Significant change in income - how does it affect aid?

Hi - My daughter is a current junior and is beginning to look at colleges. I am a single mother with full custody, pay alimony to ex and receive some child support (less than the alimony amount). Father is an alcoholic and in bad shape. He was fired from his job and is living off his (rapidly dwindling) 401K.

I was laid off last year and net income from 2018 was approx 55k, with three kids (includes deduction for alimony payments). I resumed working in November and income for 2019 will be approx. 125K (high cost of living area). No assets - the divorce cleaned me out.

I understand that any financial aid award for her freshman year will be based on 2018. Will her sophomore year immediately be adjusted to the new income level? By her junior year I will have another in college. How does that affect aid?

Thank you for any input. She will be applying to colleges in Northeast and is a good student.

Yes, her freshman year will be based on 2018 but sophomore on 2019, junior on 2020, etc. Most schools will adjust the COA to your income level for each year. FWIW, they do not take into account the cost of your living area. I would plug in 2019 figures when determining COA for each school and consider freshman year a bonus.

Just met (an appeal after admission) with a FA officer who added a note that something was “non-recurring income.” We had to provide the more recent year’s tax forms to back up the assertion. This was a school that meets need.

I expect different schools do it differently.

The answer is…it depends. Even in the northeast, there are plenty of colleges that do not guarantee to meet full need for all.

Financial aid for 2020-2021 will be based on 2018 income.

Financial aid for 2021-2022 will be based on 2019 income.

At most schools, your need based aid will change if your income changes a lot. How much? Well…that depends on the school and their aid awarding policies.

If your student is a very strong student, I hope you are also researching merit aid possibilities at colleges. Merit aid is not income dependent. It might be a better option for your kids. However, there aren’t very many colleges in the northeast with guaranteed merit aid.

You may need to broaden your search as finances seem to be a significant consideration.

Also, keep in mind…for many schools requiring the CSS Profile, the non-custodial parent form will be required…and those distributions he/she is taking from the retirement account will be viewed as income.

@Lynnski this poster got a new job…and I’m sure she is hoping that her new income is not a one time event!

Haha you’re right about that @thumper1 What stuck with me was that she was laid off… not the new job!

In any event, this is a complicated financial situation and various schools’ calculators are likely to be different. Merit aid will be more stable year-to-year than need-based aid (assuming the student meets the GPA required each year). Need-based aid will likely be adjusted when income and expenses change, like when you are laid off for a period of time, or get a new job with a very different salary, or have multiple kids in college at the same time. OP, have you looked at the financial aid FAQ on this site?

I agree that it depends. It would be worthwhile to have a conversation with the FA office with several of the schools she is considering. Even at $125K in income, with 3 kids and no assets, you should still expect a fair amount of need based financial aid, and the schools that meet full need (based on how they calculate it) are generally very helpful in explaining their process.

To clarify what @NEPatsGirl said about cost of living areas - the CSS Profile schools ask a lot more questions than FAFSA, and they all apply their own different formula. To the extent you own your home and/or are paying a mortgage - which is generally linked to the cost of living in your area - some schools adjust for this and others don’t. Some schools look at home equity as an asset, and others don’t, or sometimes only a portion of it. So yeah, it really depends on a lot of factors and while your situation is unique, the schools’ FA offices will be able to help you understand their process.

While most schools look at how many are in college at the same time, some will also give consideration to families with younger siblings, with the idea that you presumably should be trying to save for them while they are in still in high school -or if you are paying for private high school, etc.

Congrats to your daughter for being a good student. There are a lot of great schools in the Northeast

Such great information from you all. Yes, the 125K is what my normal salary is - last year was a definite anomaly. I do get a 20K deduction for alimony payments (hard pill to swallow, though!), and we rent. She has broadened her search and is pursuing merit as well. I was just curious as to how much the financial aid might take a hit.

The most likely bigger issue is whether her father will be actually able to fill out the CSS form. We are intentionally pursuing schools who both require the CSS and FASFA and only FASFA for that reason. She would most likely not qualify for a waiver because he has actually paid a small amount of support.

Great advice here, and I concur. The CSS PROFILE can be an issue as most schools that do meet full need or close to it require info from the non custodial parent. It is a rare school indeed that will meet need as defined by the FAFSA EFC. That number tends to be the absolute least you will be expected to pay.

WIth no idea as to what your DD’s academic profile looks like, can’t come up with a sample list of colleges that would be recommended. Unless you are able to pay full price, some financial safeties should be on the list. Local state schools, for example, so that there are options if financial aid and scholarships do not pan out.

There are some Profile schools that don’t require non custodial parent info.

@3puppies the amount of your mortgage payment is not what some schools look at. What they look at is the equity you have in your primary residence…and they use that value in a variety of ways depending on the college. The cost of living doesn’t matter…but the home equity might.

I thought alimony was no longer a deductible item on taxes. The flip side is that child support is added back into income, so you might do better now to have only one transaction - to be able to pay a lesser amount of alimony and not get any child support.

She will file her file her financial aid forms for her sophomore year using 2019 income…so if that goes up, yes, your aid will be adjusted according to the college formula for doing so. Remember…most colleges do not meet full need. For those that do meet full need your need probably will chance. So your need based aid will be adjusted according. At all colleges, your need will be less for her sophomore year because your income will be higher.

Again…this depends on the colleges. If your first child attends a college that meets full need for all, it is possible that your need based aid will increase with two students in college. If your kids don’t attend a college that guarantees to meet full need, you might not see any increase in need based aid.

Yikes! I hope she expands her geography. She really needs to be looking at schools that will give her huge merit for stats…and those are usually outside of th NE. Then your income won’t cause her to lose aid.

What are her stats?

What is your state of residence? Start looking at your instate publics. These could be a great financial option for you.

OOS schools and private schools in the northeast are costly, and merit aid in a large amount is hard to come by.

What can you contribute annually? That’s an important question to answer.

@thumper1 Re #8 -

I agree with you that home equity generally seems to be a more important variable at more schools. But cost of living does matter. Also, if parents are paying two rents or making 2 mortgage payments, that should be explained under special circumstances. If the rent or mortgage payment is consuming an inordinate percentage of the family income, that should also be explained in special circumstances.

When we were touring colleges, and attending the “information sessions”, more than one of the full-needs-met schools’ FA officers explained that they understand that earning $125K living in some parts of the country is very different than in other parts. None are anxious to give out their entire FA formula, and they may change slightly from year to year. But they do ask for your address - and it is not just to estimate travel costs in the COA. They also can apply Professional Judgment and make the adjustments they deem appropriate.

Be sure to watch your financial decisions. Our income has been pretty level and our EFC when down with a second student going to college. The first kids school did not change need aid at all, saying the kid #2 going to school is not an unexpected event. Meaning, don’t overspend on child #1 and not leave enough for the other children.

I don’t think this is something that should be counted on. It’s a choice to live in a more costly neighborhood, or a more expensive house…or to assume more debt.

Of course, if there has been a reduction in income, that can be explained.

The reality is…even in the same zip code, there are more costly and less costly homes. And folks with higher vs lower mortgage payments.

This parent has the issue of receiving child support which adds to her income. And paying alimony (I am not sure that is deductible tax wise any longer). Plus the fluctuating income from last year to this.

The parent doesn’t mention receiving unemployment compensation during the layoff period, or a severance package…both would be considered in the financial aid formula.

Really…this family needs to cast a wide net. Without knowing the SAT or Act scores or GPA, it is difficult to even make reasonable suggestions about colleges in terms of merit aid…or even acceptances.

At this point, this student needs to get the best possible SAT or ACT score…and have the highest possible GPA…to maximize options…both for merit aid and acceptances to schools that guarantee to meet full need.

She’s really looking at schools in Massachusetts (our home state), and those close to the NH, RI border. Given our situation, she’d really like to stay closer to home.

@thumper1 @twoinanddone Because our divorce agreement was executed before the new tax laws, alimony is still deductible and child support does not count as income for the IRS, anyway. Not sure about the CSS or FASFA forms, though. It’s not possible to make it one transaction due to the tax advantages, and if the agreement is modified the tax advantages are lost. I did receive unemployment and small severance but that is factored into the 55K income. She has a 4.2 and 1300 SAT.

The divorce was basically due to her father falling off the cliff mentally. Believe it or not, he was a professor and our kids would have been provided free tuition for a long list of awesome schools but he lost his job last year due to his issues and that is no longer a possibility.

The divorce was expensive and basically cleaned us out financially but I gained full custody. We are now renting so no home equity and no savings, really. Renting a small house in the town they grew up in. Total of three kids, all of whom will eventually be in college at the same time - she is the first. She is looking at our state university and state colleges but is wondering about other private alternatives.

@BelknapPoint does a divorce decree trump tax law??

No, but the new tax law change to the deductibility of alimony payments specifically does not apply to pre-2019 divorce agreements (unless a pre-2019 agreement is subsequently modified).

Wondering how colleges treat this alimony…and child support…especially schools that use the CSS Profile.