<p>"Until this year, the formula was based not on home equity, but home value — up to 2.4 times family income, minus mortgage debt. That is being changed — and used for the first time in aid packages being prepared now for this fall’s freshmen — to be based on home equity, up to 1.2 times family income."</p>
<p>These are schools that have agreed to the consensus methodology for calculating the EFC, based on the Profile formula but making some significant changes. Most significant was that they would cap home value at 2.4 times family income, and then subtract mortgage debt, in order to assign an assessable value to home equity.</p>
<p>Now, it appears, Stanford is changing the way they are determining assessable home equity. If the article is reporting this correctly, they will consider home equity up to 1.2 times family income.</p>
<p>I'm not sure this will be a benefit to the middle class. Take a family making 80K, living in a CA home valued at 600K with a 300K mortgage. 300K actual equity. Under the old scheme, the 568 Group schools would cap home value at 160K (2 X income), then subtract the 300K mortgage, to show no equity available to assess in the formula.</p>
<p>Under the new scheme (if the article is reporting correctly), they will show 96K available to assess in the aid formula, resulting in an increase in EFC and a reduction in aid for this family.</p>
<p>I had the same response -- I did the math and saw that in my financial circumstances, it would hurt a lot, rather than help. Actually, for anyone whose mortgage debt is more than 1.2x their income, this calculation would work against them - and I'll bet that for most middle-income families, this would be the case, unless they had lived in the same home for a long time and had paid down most of their mortgage. </p>
<p>Then again, I don't really know how my daughter's college does the calculation... so at least for me, it makes no difference what Stanford does. There's nothing I can do about the basic figures: can't change what I earn and I can't change what I owe. </p>
<p>I'd note that if the mortgage debt is subtracted out from the capped amount, then a family that increases their mortgage debt by using a home equity loan to pay for college expenses would have benefited under the old system. Under the new system their mortgage debt isn't considered, so it could make it tougher for them to draw on those assets as a source of college payments.</p>
<p>Stanford is also reducing student loans by $1500.. but, its not clear if the definition of equity is gross or net of mortgage. According to Stanford Daily:</p>
<p>"Cooper said the additional aid earmarked for middle-income families will be used to reduce the sum parents are expected to contribute. It also will reduce the amount students are expected to borrow during the school year to $2,000 from $3,500. Both of these reductions will be offset by increased scholarship funds for students. </p>
<p>Under the new guidelines for middle-income families, Stanford will reduce the amount of home equity assessed in the calculation of a parental contribution by capping the amount of equity considered at 1.5 times the family income. The policy is expected to reduce parent contributions for families with significant home equity by, on average, $2,000. An allowance also will be made for renters. </p>
<p>For example, consider a family of four from California with annual income of $103,000. They purchased their home 15 years ago and have accumulated $480,000 in equity. Under the old policies, the parents would have been expected to contribute more than $25,000, and the student would have been expected to borrow $3,500 annually. A scholarship of $14,000 would have been granted to make up the shortfall. When the new policies are fully implemented next fall, the expected parent contribution will be reduced to $22,000, and the amount the student is expected to borrow will be reduced to $2,000. To make up the difference, the student's scholarship will be increased to $19,000."</p>