<p>We will be in our early 60s when our only child (a junior next year) goes to college. We are not rich, and we lost a huge amount of money when we sold our home in another state last year to relocate . We are now renting a very small apartment in a very expensive area for the school district. We know we have to position our assets as best as possible by the end of 2013 for financial aid. We are considering 3 options:</p>
<ol>
<li><p>Buy a tiny fixer or small condo in our current area. Doing this would use all the remaining equity from our sale and necessitate a 350K-450K loan, which we could currently handle at these low interest rates but which would mean another move after (looming) retirement, to a cheaper area. We like this area, and it is convenient to work, but it is not where we would ideally retire (if we ever get to retire).</p></li>
<li><p>Buy something small and (relatively) inexpensive in a preferred retirement location. This would use all the remaining equity and might or might not necessitate a small loan. Our plan would probably be not to rent it out, but instead to use it as a "second" home (in addition to our current rental apartment) until our child finishes school. At that point, in the summer between high school and college, we would leave our rental in this area and move into the home. It would continue to be affordable during retirement.</p></li>
<li><p>Stay in our rental and put our remaining equity into a life insurance or annuity vehicle. We have read a lot about these and realize their complexities. We would need expert help in order to be able to make a good choice about one of these options.</p></li>
</ol>
<p>We are not your average people with a chunk of money--we have saved carefully all our lives and made many sacrifices for our child. We are getting old and were extremely badly hit during the housing crisis. We have run EFC calculations, but they vary a great deal depending on the school, and it's clear that if we leave our remaining equity in the bank, where it is now, we will get no financial aid. And our savings, except for retirement, will largely be wiped out. We will of course pursue merit scholarships for our child and weigh the various financial aid offers we eventually receive, but right now we need to decide on one of the above three options. We are leaning toward number 2 but haven't seen any discussions of this scenario before. We would appreciate any advice--thanks in advance.</p>
<p>Putting the money into a “second home” is just as bad as having it sitting in savings. It’s a big ole asset. The money needs to be in a primary home.</p>
<p>That said, be careful what you do. Most schools don’t meet need, so you may need some of that cash to pay for college.</p>
<p>*will of course pursue merit scholarships for our child and weigh the various financial aid offers we *</p>
<p>The best merit scholarships are from the SCHOOLS because those are usually for 4 years. Private scholarships are often small, only for one year, and require a need component. </p>
<p>Scholarships don’t get directly applied to EFC. They get applied to need first.</p>
<p>EFC is the number generated by FAFSA. So you will have one EFC per scenario, depending on what you do with your money. The FAFSA EFC does not include the primary home as an asset so that any money you put into that will not be counted as part of your assets whereas any non primary house/condo/real estate has to be reported as an asset less any mortgage/lien on it. </p>
<p>However, very few schools that tend to meet full need or are really generous with financial aid use FAFSA alone. Those schools tend to ask for the value of ALL real estate including primary homes. Some do cap the value at 1.2 or 2.4X income, some do not cap it all. But most of the time it will be included. So YMMV when it comes to having a paid off home. </p>
<p>What sort of schools are on your student’s list? Look at the likelihood of getting full need met from them. It might not make a whole lot of difference. If you rent out a place, keep in mind that the rental income is heavily hit–all financial aid formulas put a big load on income. </p>
<p>I’ve seen folks go through all sorts of financial contortions only to find out that the schools that are left on the list gap and don’t care what the need is. Or that whatever aid they might get from private schools with generous aid still puts them about what they would get from their state school.</p>
<p>In our school district they are flexible about letting you finish out the year at that school, even if you move out of district, especially if it is senior year. If the area you want to retire to is within commuting distance of the school, I would see if you could buy the cheap house there before you file the 2014 FAFSA and drive your kid to HS for the rest of the year. That way your new primary home will be affordable and invisible to FAFSA. It doesn’t sound like you have enough savings to bother with annuities and life insurance, let alone 2nd houses which will have high upfront costs and not be very liquid.</p>
<p>@mom2collegekids: Thanks–I was hoping that they might consider it the “primary” home, since the rental we live in isn’t something we own, and the home in another area would be the only piece of property we own.</p>
<p>@cptofthehouse: Thanks, and that’s something we’ve worried about too–that we’d make a decision that wouldn’t be one we’d normally make at this point, mostly (though not entirely–interest rates are very low still) because we’re trying to avoid having most of our remaining nonretirement money go straight to college tuition at this stage in our lives–and then discover that doing so made no difference, or negligible difference, anyway. The schools will be top-tier schools, and I would guess that the odds of receiving merit aid at any schools that offered it would be high. From the EFC estimates, in most cases a top-tier private school will actually cost us less than our state’s public university.</p>
<p>@woodswoman: Thanks–unfortunately, though, next year will be the junior year, so we have to have everything in place by the end of this year. The main alternative place we’re considering isn’t within commuting distance of this high school, though another possible place is (very tough commute, though–1 1/2 hours each way, in good traffic).</p>
<p>A fourth option we’ve thought about but would really prefer not to have to do would be to move to the preferred location now and have our child switch schools for the last two years. Not impossible, but disruptive at this point. It would mean making new friends, getting to know new teachers (hopefully well enough for college recs), etc.–a big adjustment at a critical time.</p>
<p>“We have run EFC calculations, but they vary a great deal depending on the school, and it’s clear that if we leave our remaining equity in the bank, where it is now, we will get no financial aid. And our savings, except for retirement, will largely be wiped out.”</p>
<p>Here is your central fallacy: You are looking at a certain list of schools, rather than determining what is realistically affordable for your family first. Sit down. Make that college budget. Get clear on what you can afford. Then, and only then, start looking at the colleges and universities. Start with the dead-on financial and admissions safeties and build your list upward. By starting at the top with the “dream college list” you have set yourselves up for the gut-wrenching list of options that you are examining at present.</p>
<p>@mom2collegekids: Thanks–I was hoping that they might consider it the “primary” home, since the rental we live in isn’t something we own, and the home in another area would be the only piece of property we own.</p>
<p>I’m not sure that it works that way. I don’t think the rule is that you can own one home, not live in it, and count it as the primary home on FAFSA. Hopefully kelsmom or someone will weigh in on this.</p>
<p>Top tier schools don’t give merit or give very few awards to a few tippytop desirable students.</p>
<p>Top tier schools use CSS Profile and many of them consider equity in primary homes as well.</p>
<p>I agree with Happymom… First find a couple of financial/acceptance safeties FIRST. These are schools that you know you can afford because of ASSURED merit/grants and/or family funds.</p>
<p>@happymomof1 and @mom2collegekids: Thanks–good ideas. It’s sort of sounding like we’re just stuck–and that the best option might be to put the money in some sort of life insurance or annuity vehicle (though I’ve read that some of those may be considered by colleges as well…).</p>
<p>If your child is a jr 2013-2014, your assets don’t need to be set until late Fall 2014. That is the earliest the CSS profiles would be due for Fall 2015 admission. For FAFSA it would be assets on whatever day you file in Jan 2015. Assets differ from income that way.</p>
<p>@woodswoman Interesting–we’ve read that everything needs to be in place by December of the junior year, because colleges look at the tax return from the preceding year (so, in our case, with a 2015 graduation, the tax return in question would be for 2014). If we buy a house in 2014, wouldn’t that show up somewhere? In the EFC calculators, they always ask when you bought your house, if you own one. But it sounds like you’re saying only income from 2014 would be a problem, not buying a house then. That would give us more time and might make possible your idea of moving during the senior year but continuing to attend the current school (commuting).</p>
<p>You are exactly right that with a 2015 graduation, the 2014 year will be looked at, but there would be no “penalty” with FAFSA for buying a house anytime before you file FAFSA. For profile schools, they may count primary home equity however they want, but they are not going to say Ha, you bought a house in 2014 so we will give you less aid than someone in a comparable position who bought a house in 2013.</p>
<p>@woodswoman Thanks for clarifying this! It’s definitely food for thought.</p>
<p>Just exactly how much money is it that you have sitting in your “house fund”?</p>
<p>Both the FAFSA and CSS Profile are effected primarily by your income. With the FAFSA there is an allowance for assets that depends on the age of the oldest parent. Assets over that are assessed at 5.6% so unless your house fund is absolutely ginormous, it may not affect your FAFSA EFC much at all. Print out the current formula and work through it on paper to see what your numbers come to with different scenarios: <a href=“http://ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/091312EFCFormulaGuide1314.pdf</a></p>
<p>The hard cold truth is that most colleges and universities do not meet need. Stashing your money away in an annuity may hide it from the financial aid process, but then tie it up in such a way as to prevent access to funds that you find that you do want to use to help pay for your kid’s education. Which of course is why I recommend that you determine what you can and will pay, and that you have your child identify places that fit within that budget right from the get-go.</p>
<p>Is this for the same son that you were scouting prep schools for in 2007?
If he didnt go to private school, were you able to add to his college fund at all, and whose name is it in?</p>
<p>1. Buy a tiny fixer or small condo in our current area. Doing this would use all the remaining equity from our sale and necessitate a 350K-450K loan, which we could currently handle at these low interest rates but which would mean another move after (looming) retirement, to a cheaper area. We like this area, and it is convenient to work, but it is not where we would ideally retire (if we ever get to retire).</p>
<p>I’m confused what area you are in.
It sounded like you were interested in private schools both on the west & east coasts?
Did you relocate to be closer to the private day school?</p>
<p>I’m also unclear at how much equity you had from your previous home & why if you were looking at retirement, that you would even consider taking out a loan of “$350,000 to $450,000”?
That sounds foolish.</p>
<p>As I understand it, the questions about annuities and other retirement assets are only to understand your family’s general financial picture, a sort of soft info. (There’s a line somewhere about this, maybe in the Profile instructions.) </p>
<p>Annuities, in my limited experience: initially, before the money grows much, your value and your investment are close to equal. As I understand it (not an expert, but going through a situation where we may do this with one started a few years ago,) after 59.5, there is not a penalty for withdrawals. There can be tax implications on the growth portion, as you withdraw. But our policy is not long-term locked in. (There’s a point at which it’s better to hold the account, but you are close to retirement.)</p>
<p>It’s worth it to run various scenarios through that itap formula, get an idea what the feds think, then look for colleges that would work best for you. I don’t know that I’d put everything into a new home- as said, some schools may see that as tappable equity, even if the market value drops. Most advice is to hold a mortgage, reducing equity. But, with your prior experience losing value on a home, working with a 300k+ mortgage sounds risky.</p>
<p>@happymomof1: Thanks very much for the link–that helps. And thanks, too, for the warning about colleges not meeting 100% of need. We’re prepared to pay whatever it takes, but we’d rather not set ourselves up to pay more than we need to by our investments now. And if one great school ends up awarding a lot more aid than another (as happened this year with the kid of a friend–a $30K difference per year!), we’d definitely be inclined to take that offer, especially nowadays when where you go to school (within a particular tier of schools) doesn’t seem to make nearly as much of a difference as it did back in the day.</p>
<p>@emeraldkity4: Same one, and we’ve saved plenty, despite the housing market crash (which wiped out more than enough to send a kid to any college). As for taking out a loan, it would be temporary–we would sell after our kid is done with college and move somewhere cheaper. College graduation will happen very close to retirement age.</p>
<p>@lookingforward: Thanks–I’m thinking we should probably talk with a (fee-only) financial planner at this point. As for the previous loss, if the housing market hadn’t crashed, based on market trends in that area, we would have made a small profit when selling, even after a relatively short period of time.</p>
<p>All this has been very helpful–thanks everyone. We will definitely proceed with caution–and look into professional advice!</p>
<p>The impact of the tax return would be significant if you were selling a home that was not your primary residence, because you could be facing a capital gain. However, there are exclusions on the sale of a primary residence, and you have already sold anyway. The purchase of a home is in no way going to influence your income (except to the extent that the down payment will no longer be in an account that might or might not earn any interest.</p>
<p>Thus, for FAFSA purposes, you need to close on hour new home before you file the FAFSA (and CSS profile if you need to do so). Without CSS Profile, that gives you a date in the middle of Senior year. If your plan is to move following graduation, that may be workable. Would it be to purchase such a home, and have one of you move in before the FAFSA filing deadline, making it the primary home for at least one of you? Does your job situation make something like that workable?</p>
<p>If you’re talking about CSS Profile schools, if they give preferential treatment to home equity (policy is different at each school, you would need to do research), you would want to purchase before filing Profile, which means you would need to consider whether there would be any Early applications (ED or EA), where it would be filed sometime in November or early December.</p>
<p>Ultimately parental assets are hit at about 5%, so if you waited until after filing the FAFSA during Senior year, and purchased your retirement home that summer, you would “lose” 5% of your savings to EFC, which may set you back a bit, but is not a huge bite - and it could be protected the following years.</p>
<p>I would say buying a house with the plan to sell is a bad idea. Even if a loan would only be for the short term, you have the cost of selling that house. You would offset the reduced EFC (5% of your assets per year), but the commissions you would have to pay to sell the house (4-5% of the total price of the house). Doesn’t sound like any savings to me, and you risk another dip in the housing market, with an even bigger loss.</p>
<p>And you can’t predict the housing market. Or the conditions that support it. Owning for just a few years is generally riskiest, without some substantial change around you- you renovate, the inventory goes down, nothing distracts buyers. </p>
<p>But, perhaps not a full payout, if you buy the retirement place. Not to have total equity, which “can” be seen as an asset and as a discretionary use of the funds.</p>