My family owns 3 rental properties (apartment, house, and duplex) rented out full time to long term tenants (not vacation properties). they are only occupied by the tenants and my dad hires people for snow removal, leaf blowing, cutting grass, etc. Also important to mention that 2 of these properties are not within the united states so they are not on US tax returns but rather on Irish and EU taxes. Because of the value of the property itself we don’t get any financial aid using the net price calculator or fafsa 4caster. We can’t afford college paying the full price because we don’t actually have that much money as suggested by the property values. Rather the money is in the properties themselves and they are income generators and not disposable. We know that small businesses are excluded from fafsa but if they are considered assets that pretty much guarantees huge loans for me because we don’t qualify for the money we need. Does anyone have any knowledge on this and can explain it in understandable terms what to do as the family of a rising senior (class of 2020).
Talk with a lawyer about putting the property in a trust. There might be a way there that it won’t qualify as an asset. I stress the word “might” before another poster blasts me.
It doesn’t matter if those rental properties are on the Moon. The equity in those properties will be counted as an asset on the financial aid application forms.
Are the rentals currently structured as a business? It might matter how this is done. @BelknapPoint are you familiar with this?
You are suggesting that colleges should provide you with need based aid so that your family can continue to own rental properties…and that just isn’t how need based financial aid is determined.
I have a close friend whose livelihood involves a number of such rental units. They are also his main retirement nest egg. They were a huge obstacle in getting any financial aid for college for his kids. His one child went to Harvard and as generous as they are with financial aid, and as individual as they are in assessing various situations, their response was that he could sell and pay for college. No breaks
Neither did a state university that uses FAFSA only give any breaks. He was deemed full pay.
You can talk to an attorneys and financial advisors about this, but when you do, make sure they have a thorough understanding of FAFSA and CSS PROFILE. Sadly, a large number of them do not.
If you are starting college in 2020, your 2018 income will be used…so any rental income generated during that tax year will be included as income. I don’t think you can retroactively make these a business…and 2018 ended.
if the deed to the properties was a business name rather than an individuals name would that have any affect? I would have to check to see what name they are under and if they had to be changed they most likely wouldn’t be changed for me but could be for my younger sister (3 years younger).
I don’t know how this would affect your aid if this was structured as a business.
But I want to add…MOST colleges do not meet full financial need for all accepted students anyway.
The generous colleges that DO meet full need for all accepted students WILL ask for any business assets your parents or you have…because they use the CSS Profile or their own form. Keep in mind also, that there are deductions allowed for IRS tax purposes for businesses that are added back in as income for financial aid purposes.
i feel screwed…
From your other post, you most likely won’t be going to Harvard or Yale or another school that meets full need. If you go to a public school or a private that doesn’t meet full need, you probably wouldn’t be getting a lot of financial aid based on just income anyway (you said you were middle income with a $40k EFC). It’s unlikely these assets and the income from them is what is keeping you from getting need based financial aid.
Feel lucky that your family has enough money coming in to support you, and has a good base for retirement.
Your parents own assets that other people with like incomes may not own. So they do have more than those people. Assets are assessed at far far lower % than income
The bottom line is that a lot of students looking to go to college do not have family who are willing or able to pay what the formulas say they have to pay before getting financial aid. Even if most of these students qualified, they are not going to get the full amount anyways. Hardly any schools meet full need as based on the FAFSA and private schools tend to have far more stringent financial requirements to get need based aid.
It is no different than high school in that you get to go to your local public high school for whatever for what your family pays in state and local taxes. Private school, other districts, you have to pay tuition unless you get some scholarship, financial aid or rare exception. Boarding school, you have to pay room and board as well as tuition if private. Why do you suddenly think it’s different for college?
Starbucks, Walmart, some such places are offering to pay college, sometimes online schools for employees. If you live in MA, likely, a community college within commuting range. Those are the choices along with getting tuition down low enough so you can maybe afford room and board
If the business is set up as an LLC you might have a loophole there. However, all profits will count toward your parent’s income for the coming year. Your family might be able to make some changes for future FASFA forms.
As for the “why” of it… If a family had a half million dollars and decided that rather than paying for college, they would invest it in real estate and then say their investment was illiquid so they should get aid, it’d be easy to see what was objectionable about that. The facts here are th ed same but without the intention. Borrowing against the property is one way to generate cash if there’s no interest in selling.
But yes, this is wealth ev ed n if it’s not liquid.
You wrote this.
Since your projected FAFSA EFC is $40,000, you already know that your instate public colleges will be full pay UNLESS you get a merit award. The schools are not going to ignore your parent assets, or rental income. Your parents have these things…and probably your family has benefited from the extra income they have generated…and eventually could benefit from the built up equity if they sell them.
Your issue is that for merit aid, you need to look at colleges that guarantee awards with your ACT and SAT scores as they are…or if they improve…using those.
Also, while you talk extensively about these rental properties, and how you won’t receive need based aid because of them…I’m not convinced that is true. Remember…MOST colleges do not guarantee to meet full need for all anyway…so your need wouldn’t be met regardless of whether you own these properties or not.
You say your parents incomes place them in the middle class but that is a meaningless statement. What exactly do you mean? What IS their annual gross income without considering the rental properties?
" 2 of these properties are not within the united states so they are not on US tax returns "
(LOL)
Your family are international multiple property owners, your parents’ taxes are not straightforward, do you parents even want the scrutiny of FAFSA and CSS? Have you actually sat down and discussed what this entails with them, or are you spit balling?
The facts presented by OP are salient and are typical of many students. For whatever reason the family EFC and NPCs come up to an amount family cannot or will not pay. In this case, the estimated FAFSA EFC is $40k. The student has done due diligence in discussing college budget and the cost that is affordable is $20k
Some important facts here are that the $40k is the FAFSA EFC, which usually means that is the very Least that a school is going to expect the family to pay. Hardly any schools guaranteed to meet that figure. Very few schools actually meet that number. The schools that tend to guarantee to meet need use far more draconian methods to extract what is usually a much higher Expected contribution from them
So, in such a scenario, a student needs to find schools that cost under $20k. Right now, that is where things are. With the current ACT score, it is highly unlikely a school will give sufficient merit money to bring bring the total cost down to $20k. Usually merit replaces any need based grants or the need is calculated with any institutional merit bringing down the beef figures so , it’s not a simple matter of getting a scholarship on top of the financial aid. It’s pretty much integrated though usually the subsidized interest and work study gets replaced first. You really never know exactly what is happening in that financial aid office when they are integrating merit with need.
The cleanest solution here is to find lists of schools that have some merit money that can pretty much cover tuition. Then it’s a matter of the family picking up room and board, and non direct billed expenses. .
For that first school, the one that OP knows will accept him and is affordable is likely to be a community college.
MA has good, inexpensive schools, so OP is likely to have choices. Looking for a half tuition or $5 k scholarship to bring the tuition cost down to $5k max. Bridgewater university in MA, has a sticker price of about $10k Living on campus comes to about $15k. So if $5k of merit money is found here, it is possible for the student to make this happen. Other MA state schools are comparable in price. OP needs to work on getting merit money from them if he wants to go away to school
The bar will be much higher for most out of state schools and private colleges. Would need a larger scholarship. Enough to cover all but $5k of tuition. With a higher test score, chances do increase in finding possibilities.
I’m in the same situation here for a Cousin, but the state where he lives doesn’t have inexpensive state school options. So it’s community college for him unless he gets a sizeable merit award. Or he can commute maybe to Flagship U which is pretty long distance and he’ll need a car. I also believe a smaller school would be a better match for him. This is a situation that arises a lot for many kids.
Are your parents U.S. citizens? Why isn’t the income from the U.K. and/or Ireland rental properties included on your parents’ U.S. tax returns?
U.S. citizens are taxed on worldwide income.
According to the IRS, not reporting income from foreign sources may be a crime.
Here is the simple truth: nationwide, many, many students in your situation start at their local CCs then transfer to in-state public universities. My own kid did. Our EFC was not affordable. What we saved with those two years at CC helped pay for the last two at the state U.
Would you consider studying in one of the other countries where your family owns property? Would that be more affordable for you?
it is on the US taxes! don’t worry! not committing fraud, but it’s also in another country which any time i’ve asked my dad about it he’s labeled it simply “complicated.” he does taxes there too which is what i mean. and for going to college in ireland, even with citizenship, i would be forced to pay the international fees and with housing and everything which is about $40,000
It’s complicated? How so? The equity in the rental properties is an asset on the FAFSA…they could be located on the moon. It doesn’t matter.
IF the rental properties are a family business and the primary job/income of the family then they are excluded from the FAFSA (yes, I know this for a fact as we were in that situation). It is an extension of the original exclusion of family farms from the asset calculation. The idea behind it being, if the family business is the main source of income then taking away the source of income by making a family sell or take loans against it is counter productive. In other words, if you own a dry cleaning business but are forced to mortgage against it to pay for college then your income would decrease (since you need to repay the loan), you might just lose that business and with the increased expenditures (due to loan repayment), the FAFSA calculation would change anyway.
http://www.finaid.org/fafsa/smallbusiness.phtml
The rentals can’t just be a sideline, they have to be structured as a business entity and the family must actively be engaged in their management. Having one or two rental homes titled in the name of individuals (vs LLC, LLP S/C-corps) probably won’t fly - especially if your tax returns show other 1099 or W2 income as your primary source of family support.
Families with this type of business also income shift/balance. If possible you can carry forward losses in one year and take a higher income then apply the losses the following year to dramatically drop income. This way two years of a four year college would qualify for higher ‘need’. The family farm might be worth big bucks due to the land, but if the income sucks that family might even get Pell grants. Yes, I’ve seen it happen.
This only works for FAFSA schools. CSS-Profile schools on the other hand might want to know the number of gold fillings in a family since - technically - the gold could be pulled and sold. Yes, sarcasm, but the Profile will look at many more areas.
But, you would need to know the intimate details of your family’s financial structure and then get the appropriate advice.