The CC phenomenon: "middle class" with no FA eligibility?

Paying for College
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<p>YES, rmldad (post #49)–those are darn good examples of what I’m talking about re: ‘gaming the system’, abusing the spirit of the set of rules. And it boils down to–for the most part–hiding year-to-year income & to a certain extent assets, if we’re talking the CSS/Profile. Conversely, circumstances that simply result in income being lower–job loss, stay-at-home mom/dad, low-income job–all those are totally legit to my way of thinking, whether having a low EFC was the intended purpose or not.</p>

<p>What gets me is how blatant some these criminals (yes, criminals) are, bragging to their friends & colleagues. They know that their shrewd tax guy can make up look like down & the sun rising in the west, with the assurance that the IRS is so ‘taxed’ right now (no pun intended :slight_smile: ) that this garden-variety crud (to them) pales in comparison with the hot water in which they are presently steeping. It reminds me of the current-day Greeks & Italians, where abiding by the tax law is far more the exception than the rule. Over there, you’re an idiot if you DON’T circumvent the system. And that’s why their economies are on the brink of failure.</p>

<p>As stated upthread, you could drive a Buick through these financial aid loopholes. If I were czar (only in a figurative sense :slight_smile: ), I’d have some special forces tax agents looking out specifically for this kind of abuse. Catch 'em, prove their abuse, throw these moral degenerates in the can, and pull their little darlings out of school & blackball 'em from future higher ed while you’re at it. I’m not always in favor of ‘visiting the crimes of the father upon the son’, but an example must be made, as this is only getting worse with passing time.</p>

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<p>GMT: no, they are both morally wrong, IMO. I’m guessing neither of us would do either of those things.</p>

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<p>I believe that most of us that are in the middle class group, and who may or may not qualify for financial aid, don’t so much want to ‘game the system’ as much as we want to know the rules of the game to be able to play strategically. I, personally, would not consider changing marital status, lying, or hiding assets, but I do want to know how to best time (if timing is important) major purchases that are in the plans anyway, or where it is wise to put funds (retirement acct vs savings), whose name newly acquired money should go under (inheritance). We have had a recent concern because my mom has become unable to handle her own finances, but I didn’t want to put my name on her accounts and have her money somehow reported as mine.</p>

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<p>shoboemom, please talk to a lawyer about your mom’s situation. Legally you should set up your mom’s accounts as trust accounts-- depending on circumstances, you may also want to go to court to have yourself declared as conservator. If you have siblings or there are other family members (or creditors) who might have a claim against her estate, you could find yourself being sued or at least accused of wrongdoing for putting your name on her account. If it is a very small amount of money it probably doesn’t matter, but if it is large enough for you to worry about the financial aid implications, it is probably large enough to be worth getting the legal advice as to what procedures to follow in your state.</p>

<p>As to your other concern, timing is important but it usually doesn’t make a large amount of difference. Remember, income is more significant than assets. That is, you would get more benefit from deferring income from one year over to the next, or paying an income-reducing expense (such as property taxes) ahead. </p>

<p>However, I’ve done the math many times. More money is always better than less money + lower EFC. In other words, I wouldn’t give up $100K in assets to save $5600 on the college bill (as if!) – and I looked for ways to raise my income, not reduce it, when my d. was in college, because I’d rather earn $5,000 more a year and have to pay $2500 of that out in increased taxes and college costs, than pay -0- extra and be $2500 poorer at the end of the year. </p>

<p>That’s why I think that those of us who really need financial aid aren’t “gaming” the system. We don’t have money to spare and we are simply trying to juggle what we have to keep our kids in college. I have laid up at night worrying that I would have to tell my daughter that she couldn’t continue from one year to the next. I took out loans, my daughter took out loans, my daughter worked multiple jobs during the school years. </p>

<p>So when I see families making six figures who feel that they should be entitled to aid, I just don’t think they are in the same boat. I’m not saying that means that they can easily pay full freight. Just that they have a lot more flexibility with their funds and choices than the families for whom the financial aid system is primarily targeted. It’s not a matter of making the finances easier on a family, it is a matter of making attendance at a given college possible where it would be otherwise impossible.</p>

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<p>I don’t remember if anyone has stated this already but your concerns only apply to those private schools with deep pockets. At the VAST majority of schools it doesn’t matter what your EFC is since it only makes you eligible for federal FA.</p>

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<p>@calmom - if only the tax and FA hit was limited to 50%…</p>

<p>If we consider a family whose income is $150,000 - roughly the top 10% nationally. If this family earn an additional $5,000 for the year, the following applies:</p>

<p>-28% federal income tax
-8% Social Security and Medicare
-12% (estimated) for state and local tax
-30% to typical CSS Profile schools in their FA calculations</p>

<p>Right off the bat, a mandatory 78% is gone. There are also other prudent deductions that won’t get you thrown in jail if you skip them, but are indicative of a responsible citizen such as:</p>

<p>-6% (minimal) retirement 401(k) contribution
-10% tithe to religious/civic charity
-others could be listed, but these two are simply representative</p>

<p>That means that at least 94%, or $4,700 out of the $5,000 is gone before the family sees a dime of benefit.</p>

<p>Finally, our arcane, obtuse tax code has limitless “phase outs” and tiered deductions that will increase the effective tax rate even further, perhaps reducing the “increase” to zero or even negative.</p>

<p>Does it make sense to turn down a salary increase due to this math? Most rational people would consider that too extreme a response - after all, you will still have the raise four years later when college costs are finished. However, does it make sense to work overtime or increase your responsibility level or look for a promotion? Most rational people would probably decide it is simply not worth the effort.</p>

<p>Also, for what it’s worth, these families making six-figure incomes, also will have Work Study included in their FA package meaning the student will be working during the school year. The FA package also builds in a summer job contribution from the student of thousands of dollars. It might surprise you, but there are “six figure families” whose students are working just as hard as you are to make college possible financially.</p>

<p>Everybody has the same goal as yours - “we are simply trying to juggle what we have to keep our kids in college”.</p>

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<p>I’ve said the same, in this thread and elsewhere – but the financial aid wannabes seem to always miss the point.</p>

<p>Over the years on CC, I’ve notice that the same 6-figure earners who gripe about not being eligible for need based aid, also often post that:</p>

<p>-They do not want their children burdened with loan debt from college</p>

<p>-They do not want to take no debt themselves – or if they are willing to borrow, they are the ones who are quick to point out that the interest rate is much better when they borrow against their ample home equity, as opposed to the high rate of interest on parent PLUS loans.</p>

<ul>
<li>They do not want their kids to have to work during the school year, because they prefer that their kids are able to concentrate fully on their studies.</li>
</ul>

<p>All are legitimate concerns, but those of us who do qualify for financial aid know that our awards are built on “self help” first – our kids are taking loans, work-study and/or other campus or off-campus jobs – and we can’t borrow on our home equity, if we have it, because our debt-to-income ratio is already too high for the banks to approve us. </p>

<p>The grass looks very green to those higher earners when they are writing out their checks to the pricey colleges their kids attend – but no one ever wants to take my offer to exchange incomes for the 4 years that their kids are in college. ;)</p>

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<p>If this is burdensome then it’s obvious what the choice is–don’t tell your kids you can pay the 30% for a CSS profile school. Take the expensive privates or OOS publics off the table. Tell them you will pay for any college up to the cost of your state flagship. Smart, resourceful kids can often beat that figure with merit aid at LACs or OOS publics that want them (i.e., Alabama with its guaranteed tuition benefit for a 32 ACT/3.5 GPA). But they might have to give up on the prestigious “dream” schools that they and their parents envision them attending.</p>

<p>I find it ironic that people making $150K a year think they deserve financial aid and yet at the same time complain about making sacrifices and requiring their kids to work during the school year or summer. Those of us in calmom’s or worse situations are already making do without some of the “optional but responsible” contributions you list above and making other lifestyle compromises as well.</p>

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<p>RMLDad – your math is off because the tax bite is subtracted out of the income in the financial aid calculations. My income is no where near $150K (more like a $40K average AGI when my d. was in college – I’m self employed so there is some fluctuation from year to year). But I definitely ran the numbers. I’m not saying that the financial aid + taxes weren’t a big bite – but I still came out ahead no matter what.</p>

<p>Also, some of the expenses you cite are optional, like retirement or charitable contributions. So that should be categorize as a discretionary expense – it’s coming out of the extra money you have left over, not part of the calculation of your net gain with the increased income.</p>

<p>I worry about my retirement too, but I didn’t contribute during my d’s last years in college because I didn’t have the money. That’s the part that it seems that the 6-figure earners don’t get – it’s not like my kid’s college grant meant that we had a pile of money left over for fun and games. Even with maximum aid from a college that claims to meet full need, I had to give up on some of the expenses that you think are “indicative of responsible citizenship” to put my kid through college. Not because I am a bad citizen – but because I had no choice. </p>

<p>But even with the equation you propose – it still makes sense for the parents to maximize income, at least in situation where there is no hardship in gaining the income. That is, it may be a deterrent to taking on a second job or increasing hours or effort at the existing job-- you might find that the net compensation for the extra hours is well below minimum wage. But even your lumping of discretionary expenses in with the tax and increased EFC costs left a net 4% benefit. So as you recognize, it would be counter-productive to turn down a salary increase or a bonus that does not require extra effort on your part – though it might make some sense to defer a bonus or take it in another form if it would have favorable financial aid or tax implications.</p>

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<p>Sally, a 60k tuition is 90k in gross income; that is why a family earning 150k needs FA.</p>

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<p>

When we run the numbers it looks like some of the ‘meets need’ private schools would cost us approximately what our state uni would cost, so they do seem to be as much within reach as our state school (at least financially). It seems that it tends to be those somewhat more prestigious dream schools that have the money to offer and can meet need. So, if my D were to gain acceptance to one of these schools but they offer far less in financial aid than we had anticipated (and I have read stories like this), that would be upsetting. If the original calculations showed that the aid we were likely to qualify for wouldn’t be enough, then we would simply remove that school from our application list. There just seems to be so much that is unpredictable, with different schools calculating differently, and merit aid often being a competitive unknown, and family’s financial situations changing. Combine that with conflicting advice and stories and there are many opportunities for people to feel disappointed, frustrated and even misled even if they feel they have done their homework.</p>

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<p>Aargh. Need-based financial aid is based on the assumption that YOU WILL TAKE LOANS. If you expect to pay tuition entirely out of current income you should not expect need-based aid, no matter what you income level is. </p>

<p>Look at the monthly cost of servicing the loan debt. </p>

<p>Whether or not you have financial need, the federal government is willing to lend you (the parent) 100% of the COA at whatever school your kid wants to attend. That is FINANCIAL AID for everyone. Yes, it is a high-interest loan; yes it costs you more in the long run to borrow than to pay up front – but that’s the equation you should be looking at. How much can you afford to pay monthly to put your kid through school, and how much debt will that service? </p>

<p>Don’t qualify for aid? Have your kid work and take out an unsubsidized loan – figure out what is left and how much of that you are willing to contribute per year – and then leverage that amount by borrowing. If you are not willing to do that, fine – but don’t complain about being ineligible for more aid. The need-based aid is calculated based on what our finances show about the ability to sustain debt.</p>

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<p>No, that is why a family earning $150K needs less-expensive options.</p>

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<p>shoboemom, it is true that some of the most prestigious colleges and universities offer full need and that their income thresholds may be relatively high. But the big “if” is IF your kid gets in. I think people are often misguided by the “meets full need” criteria and rule out colleges that only offer 80 or 90 percent of need (generally smaller, less-well-endowed privates). And then they are stuck with second-choice options that they have to pay full price for when they don’t get into the top-tier schools. My son applied to a number of schools in the “meets most need” category and received generous merit aid at almost all of them, putting the COA substantially below that of our state flagship. The key is being the kind of student the college wants to boost its stats, add geographic or racial diversity, round out its orchestra or football team, or whatever.</p>

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<p>By the same token, families earning 50k need less expensive options</p>

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<p>Trust me, families making less than $50k are used to finding less-expensive options for everything in their lives. But they are the ones who NEED financial aid. Virtually no college is affordable for people who have nothing to put aside at the end of the month.</p>

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<p>@calmom - I will concede that the 30% for CSS Profile schools might be for after-tax pay (although I had a hard time trying to verify this). Still, that means a 15% bite (30% of the 52% remaining after taxes) instead of 30%. This still leaves ony 19% of the overtime money instead of 4%.</p>

<p>I would also point out that 12% for state and local taxes is probably a low estimate, based on my living in Kentucky. For someone who lives in California or New York, this might well exceed 20%.</p>

<p>I had already stipulated that the additional items were not strictly mandatory, although I only mentioned two specific items. If you consider retirement and charity optional, you can replace these with increased commuting expenses, or more daycare expenses/meals out due to demanding overtime schedule, or higher level dress code for increased responsibility, or additional training requirements. My point is that rarely do increases in pay come without additional strings attached from the company.</p>

<p>I share your frustration with people who assume FA is based purely on current income. However, I would expand on your frustration to add people who have not saved anything. For my kids, I found our single best strategy in paying for college was that we made the decision when they were young to live below our (already modest) means. By putting aside $1,000/year, not only did we have a nice bit of nest egg when they turned 18 but we also had the first $1,000 for tuition each year without cutting anything - and we also had the first $1,000 for repaying loans after they graduated as well.</p>

<p>Every FA package includes Work Study. Every FA package assumes contributions from student’s summer earnings. Virtually every FA package includes loans. There are certainly “six figure families” that complain about these, but there are also “0 EFC” families that complain about them as well.</p>

<p>I would again point to your statement that I appreciate, “we are simply trying to juggle what we have to keep our kids in college”. We can make villians out of people at every point on the financial spectrum, but affording it isn’t easy for anyone. Education is expensive.</p>

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<p>Sally, What I had heard was that if a student gets merit aid, then that typically just gets subtracted from the need based aid that they would have gotten, so that it doesn’t actually end up being more. I have heard of them being stacked together, but thought that was pretty rare. I will have to look more closely at this. There are certainly some schools we might want to consider.</p>

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<p>^Yeah, I’d look into that. The merit aid can take a nice chunk off the sticker price but I think the way schools calculate their FA packages can vary.</p>

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<p>Shoboemom, you may be confusing internal merit aid with external aid. Colleges that do not promise to meet full need often give preferential packaging to many of their students, and typically will offer <em>some</em> – not all – students aid packages that are more attractive than what they are offered from a full need school. Keep in mind that the purpose of merit aid is to attract top students – and one way they can do that is with packaging that goes beyond a typical award, typically achieved by meeting full need with dollars (grants and scholarships) and eliminating the self-help aspects of the award (work study and loans). A college can also sweeten the pot by offering a research stipend (an offer of grant $$ that is tied to some other purpose, so it does not impact the COA calculation)</p>

<p>If a college meets, say, 80% of need on average – it does NOT mean that each student gets 80% of their need meant. It means some students get 100% and some get nothing but loans, and some get something in between. So the awards on the upper end of the scale can be quite generous.</p>

<p>Keep in mind that the calculation of “need” is different for each school. Partial fulfillment of need at a FAFSA-only school can be far more generous than 100% need at a CSS-Profile school. For example, my d’s FAFSA EFC for her first year of college was $5000.
After financial aid, cost of attendance at a UC would have been $10K (a $5K gap). </p>

<p>Her full-need school wanted $17K, and that was by far the most generous offer of any private school. (The next “full need” school wanted $25K, including a much higher self-help contribution. I’m guessing the difference was in the way the respective schools treated home equity. FAFSA doesn’t count it at all, some colleges cap the equity based on parental income, others don’t)</p>

<p>Obviously it would have been cheaper for my d. to attend the UC which never claimed to meet full need, as opposed to the private school which met “100%” of need. I’d note that the UC also offered a modest merit award, which reduced loans & work study. If a school has met less than the FAFSA EFC, the student would still be eligible for subsidized loans – that is, the student could take out a loan even though the financial aid package was written ostensibly as a no-loan package.</p>