some of the CTCL schools are very generous with merit and need-based aid, and some are also FAFSA only. Denison comes to mind - need blind, generous and FAFSA only.</p>
<p>My S has been offered near-full FA (including $5500-7K in gov’t loans) to 3 schools that “do not meet 100% of need”. One showed up on a list of colleges that do meet need and we looked at it for that reason, never having heard of it before - Adrian College. In the end they gave my B-student S the best package of all - full need met. FAFSA only. It’s been my experience that there are many good colleges out there looking for even B students and willing to help them afford to be there. Hang around and do some research here.</p>
<p>DePauw gave S a pretty nice but not full need package. They do not require Profile, will accept their much shorter proprietary form. </p>
<p>As far as privates getting a break in-state, Ohio schools that accepted S have all applied some kind of state grant to their FA package. Not sure if that comes from the state or the school but it has its own line on the FA letter. Perhaps IN has something similar.</p>
<p>That said, we are a low income family and having the asset issues OP describes would be a blessing to us.</p>
<p>I doubt the kind of strategies OP is talking about will do much. Personally I’d focus on schools that will want D for her stats and offer merit. You may qualify for some FA too but merit can be quite a lot if the school list is right.</p>
<p>A good (legal) way to reduce cash assets for S/D is to transfer savings to a sibling or other trusted family member not a parent. This could be a loan, or a gift, which doesn’t show up in the FAFSA on Student’s asset calculation. Just sayin’.</p>
<p>I think the issue with the OP is reducing income appearance, not assets. The income from the business is going to show up as income from the business even IF it is gifted to the sibling. This will not reduce the amount available to the family in most financial aid formulas…it WOULD reduce assets in the student/parent name.</p>
<p>The family contribution is heavily weighted using income. Assets are a much smaller assessment (unless of course you have a very large amount in assets relative to your income).</p>
<p>There is a limit on gift amounts, and even at the max from both parents $24K per year)…the asset reduction would only net $1300 or so in family contribution savings.</p>
<p>I really do suggest that this family find an online financial aid calculator and run the numbers using all the various scenerios. They may find that they are doing these financial gymnastics for very little gain. </p>
<p>In addition…this is a FOUR year issue, and whatever “solution” they find needs to be looked at for the four year long term. Are they prepared to “gift” money to someone for all four years? Are they prepared to reduce their business income for all four years?</p>
<p>I ran the EFC estimation workshop: dependent students (short form)</p>
<p>W/o any changes in the way we report our finances, our EFC starts out @ 30K. If I reduce my assets this year by 40-50K the EFC drops to 27K. If our income drops by 40-45K as well, our EFC is drops to 8.6K on this form. This assumes I pay all the home expenses which my wife shared in from her business draw (profit distribution). This was what I meant by her needing to draw less from her business. I was wrong about paying business expenses. That money is used to pay her share of our living expenses. Her business doesn’t generate much profit, but finances our bills. As most of you have stated, this will not work. AFAIC I might just do this, which in essence is me paying more of our bills. As I said, I’m retired. I have access to my 401K and it will be mandatory to draw down in a couple of years. It won’t change our finances to do this. And, yes we will research all the ideas generated here. If she kicks me out after I pay all her bills (would you?) I can come live with you good folks. By the way, we’ve been together since 1979. She’s a babe…I’m not…</p>
<p>It makes more sense to me that you will be using assets to pay living expenses, not business expenses. You mentioned previously that it’s a small amount of money. To me, 40-50K is a lot! Especially if this is something you’re planning to do over 4 years. Is your wife not planning on taking an income over 4 years? Remember, in addition to the fact that retained earnings will flow through to personal taxes (divided by the shareholders if she is in a partnership) she’ll have to pay taxes on the retained earnings. It is really hard to pay taxes on income you never received. If she is the sole owner, that’s about 19K in taxes which is ironically how much you’re calculating that your EFC is reduced by. Now you will have to take on loans to pay taxes in addition to college as an overwhelming number of FASFA only schools will not cover the difference between cost and EFC. There is really no free lunch in this.</p>
<p>She pays herself a W-2 income which is subjected to FICA. The draw is not and pays the rest of her living expenses. I’m not sure where I said 40K was a little money. At least not to me. BTW, my dog just killed the Easter bunny, or the rabbits first born (Passover), depending on your belief system. My daughters were upset and disposed of the l’il corpse. I, on the other hand, believe you should eat what you kill.</p>
<p>I do NOT understand why people set out to earn less just to “get more” FA. That is just so odd thinking. I can understand students working hard to get the best grades and best test scores so that they can either get into the schools that give the best aid or merit, but to set out to earn less is just weird to me. </p>
<p>But, maybe I’m the only one who thinks that way???</p>
<p>Love the story about the bunny - in my childhood home it was the cat who did the killing and of course the eating.</p>
<p>Do google around to check what happens when you take money from those 401k and IRA accounts. I seem to recall seeing a thread here (or was it in the Parents Forum???) a couple of months ago on just that issue. The poster was commenting that FAFSA viewed these withdrawals as regular income. In other words, XXk withdrawn to cover living expenses would be considered equivalent to earning XXk from a job.</p>
It might make sense <em>if</em> you were guaranteed to get extra free money in FA if your income was lower, because by the time you factor in fed, state, FICA taxes and the 47% you are “taxed” on the income by FAFSA plus the 5.6% you are assessed on the part you save, you are taking home 20 cents on the dollar. And it’s worse if you are self-employed. </p>
<p>Why knock yourself out for such a small return?</p>
<p>Since you are extremely unlikely to get enough free money in FA to make up for the lost income, it is something of a fool’s choice. In rare cases it might pay off.</p>
<p>The expense/ value of these college educations is coming under increasing scrutiny. The less well off get FA. The wealthy don’t need it. The middle class gets socked. Striving to get the most financial aid legally is a worthy goal. Read PFCWOGB. The formulas for this aid is more stringent than the IRA. Fight back!!</p>
<p>Not much. The max Pell (which is what a very large chunk of low-income kids get at most) is 5500. At my in-state public U, that is about 1/5 of the COA. Not much.</p>
<p>OP, I have to admit, I’m confused about how taking out money for living expenses vs taking a salary is different and that leads to no retained earnings. Therefore, I have no idea how your wife’s business works and must be horribly naive. </p>
<p>Personally, I think your financial maneuvers may keep college costs down some but will hurt you financially in the long run. Financial aid administrators also read PFCWOGB. Even if the school is FASFA only, they may ask for the Business/Farm supplement.</p>
<p>@findingZzero Well said! And from a New Member too. Each kid/parent needs to legally fight for every penny of grant/scholarship aid they can get. Asset shifting, income reduction, tax minimization, all are are worthy goals for every American. It’s just plain good Financial Planning. </p>
<p>Elite Privates are awash in cash. Stanford has an endowment so large that they could give everybody who gets accepted a full ride and have Billions left over. So large that the IRS has an office on campus auditing their books looking for reasons to deny them their non-profit status. </p>
<p>And, don’t think that Grant Aid is real money. It’s not. It’s just less tuition the institution receives. Financial aid is NOT a zero sum game. Many high count posters on this board seem to think that the money my kids get is money some unfortunate low-income kid doesn’t get. Wrong.</p>
<p>Grant money is REAL money. Pell grants are REAL money given to institutions. The schools don’t just charge less. :rolleyes:</p>
<p>If a student is eligible for a $5500 Pell Grant and he goes to a school that charges $5,550 in tuition, the school isn’t just canceling the tuition. The school is given $5500 in money from the gov’t.</p>
<p>Same with Cal Grants and other state and federal aid.</p>
<p>*Quote:
I do NOT understand why people set out to earn less just to “get more” FA.</p>
<hr>
<p>It might make sense <em>if</em> you were guaranteed to get extra free money in FA if your income was lower, because by the time you factor in fed, state, FICA taxes and the 47% you are “taxed” on the income by FAFSA plus the 5.6% you are assessed on the part you save, you are taking home 20 cents on the dollar. And it’s worse if you are self-employed. </p>
<p>Why knock yourself out for such a small return?</p>
<p>Since you are extremely unlikely to get enough free money in FA to make up for the lost income, it is something of a fool’s choice. In rare cases it might pay off.
*</p>
<p>I could see that IF your child will be going to a generous full need school and the second income that you’re foregoing won’t later hold back the family financially.</p>
<p>But, a mom told me on Friday that she knows of two dads that have quit their jobs “in hope” of getting more FA money. If the dads were the primary income earners (which may not be so), then quitting their jobs for the 4-8 years that they have kids in college could certainly be a career impediment later if they attempt to re-enter the job market. They’ll likely be in their 50s, which isn’t the time to be “returning to the work force” these days after a long period of unemployment. They’ll have lost those years of having incomes contributing towards their retirement. </p>
<p>And, what if their kids don’t get into full need schools?</p>
<p>So, for the taxpayer supported grants like Cal Grants and Pell Grants, the money comes from the taxpayer and passes through the kid right into the coffers of the privates that charge massive tuition. The kid never sees the money. The institution gets the taxpayer’s money. Lovely.</p>
<p>However for institutional grants the award is simply a tuition reduction. This is not, I repeat, real money. </p>
<p>As @findingZzero said, it’s all about expense / value. Colleges (private) simply need to reduce the expense. They can do that by awarding “grants” against tuition that cost them absolutely nothing.</p>
<p>Re asset reduction. EFC calculations for a Student Contribution from Assets is a whopping 20%. So, if your kid has any sizable savings in Trusts or other cash accounts, it’s wise to make that number as small as possible, like moving it to a sibling or unrelated party (not parent). Do this before December of the year before the FAFSA is filed.</p>