Self-Employed Parent...Financial Aid Worries

Paying for College
1

<p>This won't apply to the majority of families applying for FA but still a few I bet!!</p>

<p>What if your parent is self-employed, meaning they do contract positions and only have an income a few months at a time and then are basically unemployed the other time and living off of what they earned? My dad might have a big income one year but that's if he earned a lot of money in six or eight months one year and then the next year, he might possibly (God forbid) not even earn half of that...this is all included/mentioned in my CSS profile and I applied to a college Early Decision that promises to make itself "affordable". </p>

<p>To be more specific, his income for 2010 unfortunately is $120-140 K (between that) but he says our parent contribution can only be like 15 K per year....the year before that income was 100 k, and the year before that less than 75 K....my fear is that if I get accepted, the package will be horrible...I can always make an appeal but would anyone know how to make this concern sound more legitimate?</p>

2

<p>Your best bet is to have solid applications knowing that the “budget” is $15,000 per year and to make sure that there is at least one financial safety on that list. If you are willing to add Staffords to that $15,000 you have a slightly higher budget to work with. It is good that you are discussing this in your family. Once your financial aid offers in hand you might possibly be able to make a case for “average” income, but all colleges expect that funding will come from savings, current income and future income. Watch your college deadlines for any scholarships requirements for which you are eligible.</p>

3

<p>Thank you so much! I will keep that in mind!</p>

4

<p>There isn’t really a way to create a loophole for your family. They earned 120K this past year and 100K the year before. Both of those years are very solid and don’t create a boom-and-bust problem that you seem to want to indicate. Frankly, the 75K “low” year is not too bad… there are families of 4 that live off of 60K a year and much less year after year.</p>

<p>Institutional aid (the money the actual college awards in tuition breaks, etc) is tighter than ever. I think that you should plan to expect to see a financial aid package based on that 120K figure and brace yourself for that. I highly doubt any letter writing appeals will do anything. Anecdotal accounts seem to indicate that even if a college accepts a “plea” from student/parent and respond favorably, usually the response is somewhat tepid – 1K to maybe 3K more in aid, sometimes in the form of a college-sponsored loan.</p>

<p>The college is likely also to point out Parent-Plus Loans for your parents to take out. I do <em>not</em> recommend it. I am just saying that from the college’s perspective, a family with 120K has the theoretical ability to pay out 15K - 20K (or more) directly from yearly income flow, cash savings, and/orequity from a house, AND on top of that, take on a 8K Parent Plus Loan for a total of 23K - 28K chunk from the parent. Then the student chips in 4K summer earnings, 2K work study, and 4K (rounded up) student loan for a total of 10K from the student. So now between parent and child, the contribution is between 33K - 38K. Total COA is probably close to 48K at an elite college these days… that 10K or so “gap” is often then gifted as a need-based merit offer.</p>

<p>That is probably your most likely scenario.</p>

<p>What is going on from the college’s perspective is that the college sees “ability” (not EASY ability, but definite capacity) for your parents to pay 15K in cash plus 9K in Parent Plus — so they will push for it and see if your parents pony up. If your parents pass on it because they have (sensibly, I think) put a 15K a year cap, the college shrugs and says “fine” and asks the next college student on the list with similar academic stats and family income if <em>his/her</em> parents want to pony up that kind of money.</p>

<p>There are just too many kids in your bracket (GPA and family income) for colleges to make a big fuss if the parents have limits. The last few years have been the BIGGEST glut of HS graduates in decades… colleges are at capacity, overstuffing their dorm rooms. It is a college’s buyer’s market, not the other way around. There is a bit of shift because of the recession, but not enough to make a dent… notice that college tuitions have generally gone up last year – the colleges are NOT tightening their belts and making it more affordable, they are building facilities and competing with each other and raising their rates.</p>

<p>Sorry to be a downer. I hope your stats bring in something much more wonderful than the expected future based on the cases I have read about and have experienced first hand (two kids in college). I just think if you are prepared for what is a highly likely outcome, you can get VERY serious about making an exciting Plan B that has colleges well within your financial range that you can be happy about attending. Seriously - get busy with Plan B because MOST kids are in that boat right now… make your Plan B so awesome that it starts looking like a Plan A. </p>

<p>Good luck.</p>

5

<p>I just noticed that you applied ED and that is alittle troubling. Does your parent understand what that entailed when they signed the agreement? Do you have a plan B or appplications in at an affordable rolling admissions college?</p>

6

<p>FA is based on the most recent data usually the year before. It is a here and now situation and the FA is for one year. FA officers cannot taken into account unknowns and would rather deal with it at that time then try to anticipate what might happen or not happen. Next year your father’s income could be $180,000 or it could be $90,000. Unless you know for a fact that the income will be lower (e.g parent has a mandatory retirement deadline etc.) FA offices will not consider that.</p>

<p>In fact if you look at the progression 75K-100K-120/140K, it is an upward trend and if anything will indicate higher ability to pay</p>

7

<p>Momofthreeboys, unfortunately schools will include the Stafford in their aid to the student, so unless the school is oneof the few no loan ones, taking a Stafford won’t help pay the EFC.</p>

<p>Unless the school is HYPS, it will probably expect considerably more than $15K from a family making $140K, it will likely be more than double that. if that’s your family’s true maximum, you’d probably be wise to change your application to RD.</p>

<p>Also realize colleges may well consider your father’s business an asset and want a contribution from that too. And they may disallow deductions many self employed people take making his income look higher. It’s unfortunate, but small business owners often are asked to pay much more than they think is fair.</p>

8

<p>I was working “backwards” when I read the original post. The OP has $15,000 the parent has budgeted plus a Stafford to work with. It’s somewhat not relevant what the EFC is if the parent has given the student a firm budget to work with. If the parent holds firm the posters has roughly $20,000 to “spend.” There’s a very good chance the EFC could be higher since all the OP has shared is income and not assets. </p>

<p>OP did you and your parent run FAFSA calculators and institutional calculators so you have some idea of what private and public colleges will expect you to pay?</p>

9

<p>Momof3, it doesn’t work that way. The Stafford in most cases will be part of the package the college offers as aid. So she would just have the $15k to work with. If the college wants $30K from the family the Stafford will not impact that number.</p>

10

<p>Also note that even if you are at a school that is generous with need based aid for your family’s income bracket, your aid will be counter cyclical. </p>

<p>For instance, if your dad makes 140k in 2010, and 75k in 2011 the financial aid for the 2011 school year will be based on the 2010 numbers. Would your family be able to pay its EFC based on 140k income when it is actually making 75k that year? </p>

<p>If your family’s income is “feast or famine” you might want to look at less expensive schools and or merit scholarships.</p>

11

<p>Hi everyone and thanks for your responses. Yes it is ED…we kept this in mind but after attending a program on financial aid at that college, we believed that they would make it possible since they kept emphasizing that. </p>

<p>I’ll be honest here- as for Plan B I’m prepared for the worst. And the worst is that I have to back out of the ED agreement. What will happen if I do that? I heard its an option, if the FA is completely impossible, but not a great move. </p>

<p>Actually when we filed the CSS, being ED we had to file the 2009 data and the income was like 88,000 with unemployment benefits, and my mom had a part time job at some local store which was like $12,000…he had to put down an estimate of what he made in 2010, and went with like 120,000 or 130,000 which is an estimate. However, after taking away all his business expenses because he is self-employed, the actual income should be much less. Now reading a pamphlet from that college, a sample family had 120,000 income and they got 35,000 in aid, including the girl’s campus job, loan etc. </p>

<p>But thank you to those of you who are being realistic-I guess I made a terrible choice.</p>

<p>We used calculators on college board and it was OK except that we were warned the calculators were inaccurate for Self Employed families (like my dad) with Business cash flows and also we have -60,000 in home equity, my sister is getting braces next year, and we have a huge mortgage to pay as well as huge income taxes.</p>

12

<p>We’re just looking at things from different angles 2college2…all I’m saying is from the OPs perspective all that he/she has is $15,000 from the parent and what is available to him/her in Staffords. The college could be $24,000 or $50,000 and all he/she can contribute according to the parent is roughly $20,000. The EFC could be $15,000 or it cold be $35,000 that doesn’t change how much money the OP has to “spend.” The gap can come from the college or it can come from the parent. That’s all I’m trying to say. Kids need to focus on the budget sometimes.</p>

13

<p>Desichick, when colleges say they’ll make it possible, well, take it with a grain of salt. Their job is to get as many of you in the room to apply as they can.</p>

<p>Most colleges will not allow all of your father’s business deductions and in most cases, even if your business is just you, they will call it an asset, give you a value and ask for more money based on that. Your dad needs to take a close look at how they handle the self employed which is covered in the many good aid books.</p>

<p>On the other hand that don’t count your negative equity and the amount of your mortgage and sisters braces don’t matter or enter into their equation.</p>

<p>In your case ED was probably not a good choice and you should really reconsider. In the end it would probably very much benefit your family to compare aid offers from several schools because their can be a greater that average disparity between offers.</p>

<p>They don’t just expect your family to pay from current income, they expect college savings and a willingness to borrow.</p>

14

<p>Thank you both, again.</p>

<p>Unfortunately I really can’t do anything about it until I find out-but can I back out of ED? There is nothing else I can do until December 15th or a little before that. Doesn’t that “taint” the application especially to other colleges? Because in the past 8 years, my dad’s been laid off like 4 times, we haven’t been able to focus on college savings. That sounds stupid I know, but we’re just an unusual case. It’s pretty bad. This college in particular caps loans at 2,600 per year. I don’t know if that’s a good thing or a bad thing.</p>

15

<p>The outcome possibilities for you will be the same as for many. You’ll be accepted and your estimated finaid will be doable. You’ll be accepted and your estimated finaid will not be manageable or you’ll be rejected or deferred. At this point any parent would advise any student to have a back-up plan and if you haven’t sent in any EA, regular or rolling applications just be prepared. Make sure that those applications have a high probability of meeting your financial needs. It’s wasted energy to worry about your ED as that application is already heading down the pike and one of the four posible outcomes is positive unless you are willing to change it to a regular decision. Just make sure you have a good plan to trigger in December if you continue with the ED and it doesn’t work out for any of the reasons. I wish you all the best and a positive outcome!</p>

16

<p>You might want to see if the college will let you move your application to RD/ Early Evaluation pool. </p>

<p>As a heads up, there are not a lot more colleges who are more generous with need based financial aid for the 100k income range than the college you applied ED to, but colleges do define need differently.</p>

17

<p>First, you can call the college and ask to become an RD candidate if you choose.</p>

<p>While colleges will let you out of ED for financial reasons, their expectation is that you’ll then go to a cheaper school like an in state one. They will probably preclude you from going to a school that’s a peer of your ED school. </p>

<p>Chances are if you can’t afford the ED school you can’t afford it’s peers, but in your case with a self employed parent, a school that really wants you may give you more than others. So IMO applying to several RD would give you the best possibility of finding a school that meets need that you can afford.</p>

<p>There’s also the hard feelings that backing out of ED can cause for your school and future applicants. Schools often blame a counselor for not
having the student figure out the financial aspects before signing the agreement. Most will offer a pre read for students unsure about aid and counselors are supposed to encourage this. Colleges are known to punish schools when a student backs out of an ED contract.</p>