<p>I have a very clear view of how it works. My opinion is that the system does penalize savers.</p>
<p>Absolutely, MisterK, the system does penalize savers. And I would have played this whole college savings thing differently IF I had known about the explosion of college tuitions that currently are totally out of whack with income, and IF I had known that my D’s would be smart enough to possibly be admitted to top-tiers & Ivies. But we weren’t clairvoyant, so we’ve been examining Plans B, C, D as we go along here. And in the end, it has turned out OK where it counts, with my D’s education.</p>
<p>Sk8rmom, for some of us, retirement assets, our savings, are IT as far as paying off loans. ‘Ideally’ doesn’t work anymore. The plan of using home equity–GONE. The plan of investing wisely so that the rate of return stays higher than the PLUS loan interest rate–GONE (certainly the last 4 years or so).</p>
<p>And then the real stone in my shoe is the parent who brags to me about their Johnny being admitted to a Top 10 U., and I know from their income level & other personal issues that their $50K COA is being subsidized at least by two-thirds. Again, I’m not asking for handouts & don’t want to ‘walk a mile in their shoes’, just think it’s a little gauche to brag about it.</p>
<p>My Quote:
I think those parents who are borrowing a lot need to first ask themselves…“If we weren’t able to save for college in the past, then how will be able to afford the payments in the future?”</p>
<hr>
<p>DadII quote:</p>
<p>because the income typically goes up. </p>
<hr>
<p>Not really that much at that point in one’s life. When people are borrowing large amounts for college, they’re generally in the late forties or in their fifties. Their incomes aren’t changing all that much at that time…probably just about enough to keep up with cost of living increases. </p>
<p>Your own personal experience of bonuses at this stage in your life is NOT the norm. So, people aren’t “typically” earning a lot more from the time they borrow to the time of payback…certainly not enough to justify thousand dollar plus monthly student loan payments.</p>
<p>====================</p>
<p>I used to question how people make good $$ do not have any $$ to pay for their kids’ college. Now, I could definitely understand that because it is happening to me.</p>
<p>Momof2college: I do think that some regulation is in order regarding banks, but noone forces anyone to take a loan out. Families have options to save ahead, pay out of current income (including reducing lifestyle, adding a second or third job), going to community college, staying in state, having the kid work more and take an extra year etc. I am not unsympathetic to the expense and sacrifice (we are middle class full pay, I work full time, and we have lived below our means since day one). The student loan business and the whole FA process is flawed. I do think savers are penalzed and I don’t want to pay for my neighbors’ kids’ education is in the form of a bailout. We are all responsible for our own debt. FWIW, I give to my undergrad - specifically earmarked for financial aid. I believe access for all is important. But, not every kid has the right to a $250,000 education at another’s expense. Just as I don’t have the right to a fancy car, fancy house, or fancy vacations if I cannot pay for it.</p>
<p>mom2collegekids as usual hits the nail on the head.</p>
<p>If you couldn’t save before to pay for college where is the money going to come from to pay off the loans? Most people do not earn more as they get older. In the best case the mortgage may be paid off which frees up money to pay off student loans-but it seems many people have used their home equity to meet current needs. </p>
<p>I really don’t care who sacrificed what to afford whatever they want to have in life-big house, big car, vacations, whatever-I just don’t want to have to pay for them.</p>
<p>The best thing to do is try and take emotions out of the decision-which of course isn’t easy. </p>
<p>I do agree the whole system is flawed and there is too much access to easy credit. </p>
<p>My son has two friends who illustrate how this system is so flawed. Student 1 is going to a top 50 meets full need school for 2K a year! Student 2 is going to an OOS private which even after merit aid is costing 30K+. She couldn’t afford her top choices. My son was accepted to the school of Student 1 and even with great merit aid it would have still cost him 30-35K a year. He learned quickly how ridiculous the whole process is-as he told me I could see paying more than her but 15X more-no thanks! She isn’t that much poorer than we are. 
Student 1 announces she has an almost full scholarship even though he was given 2.5 times more in merit aid than she was. It caused a big rift in the friendship-especially with Student 1 and 2. I understand how feelings can get involved-like many of you I have seen it up close. We worked through it and he was very fortunate to have some really nice choices-in large part because of what I learned on CC.</p>
<p>It’s a business and they will use whatever they can to sell you-this whole notion of a dream school is fine-my son also had dream schools. That dream can quickly become a nightmare though if you can’t afford it.</p>
<p>Perhaps I’m wrong on the savings “penalty” or CC members are just better savers than most Americans. But, for those of you who believe that your savings reduced your child’s financial aid, I’d sincerely like to know how much those savings contributed directly to their EFC for freshman year and also by how much that reduced their award, and why. Also, were your savings in excess of the maximum that you could invest in protected assets (retirement, home equity)? </p>
<p>I know there are a few whose kids go to schools that promise to meet need without loans, are on the cusp of Pell eligibility, or are single parents, but in the absence of hard evidence I’ll stand by my statement that the savings penalty is a myth for most families and here’s why:</p>
<ol>
<li><p>Home equity and qualified retirement assets are protected in the EFC calculations. In addition to that, married couples have a savings protection allowance based on the age of the older parent. Around age 50, that protected amount is almost $50,000. The EFC calculation, based on discretionary net worth, is 12% of the amount above protected assets and that number can be, and often is, negative. That contribution, positive or negative, is added to the contribution from income. In other words, unless you’ve saved above your savings allowance in unprotected accounts, the savings calculation is actually reducing the EFC produced from income in much the same way that tax credits work. My belief, based on both reports and anecdotal evidence, is that most two parent families have not exhausted their savings protection allowance so there is no expected contribution attributable to savings. </p></li>
<li><p>Only a handful of colleges will meet need for those with incomes above the median and the vast majority will gap middle income families in the need arena. For savers to be “penalized” implies that they would have received more aid if they hadn’t saved and assumes that all of those savings actually contributed to EFC (see above). If the EFC, which is almost completely income-based, is above the threshold of federal/state aid, the school’s average % of neet met, or the COA, or if the college simply wouldn’t give institutional need-based aid to make up the difference, then it really doesn’t matter how high the EFC goes because no gift aid will be forthcoming anyway. In other words, even if the EFC went from $40K to $99K, the aid package would be exactly the same which makes the “penalty” nil.</p></li>
</ol>
<p>Correction for post 83</p>
<p>This is not my quote: </p>
<p>“I used to question how people make good $$ do not have any $$ to pay for their kids’ college. Now, I could definitely understand that because it is happening to me.”</p>
<p>I don’t know if I copy/pasted wrong or what, but the way it’s in my post makes it look like they’re my words…they’re not. lol</p>
<hr>
<p>sk8rmom…about CC savers…</p>
<p>While savings/investments don’t often really hurt EFC, it can when the family has accumulated assets. There’s no way we’d ever qualify for aid because over the years, we’ve purchased rentals…slowly but surely adding more and more. It’s not like regular income is mega-sized, but once property values and rental income are considered, EFC would be too high, even with multiple kids in college at the same time. </p>
<p>And, certainly, kids are hurt by saving, since their savings gets hit from the first dollar and at a high assessment. I’d like to see THAT changed. The first $5k or so of a kid’s savings should be ignored.</p>
<p>My understanding: savings that are not protected are subject to a 5.64% contribution rate. Perhaps this “penalty” is considered low, but it definitely increases EFC for families that have saved. I am not an expert on this topic, but I think we pay more because we have assets outside of retirement and home equity.</p>
<p>I think Sk8moms point is that most people who save MORE than protected retirement/housing earn enough that they are over finaid amounts on their income alone. I suspect that she is GENERALLY right. Always exceptions. I know people who work at places with no 401K, and they are saving in non-retirement accounts.</p>
<p>Savings were a part of us qualifying for next to nothing-only one school gave us FA-of course all the schools were kind enough to offer us the unsubsidized loan for $5,500 as part of our award-how very kind of them.</p>
<p>Current earnings are far and away the biggest part of the calculation. I would never not save if I had the ability to do so in hopes we would get more FA for college.</p>
<p>
</p>
<p>If my math’s correct, $450k of assets assessed at 5.6% adds about $25k to EFC. If I’m following sk8rmom correctly, that would be $400k over the exclusion for a 50 year old couple, assessed at 12% adds $48k to EFC which would be a big chunk indeed. </p>
<p>Is it fair? No, if you’re comparing your EFC with someone else who’s got the same income but splashed out money on consumable fun rather than saving/investing in real estate. Yes, if you’re comparing your EFC with someone else who’s only had your level of income for the last year or two, and who had a much lower income before and no income to invest.</p>
<p>Ultimately, the best reason to save as much as possible for your children’s education is that the more money you have, the more you control you have over your/your child’s destiny. </p>
<p>Even if it is true that sometimes savings ends up putting you at a slight disadvantage for grants or loans – something probably unknowable when you are making the savings decision – I still say save early and save often.</p>
<p>I know too many stories of disappointed children or indebted parents to think otherwise.</p>
<p>I am very certain that savings affects EFC quite a bit. I just filed the FAFSA, showing only a couple thousand in savings (we just cashed out everything to pay for a rental condo). We have significant funds in retirement and real estate, income is very high. But a low amount in savings. Our EFC should have been 99.9K+, but it was 67.5K. Still not getting any money, but the point was that the only thing that would have lowered the EFC was the fact that our savings were zilch.</p>
<p>deleted post. wrong thread.</p>
<p>
Good start. I don’t see any reason to believe that CC members are better savers than anybody else. So I’ll go with the first possibility.
Assuming you’re sincere about learning, you might want to rethink your approach.</p>
<p>Have been reading this thread with interest. We purchased real estate 10 years ago with the thought that it would be sold and used for college. If we sell shortly before application time, the $ will show up in our savings and we’ll be penalized for this - in terms of our EFC?</p>
<p>Mom2CK, I’m guessing that business/rental income combined with gainfully employed parents probably put your EFC well above the cutoff for need-based aid at most schools anyway. But it could easily go the other way…with business/rental losses shielding regular income by reducing the (FAFSA) EFC. I think that your family is a prime example of how to navigate around the EFC hurdle by capitalizing on merit aid!</p>
<p>Agent 99, if you sell that real estate after January of your child’s (high school) junior year you will get hit TWICE with the proceeds counted as both income AND an asset.</p>
<p>Agent99, it depends on how much money you’re expecting to have in savings on the day you file the FA forms (not at application time). You should work through the EFC formula now to gain understanding/estimate how much your EFC will be from income, and from income + savings. There are quick calculators on the College Board site, but they won’t really give you much insight. The worksheets for the FAFSA EFC are here:</p>
<p><a href=“http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf</a></p>
<p>I would also suggest reading “Paying for College Without Going Broke” for some ideas on ways to structure assets and manage the FA process. Good luck!</p>
<p>Holy smokes chockisses. We definitely don’t want to be dinged twice. Maybe it would be better to sell after she’s admitted? I never dreamed it would be this complicated.</p>
<p>sk8rmom: Thanks for the link. And the reading suggestion.</p>