Should we pay off the $20K balance on our HELOC using funds in our Bank account so as to reduce our income according to FAFSA? Thanks!
For FAFSA it will reduce your assets by $20K. I believe the parent assets are assessed at 5.6% so it might reduce your EFC by a little > $1k. Is it worth it to you for that? Are you close to a Pell grant level? Otherwise it doesn’t make much difference. Your child can still borrow a student loan.
Paying off a loan with funds in savings does NOT reduce your income. It does reduce your assets.
It really depends. How much is your income? You may not qualify for need based financial aid anyway. Do you need the money in your bank account for an emergency? Could you reborrow the money on the HELOC if you need it? If so, yes, it makes sense to pay the HELOC.
The money in your bank account is an asset. As the parent, your assets on the FAFSA are assessed at ~5.6%. you are talking about liquidating 20k to gain and $1100 change in your EFC. is it worth it to you?
If your EFC is $6000, you will not receive and federal aid. you can receive a max of 6k with a 0 EFC.
How would paying off a HELOC lower your INCOME? It will only lower your assets, and not affect EFC very much.
What is your EFC now?
Oops, sorry everyone, I meant ‘assets’ not ‘income’. Can you tell I’m new at this… I haven’t figured out where to run the EFC yet - that’s next on my to do list. From what I hear I doubt we will get need based financial aid. Not Pell. Yes we could reborrow on the HELOC in an emergency. I’ll look into the EFC and get back with any questions. Thanks.
Run the NPC on schools’ websites. Tell us what the results are.
What schools interest your child? Run those Net Price Calculators
For other non federal aid, it matters how the school treats home equity. You may be just changing one asset for another.
a few years ago in my wisdom i decided to spend down some savings to help get my daughter’s EFC below a certain number so she could qualify for a big, local, need-based scholarship. We did some cosmetic work on our house. It looks nice.
Someone here shared a spreadsheet that helped us really figure out her EFC; i think an updated version is floating around now. That was super helpful; and showed us in real -time how EFC is so income-related. Spending assets of $20k on our house didn’t do much for the EFC divided by 2 kids. We couldn’t get that EFC low enough to qualify for that financial scholarship; and now i doubt they would have considered her even if she was just under their max EFC. We could absolutely have used that cash for our 2 kids in college now, and i regret those improvements. (but yes, they are pretty. )
I ran three in state ones and two came in with a ‘net price after grants & scholarships’ around $17K and one at $21K The out of state NPCs that I tried required our investment info and I don’t have that totaled yet.
I just ran the EFC Calculator on the college board site too with all our data and the Federal Methodology says Total estimated FM contribution = $6,980 whereas the estimated Institutional Methodology contribution = $14,200.
Really…the net price calculators on the college websites are the best predictor.
I can’t figure out why you wouldn’t pay off the HELOC anyway if you have the funds in savings. You can’t be making more in interest than paying in interest. If you can reborrow, why not pay it off?
Thanks! That’s the conclusion we came to too - going to pay it off today.
https://ifap.ed.gov/efcformulaguide/attachments/1920EFCFormulaGuide.pdf
Don’t spend all of your savings.
There is an asset protection allowance for parents before they add to FAFSA EFC.
Agree with mommdo!! The answer is NOT that simple…unfortunately!! If your assets are under the asset protection allowance anyway, paying off your HELOC will have zero impact; if greater than allowance it will help a little. Run the free EFC calculator at College Board and see what happens with each scenario; if no change, probably within the protection allowance…
Now, for financial reasons a whole different story!?!