I have several questions about how 2 specific things will affect my children’s ability to receive the most financial aid possible.
- I own 1/3 of the home my parents live in. It's worth about $350,000 and totally paid off. Will this affect my kids' ability to receive financial aid in any form?
- I realize that if a parent owns a 529 account up to 5.6% of the value is included in EFC as a parent asset. If grandparents own the account, none of the value is included. This sounds great, and at first I was about to transfer everything into my parents' name, however, then I read that any distributions from that account would count as student income with respect to filing for financial aid the following year. Would it be advantageous to set aside some money in a 529 account in the grandparents name and only take 1 distribution from it to help pay for the last year of college? This way, taking the distribution will never count as student income when applying for financial aid.
Any help with these questions will be appreciated.
You have a $117,000 asset. That will definitely have an effect on your EFC numbers. How do things stand otherwise? (income, etc.)
The financial gymnastics may not result in increased need-based aid. What is your AGI? What is the total balance of all kids’ 529 plans? What other non-retirement, non-main home equity assets do you have? What schools are under consideration?
Need based financial aid is primarily determined by parent income…and then assets. If your parent income is high enough, it might not make any difference what you otherwise do. You might not qualify for need based aid anyway.
Also,the very vast majority of colleges do NOT meet full financial need anyway. So all of this might not matter at all in terms of netting need based aid at most schools.
Your $117,000 real estate asset would put you out of the running for federally funded need based aid…unless you are VERY low income and meet some other criteria (whereby assets are not counted).
I am hoping someone else will clarify but I don’t think 529 distributions count as income if they are used to pay qualified educational expenses for college.
Right now I am just in the planning stages, my son and daughter are both several years away from college, however, I would like to be prepared and take any action that needs to be done sooner rather than later.
At the moment our AGI is $138K with about 40K in savings. And apparently I have $117K in real estate assets because I own 1/3 of the house where my parents live. All 529 plans together are about $108K.
I realize that neither of my kids will qualify for any aid their first 2 years of college because of the balance in the 529 plans, most likely. However, after that money is gone, will they qualify for aid after that?
What about getting rid of the real estate asset? How will that effect their ability to get aid?
Getting rid of it? And also getting rid of the $117k proceeds by donating it? What is the point of that?
529 are considered the assets of the owner (typically parents). Together with the other assets, you have $265k. The amount in 529 alone would not block your kids off from aid as they are not the owner and the money does not directly associate to them. One way or the other, after you use part of assets for whatever purpose, your EFC will be lower slightly. Nevertheless, it seems you are looking at an EFC ~$50k.
By getting rid of it, I meant putting it in someone else’s name, maybe my sister’s and just signing it back over to my parents. That way it will lower the assets that I have and my kids can qualify for more aid.
What does an EFC of $50K mean?
So then you’d need to file a gift tax return. Presumably it’s a sham transaction since you would arrange in advance to have it gifted back to you after your kids graduate?
EFC = Expected Family ContrIbution
How many kids and what years do they start college?
Okay, for your ‘regular’ college that doesn’t meet full financial need, it is unlikely you’ll get any need based aid with any one of those figures - income of $140k, assets of over $100k (1/3 of the home, any savings accounts? ) 529 account of over $100k? Just assuming the school uses the same method as Federal (FAFSA), you’ll qualify for loans and little else.
At some of the more elite schools, if you just had your income and the 529 accounts, you might get some money in institutional aid. If the school costs $70k, maybe you’ll get $10-20k? Is that going to be enough for you to afford those schools?
There is a big difference between trying to position yourself for the ‘most’ financial aid if you make about $50k per year and just need to rearrange things to get the need based aid you need and deserve, and trying to move all assets to appear low enough to get aid. Yes, if you really don’t own 1/3 of the house but your parents are just transferring it so that it can pass upon death more easily, it would be smart not to have that asset as yours in name only. However, it looks like you are solidly in the ‘we make too much for need based aid but not enough to write a check for $60k/per kid/per year’ with or without the 1/3 house.
If your kids don’t overlap in college years, you could move the 529 for the younger one to the grandparents, and it then wouldn’t be considered an asset while the older one is in college. I don’t think in the long run it will help all that much because you’ll still have the same income and 1/2 the 529 accounts (older child’s).
What to do? Focus on merit aid schools or specialty scholarships (military, athletic, science). Choose schools wisely based on their price. Find some hidden gems.
An EFC of $50,000 means that is what the college will,expect you to pay…at least. To be honest, with an EFC of that amount, you would not get need based aid at any college in a significant amount.
If your income is $138,000, your FAFSA EFC will be roughly $35,000-$62,000 a year. Based on salary alone. That doesn’t include your assets.
Add to that…there is NO WAY for anyone here to predict your need based aid for two years from now at a college to be determined. Policies change, formulas change, etc. Your income could rise. The school’s might NOT be ones where full need is met. The parent asset protection allowance could continue to go down. All bets are off. Any EFC you are getting now would be for college students enrolling NOW…not in two years.
PLUS…the EFC is not a guarantee of need based aid. NOT AT ALL. With the income you have, however, you would not be eligible for federally funded grant money or subsidized loans.
The schools that are more generous will also like,y want the CSS Profile or their own financial aid form. These additional forms ask for more detailed financial information, including the equity in your primary residence.
How much need based aid do,you need? How much can you pay yourselves annually? Does your kiddo have strong enough SAT/ACT scores and GPA to be competitive for merit aid?
“it looks like you are solidly in the ‘we make too much for need based aid but not enough to write a check for $60k/per kid/per year’ with or without the 1/3 house.”
That’s us is a nutshell!
I have been playing around with FAFSA4caster. Taking out the $117K for the real estate and adding my daughter into the equation when she is in college at the same time as my son. The $117 didn’t make a difference. It looks like my kids can qualify for some loans, between $5,500 and $7,500 each year. How accurate is that calculator?
Regardless of your income and assets, your kids can take the Direct loan amounts. $5500 for freshman year, $6500 for sophomore year, $7500 for junior year, $7500 for senior year. These are in the student name only…not the parent at all.
But that is NOW. Who knows what will happen to those loans in two years.
The fafsa4caster you are using is for NOW…not two years from now.
If the $117,000 in secondary real estate assets aren’t making a change in your EFC, you are doing something wrong. Are you sure you are entering that amount in the right spot…accurately? That should add $6000 or so to your EFC.
FAFSA is just about federal aid. You want to get a sense of aid that colleges will give, so try the Net Price Calculator for a college or two of interest.
There is a FAQ for this forum that is intended for beginners:
http://talk.collegeconfidential.com/financial-aid-scholarships/1486647-financial-aid-faqs.html
The family owns real estate in addition to their primary residence. This is one factor that makes the NPCs inaccurate. In addition, the NPCs are for NOW, not two years from now. They should be viewed as a gross estimate only.
Very. The $5500-7500 is the Stafford loan - almost everyone qualifies for it (US citizen, no drug arrests, etc are the basic requirements). That’s for federal aid. It is really unlikely you’d qualify for a Pell grant, work study, or other federal student aid. Incomes above $50k rarely do, unless you have multiple children in school, a job loss, special needs child, etc.
Stay around on CC. You’ll learn about merit aid schools and some good ways to plan tax benefits. You are in the stick price shock stage. It doesn’t really go away but you’ll learn to deal with it. The best thing to do is get out of the “Ivy or bust” mindset and learn about merit, state benefits, getting higher test scores, and some of the hidden gems out there.
There are NPC’s that include real estate assets, for instance Harvard.
I agree @BobWallace. But those NOCs are for now…and this parent won’t have a student entering college for two years. Lots could change in that time. Schools change their need based aid award calculations, and the criteria all the time.
Plus…Harvard would not be a good acid test for generally knowing need based aid…as the school is much more generous than most anywhere else.
You know, not only the CoA would change (sadly in only one direction), the FAFSA calculation is going to change next year too. It would be hard to predict how much you can afford in a few years.