Still confused about home equity for primary residence - FAFSA and CSS/Profile

<p>I am talking about private colleges. I had HELOC but I cancelled it before my kids went to college because of that concern. CSS profile asks questions about how much you owe in loan,… and they can find out about liens on the house, bank accounts,… I am not sure my concern is valid but I’d rather be on the safe side by making things simpler.</p>

<p>I don’t think your concern is valid. I had an unused HELOC until my two kids were in college at the same time. No one ever asked about that account, and I had no place to put it on any financial,aid application form because there was no outstanding loan payment. </p>

<p>My kids both went to Profile schools.</p>

<p>Maybe the form has changed since 2009 when I did the last Profile, but really…is there a question there "please list any accounts that you have that you don’t owe any money on…but could draw on? I don’t think so.</p>

<p>I think the issue is, that we did prepare for, is that <em>no matter if you have a HELOC or not</em>, some colleges expect you to access your home’s equity. So having room in our HELOC vs. that same amount of equity without the HELOC already set up would be the same thing, except we’d have to take out a HELOC or home equity loan to pay for our son’s college. That is, if we had paid our mortgage off earlier than expected, to be done in 2020 let’s say instead of 2030, we would not have access to home equity without taking out a HELOC on top of the mortgage, but now with only a HELOC for all we owe, we can pay things off with the HELOC.</p>

<p>One thing, thank you about the FAFSA vs. CSS/Profile comment on full need more likely met at the latter schools. </p>

<p>As for the points:
Answer: as in above,
1 - from savings, hopefully there is some built up for 18 years (Why? Why would you not pay down debt? Why would you even try rotating CDs or a money market, when the mortgage/HELOC is at a higher rate? We aren’t in the Depression, yes some banks had issues but again, millions of folks would be worrying about a lot more than where sonny boy goes to college if the bank went under.)
2 - from kids working and saving it. Especially in the summer. (He plays sports all summer, took two summer courses this summer. He is working during the school year on weekends.)
3 - out of your weekly paychecks - schools let you make monthly payments through Sallie Mae (I don’t know much about Sallie Mae, to be honest)
4 - grandparents, HS graduation gift money (one of my points was that my MIL is not well off. She owns an apartment in a senior development that has depreciated significantly, and gets just enough SS to pay her taxes. We MUST be aware of college costs so that she will be comfortable - she gave up a lot raising my spouse and his siblings. No rich grandparents here.)
5 - from curtailing all the things you used to enjoy - vacations, home repairs, pricey haircuts, restaurants, Nordstrom (uh, if you saw me in real like, you’d know that pricey haircuts and Nordstrom were out of the question ever since my dad was out of work. Vacations - we go every other year, and the total cost is about $3,000. Restaurants, we try to keep it to fast food, other than that once per once. Yes, there may be something, but we don’t get much. We do spend money traveling to sports tournaments, which should decrease when he is in college.)
6 - federal student loans (he may get loans. But I would rather owe money than him.)
7 - by reducing the contribution you were making to 401k or IRA (I’m at my minimum contribution - I am required to contribute 5% of my salary because I’m a state worker).</p>

<p>I know that it is antithetical to some that I plan to take out money from our HELOC, 3% currently, or 401k loans (paid back to me) at 5% for my son’s college. I do not see how saving cash and having less room in our HELOC would have helped.</p>

<p>As for our house being “too big”. The mortgage was $3,000 per month. Doing the math, it was 24% of our gross salaries. 28% is the guideline, so we bought within our means. We now pay a lot less per month, and have room in our HELOC. </p>

<p>The main reason we are “looking to work the system” by finding colleges that do not consider the amount owned of the primary residence is point #4 - specifically poor relatives that we want to be able to help, a LOT if necessary (as I noted my dad helped my brothers). </p>

<p>I could start another thread about “how to choose where to go to college” because there is quite a price range. Ignoring potential athletic scholarships, my son could go to college for $15,000 per year up to $56,000 per year (to think that one would pay $56,000 per year to send your child to live in EASTON, PA?). If he goes to one of his top choices, the cost is $35,000 per year including “everything”. One is because it is an Ivy with great grants, even with our income level. The other is because he would get $25,000 of grants based on his SAT scores. Thirteen of 28 schools on his list are $35,000 or below (most very close to $35,000), and fifteen are above $35,000 per year.</p>

<p>Some people think it is fair to make him go to one of the two below $20,000 per year schools (one where I work), but his stats are way above 75th percentile for those schools. One at least has an honors college, but it is not well-developed. The other does not have an honors college. I put out a question about the American Honors program, where kids go to an honors CC program for two years, get an AA, and then can transfer to a bunch of four-year schools with minimal requirements (other than GPA I am sure):
<a href=“Our 4-Year Transfer Network | American Honors”>Our 4-Year Transfer Network | American Honors;
(Middlebury is on the list, by the way)</p>

<p>We certainly have not ruled out cheaper options, we are looking into them. We are trying to rule out options above $40,000 per year, and he knows that. He also knows if he picks anything above $20,000 per year, he had better stay focused and not mess around (sad to think $20,000 per year is “cheap”) We will try to avoid a fifth year in college by having him take summer courses for free where I work.</p>

<p>Is this kiddo really applying to 28 colleges? I do hope you can narrow down the list prior to sending applications. </p>

<p>Remember, those FAFSA on,y schools could very well gap your son…meaning he will not receive enough money to attend. They don’t guarantee to meet need.</p>

<p>As an FYI, we loved that school in Easton PA.</p>

<p>No, not by a longshot. I ran NPCs for 28 colleges because I was so paranoid about costs, and initially, his top two were identical in cost and I was wondering about a few more.</p>

<p>If money was not an issue, he’d apply ED to an Ivy, then ED2 to a D3 school (both around $35,000 per year net price for us) if not accepted, then perhaps three RD including where I work. The 28 include other Ivies, other schools that are recommended for his major, and places his friends are planning to apply to. It really is amazing to look at how the net prices compare, and we are hoping “if” they are realistic at all - we will understand a few thousand up or down, but just yesterday saw a college come in $30,000 per year less using College Abacus vs. the college’s website.</p>

<p>

</p>

<p>As I said before, many people pay for a house and save for college, at the same time. That eliminates or decreases their need to also borrow for college, which can be very expensive. You seem to be stuck on the idea that “saving” for college means a bank savings account, CDs or money market funds, and that since mortgage debt is at a higher interest rate then these savings options, paying mortgage debt should take priority over college savings. Again, as I’ve said before, saving for a long term goal like college through a bank savings account (or CDs, or money market funds) would be foolish, because you would have trouble even keeping up with inflation. Historical returns in the equity markets beat inflation, and they also beat the return that you would get from retiring your housing debt early. You wrote previously that you don’t invest in stocks, and yet that’s apparently where a large chunk of your retirement savings is going, as it should. Saving for retirement is a long range goal. So is saving for college.</p>

<p>

</p>

<p>If the “guidelines” are a one-size-fits-all, than yeah. You made your choices on where to spend your money. Others in addition to myself have tried to explain why saving in advance for college is so much cheaper and wiser than using your home as a piggy bank to fund college. You pay to borrow money; others pay you to save/invest. It’s really that simple.</p>

<p>I don’t understand (note: I have younger kids so I really want to know even if it is too late for my oldest). Who would be the “others paying me money to save/invest”? </p>

<p>Why would having $140,000 in college savings for my son be better than having paid $140,000 off on my house? (other than if the HELOC is closed out because of our change in status)</p>

<p>I am not the type of person to go 100% into stocks or mutual funds. I keep 2/3rds of my 401k in low rate safe options, 1/3rd in blue chip mutual funds. Return is around 6% on my 401k.</p>

<p>It is not cheap to default on your mortgage or HELOC payments. The difference is that when you pay off your HELOC, the money becomes available to borrow later. YMMV I guess. I don’t see how we could have done more, or how it would have financially benefited us more. Maybe some people save money for college and pay their mortgage. We couldn’t. We put money in our retirement funds and paid our mortgage.</p>

<p>This thread has some info about choosing whether to take from 529 or from a HELOC:
<a href=“Use 529, savings or HELOC first? - Financial Aid and Scholarships - College Confidential Forums”>http://talk.collegeconfidential.com/financial-aid-scholarships/1136300-use-529-savings-or-heloc-first.html&lt;/a&gt;&lt;/p&gt;

<p>

</p>

<p>Simple answer…because that HELOC will actually cost you over $200,000 to use…because you have to pay INTEREST to borrow that money.</p>

<p>$140,000 in a college fund will not require YOU to pay the interest.</p>

<p>And in addition, you won’t have $140,000 plus INTEREST in debt hanging over your head for years. </p>

<p>As Middkidd said…when you have a HELOC, you are paying to borrow.</p>

<p>When you have a 529, it earns interest…so someone is actually paying YOU.</p>

<p>Rhandco,what is confusing you here? Do you NOT understand that your $140,000 HELOC use will require you to also pay interest on the amount borrowed…like any other loan? It is NOT free money. Not. </p>

<p>One more thing…most HELOCs run a duration of 10 years during which you can choose to pay interest only (which is stupid…because then your principal would be the same after ten years). After the ten year window, you will be politely asked to either pay your HELOC principal in FULL…or you will need to refinance it. At this point, you have NO way to know what the financing climate will be ten years after you take that HELOC. Interest rates could soar. You might not be eligible to refinance for any number of reasons. </p>

<p>And again…that $140,000 is against your home…if you sell your home, that $140,000 will get paid right off the top.</p>

<p>But that seems to be the culture in your family. Simply put…your dad could be in great financial shape now especially with cash flow. But no. He took a HELOC to help someone, this putting himself in financial debt. You would be doing the same. Borrowing against your house for your kid to go to college. </p>

<p>ETA…some people do not have the ability to save thousands and thousands for college costs. Most of those folks look for colleges that are affordable. You are sort of doing that…but your first choice seems to be borrowing $140,000 which is HUGE debt for undergraduate school. HUGE.</p>

<p>Okay, so if I take $140,000 out of my HELOC, to make it easier at one time not incrementally, and pay it off over 10 years, I end up paying $20,000 interest at a 3% rate, which is what I have now. I ran a HELOC calculator to see that (around $1350 per month for ten years to pay it down completely).</p>

<p>But if that $140,000 was not paid down over 10 years, we would have owed the same interest over the past 10 years. So that’s a break even, IF the interest rate was the same, and it was not 3% over the past ten years. It went up to 8% in 2006: <a href=“United States Prime Rate History”>http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm&lt;/a&gt;&lt;br&gt;
So that is double the amount of interest saved by paying it off “early”, assuming half the time the interest rate was 6% or more.</p>

<p>I think what you are saying is if I paid the money into a college fund, it would have been getting at least 6% (hopefully, things were stagnant for several years due to the recession). But I had to pay my mortgage. You have a minimum payment with a HELOC, and we didn’t own our house outright. Our minimum payment was similar to a mortgage payment, not 10% of it like an interest-only HELOC would allow.</p>

<p>And I am kind of appalled that you are going on about the “culture in my family”. Maybe what I described offends you. But my dad grew up VERY POOR. As in, he had to steal food as a kid and his family was on Relief for many years. The GI Bill and employment boom after WWII helped him get out of poverty. He would go back to poverty if he had to, for his children. I would go into poverty, if I had to, for my children. Yes, we have the luxury of real estate to use to pay for things. Yes, I understand my spouse and I are both employed now and that could change.</p>

<p>All in all, we are not scraping the barrel with $140,000 over 4 years paid from our HELOC. Our payment will go up about $1350 per month (eventually, not right away due to payment plans).</p>

<p>We had to pay off our HELOC, it was and is our mortgage. We didn’t have a thousand per month to drop into college funds, certainly not every month. If we didn’t pay off our HELOC (again, our HELOC <em>IS</em> our mortgage, it is not a second mortgage, it is not something “extra”, it is our mortgage - we owe nothing more on our house except our outstanding HELOC balance), we would have lost our house before.</p>

<p>I am looking for a college that is affordable. Our choices are pay from the HELOC or pay from the 401k (which was making similar to a 529 would have made and is pre-tax contribution). We avoided paying interest by paying our HELOC down over the years, as we had to.</p>

<p>I am hearing:
“don’t pay from your HELOC, you’ll owe too much on your house”
but my take on our situation is:
“we couldn’t save for college because we were paying $3,000 per month for our minimum HELOC payment. Now we are paying much less per month, so that’s how we will pay for college, take out of the HELOC. And we won’t get back up to $3,000 per month paying for our children’s college.”</p>

<p>In another thread, someone mentioned a family staying in an expensive district even though the working parent was out of work for years. We moved into our current school district because one of my children is special needs. IMHO, we have saved a LOT of money not having to put him in full-time care after high school, let alone he is getting no speech, PT, OT, social skills, or counseling outside of school any more. At this point, he will either go to culinary school or college, and he will MAKE money instead of being a money sink. So yeah, maybe that is a waste of money to some, to buy into a more expensive neighborhood for excellent schools to help a special needs child.</p>

<p>What you see as my stupidity is what I have seen as my only choice. Now, I am trying to find the most cost-effective AND appropriate college for my son. It is not like I am comparing very cheap state schools to very expensive private schools, it is more complicated than that. For example, Rutgers is more expensive than several private colleges would be for my son. And that was what this thread was originally about, home equity and how it is handled by the FA forms. The answer seems to be, it varies.</p>

<p>I can foresee that we will be making some tough decisions in the next few months, but this thread and all the posts (thank you!) have helped us understand what we are dealing with.</p>

<p>

</p>

<p>If you save in a bank savings account, CDs or money market funds, the bank or investment company is paying you interest on your money. You take out more than you put in. If you in invest in bonds, the bond issuer is paying you interest. If you invest in stocks, when the stock price increases because the company gains value, you make money. You mentioned that you are a college instructor. My guess is that you don’t teach finance or economics, right? :)</p>

<p>I think I would consider the behavior I wanted to model for my children. My parents were hard workers but lost their first house after my father lost his sight and, eventually, his job. It took them a decade to pull themselves out of that hole and to be able to afford another house. You never know when illness, job loss, or other unexpected event will crop up, so we don’t take loans against our house. I agree with the posts upthread wondering if you want to continue this pattern for another generation. I would try to find colleges your children can attend without you, or them, having to take on too much debt. Taking a loan out on your house is, in my opinion, too much debt. What kid wants to feel responsible for their parent losing their home? </p>

<p>As I said earlier in this thread, it is your family decision how to fund college. I stand by my original comment…regardless of the sources of the loans…$140,000 is too much debt for an undergrad college education. But if that is what you want to do for your child, then go for it.</p>

<p>Rhandco, sent you a private message. Please don’t feel you need to apologize for your family’s choices, particularly since your father was a veteran, and you are an educator. There is a lot of useful info on this site, as well as a fair bit of snarkiness and general meanness. What is right for one family may not be right for the next. I hope you come to a decision that works for you and your child.</p>

<p>Thank you KeeperMom2 (though I am not going to throw the first stone at someone being snarky if you know what I mean…)</p>

<p>As for others, note that my son is on board with this, and knows that if he targets any of the more expensive schools, we will have to ask for a FA package and figure out if they give us something better than the NPC. Or he can’t go.</p>

<p>@MiddKid86 - do the math.

  • We have paid off hundreds of thousands of dollars of our mortgage, which ranged between 3% and 8% at various points in time
  • We did not save money for our children’s college, which would have had returns around 6% based on our saving method (now, without being in a recession) and not guaranteed</p>

<p>If we paid off $10,000, and avoided 5% of interest over a year, that is compared to putting $10,000 in investments, and hoping for 6% per year. If that was the case, and completely ignoring that the ROI during the recession was terrible and actually resulted in losses, our paying off our house was slightly less financial sound than investing.</p>

<p>And I hate owing money in general, so paying down debt was necessary psychologically. Now we plan to take on some debt as a result of a cost-benefit analysis of my son going to a college appropriate for him, where he is between 25th and 75th percentile for test scores and GPA of recent freshman classes. And not somewhere where he is 99th percentile for recent freshman classes, unless there is an amazing honors program. And obviously where he feels he is a fit based on a campus tour.</p>

<p>Run this calculator and see about how to compare paying off debt to investing:
<a href=“Pay Off Debt Or Invest Calculator - Determine which is better for you”>http://www.calcxml.com/calculators/pay-off-debt-or-invest&lt;/a&gt;&lt;/p&gt;

<p>and of course, my stupidity has to be linked directly to buying my current house, because the minimum payments were initially $3,000 per month and we had no way of paying less than that without defaulting.</p>

<p>I find it facetious to argue that I should have saved instead of paid off my mortgage. Maybe I should have moved in with my dad and not bought a house.</p>

<p>A footnote - we had been paying $3,000 per month on our mortgage. A house nearby with a similar floor plan but one less bedroom is up for rent for $4,000 per month.</p>

<p>Another footnote, this confirms some of what has been posted about 529 plans and clarifies a few points:
<a href=“http://sicounsel.com/sites/all/files/sicounse/attachments/SICNewsletterWebversion.pdf”>http://sicounsel.com/sites/all/files/sicounse/attachments/SICNewsletterWebversion.pdf&lt;/a&gt;&lt;/p&gt;

<p>Thank you all for your help.</p>

<p>Families living in the six figure income range could have lived on less simply because there are many who have. The difference could have gone towards some college savings. I am saying this as a parent who chose to spend more than most families do-we chose to buy a bigger house, in a preferable area, better location for work, etc, etc. It gave our family a much higher quality of life in that we had the space, convenient location, less time commuting, great community amenities. It also meant less money saved for college for our kids, so that now, we can’t come up with with the cost of some colleges without borrowing or taking money out of our retirement fund. HELOC money comes from borrowing. I admit freely that I could have found a lot cheaper living arrangements, full houses that are a lot less expensive than what I chose. Not right down the street, but easily within a few miles radius, and absolutely within a 15 mile one. It was a choice. I’m sure I could find cheaper housing for your family too–but absolutely no one would say it’s as nice as where you are living. There is a big gap between sharing a place with Dad and finding a less expensive dwelling for most people. </p>

<p>One problem with counting on a HELOC is that it is not necessarily always available, and the terms (interest rate) can go up. If you have problems with your credit, or the housing market tanks or if things get rocky in the financial field, a bank can pull or reduce your HELOC, unless you have taken the funds out of it and have it sitting as an asset. That is a risk. This actually happened a few years back to people who had HELOCs. Just because you have equity in your home does not mean you can borrow against it. It depends on a lot of things you may not have control over. </p>

<p>It looks like you did all right with how you managed your choices Your kids have good choices within an affordable range for you That’s what everyone wants. You also have had a home that fit your needs and desires for the last however many years and the future. That’s important too. </p>

<p>What’s important is where you are now financially, and what you want to do, and what options you have. DO look at all you can find so that you are as fully informed as you can be, and make your own decisions. There are advantages and disadvantages to the choices, and you have to pick what works the best for you and your family. </p>

<p>Sometimes, some people do hit a sweet spot with the choices they made, the choices their kid want, and what happens. I have a friend who got a whole load of aid for her kids due to living off of her HELOC , for instance. Her kids picked FAFSA only schools, got the full amount of Federal and state aid, some school aid and they made out well, even with a NCP who was very well to do. Another borrowed as much as he could from PLUS and died two years after his younger daughter graduated and he had only made the least amount of payments on those loans. Made out $400k+. But there are elements of chance and luck, both bad and good involved in those sort of things as well as with other choices. </p>

<p>

</p>

<p>Now there’s a strategy… max out your PLUS loans and then die shortly after your youngest kid graduates.</p>

<p>I don’t think there is a max for PLUS. The dad I know who did this was an older parent–old enough to be grandparent, not even a young grandparent to his daughters and he was already diagnosed with a cancer with an unfavorable prognosis. That he lived 6 years after dx was unexpected, and he filled out some of those loan papers from the hospital. Not an eviable situation.</p>

<p>The Plus can only be taken out for the cost of attendance…or less. But number of years…and students…nope, no limit.</p>

<p>One thing I haven’t seen mentioned (or I missed it) is HOW ARE the other kids’ in the family educations going to get paid for???</p>

<p>The parents will be neck deep in loans while younger kids are going to college. WHAT WILL FUND THOSE YOUNGER KIDS’ EDUCATIONS??? </p>

<p>This idea is just really bad all the way around…and will be a burden for a very long time. The extended family has set a bad example (brothers getting into trouble and then burdening their elderly father with their debts…horrific and selfish. I hope THEY are paying back those loans AND I hope they will continue to pay if your dad passes. ) I suspect that this family is either first or second generation American. This all sounds like something immigrants do…along with the belief that their smart child needs to go to a top school even if it costs them everything. </p>

<p><<<
What you see as my stupidity is what I have seen as my only choice. Now, I am trying to find the most cost-effective AND appropriate college for my son</p>

<br>

<br>

<p>If you are truly trying to find the most cost effective and appropriate college for your son (which won’t set your younger kids up for a WORSE situation), then you need another plan. This plan has so many red flags flying high and wildly that you’d have to have blinders on not to see.</p>

<p>The OP mentions that her son COULD find some schools that will give him large merit, but the son would be too smart for those schools. Well, then THEY HAVE NOT looked at the right schools. There are schools that give large merit that have a good percentage of very smart kids. (and besides, with all this draining of equity, won’t the younger kids essentially be forced to chase merit? If so, won’t THEY have to apply/go to schools where they could be too smart for their schools (if they don’t choose wisely)? </p>

<p>What are your son’s stats and his desired major/career? I bet we all could come up with a list of 10 schools that would provide him a very good education, have smart kids as peer classmates, and will give large merit for stats. </p>

<br>

<br>

<p>You wrote the above a year ago…and you had a mortgage then. Something doesn’t make sense. You knew your situation at that time. If your mortgage was extremely close to being paid off, why were you asking that question? Or is the truth that you STILL have a morgage?</p>

<br>

<br>

<p>???</p>

<p>Uh…you say you saw “tons and tons of parked cars”…do I need to state the obvious? if there are tons and tons of parked cars then who do you think those cars belong to? They belong to students who are sleeping in or studying in their dorms on a Sunday. Maybe you don’t realize this, but it is very common for college kids to catch up on sleep on Sundays. Some will sleep til noon or later. Once they emerge from their beds, they may hang around their dorms, surf the net, study, do laundry in their dorm laundry room. The campus sidewalks may be empty, but if a bomb dropped on the school there would be a gazillion casualties. </p>