<p>There was a long discussion about affirmative action that elicited some strong feelings. Personally, I am quite upset with the way need based aid is handled.</p>
<p>For example, if a parent plans ahead and carefully saves for their kids' education by sacrificing their life style, they get the wonderful reward of qualifying for zero financial aid! In fact, if they make over a certain income , they aren't even eligible to obtain any of the education credits available.
Yes, I do know that their kids won't have any loans,but still very little financial aid will be available. </p>
<p>However, if a parent was a complete spend thrift who saved nothing, they can qualify for all the aid. There is something wrong in this picture. At the very least, give parents who pay for college or graduate school a deduction for being so financially savvy.</p>
<p>Income is the key driver for finaid; parental assets are only assessed at ~6%. So the spendthrift at the same income level will have a high efc that is not much different than the saver (less 5% of liquid assets), unless the saver has saved millions. </p>
<p>btw: yes, the federal formulas punish high cost states, but, then, so do ethanol subsidies.</p>
<p>I am not mixing up income and assets. If a parent invests the money in the kids name, the assessment penalty is around 35%, which is very stupid. Moreover, regardless of the assessment penalty, it is still a very idiotic situation.</p>
<p>this is true
when kids are born- you get all this stuff in the mail about savings accounts for college- what they don't tell you is if it is in the childs name and social # in order to be taxed at childs rate/not at all then not only can you not move it into another account once they hit 14 but once they hit 18 you don't even have any say about what they use it for.</p>
<p>The only way it would even be a good deal ( at least the way I understandit) is if you didn't need finaid at all- that the student is able to cover 100% of expenses with money from his account-I believe it would be taxed at lower rate than parental savings.</p>
<p>The kids income and assets are "available" to 35%
The parental income and assets I beleive is 5%
however some schools do tweak the formula if they really want you- and even when they "only" give need based aid- they can make people with lots of assets look pretty needy to suit their purposes
One way to identify some of these schools is to see average loan debt upon graduation- USNews keeps track</p>
<p>taxguy, a long time ago, I thought I was wise - putting $$ into kids acoount. I found out the hard way that I would have been better off doing something else with the money. I agree, the system does appear to punish the frugal and reward the spenders.</p>
<p>"If a parent invests the money in the kids name, the assessment penalty is around 35%, which is very stupid."</p>
<p>Would it not be fair to say that the parents received stupid advice ... or advice that addressed issues foreign to college tuitions? There are very good reasons to invest in the children name -such as minimizing the tax bite of the parents. However, the advice that may be good for certain taxpayers is rarely that beneficial on an universal basis. In general terms, the taxpayers who had to worry about sheltering income by playing the generations' cards are the same taxpayers who do not worry for the tuitions bills. How many years does it really take for advisers to learn the basic rules of college financing? The difference between the assessment of children's and parents' assets should be in the first pages of Finaid 101. </p>
<p>As far as the stupidity of the system, it DOES exist but the assessment of children assets should not be the highest on your list. After all, the idea is built on the notion that students and parents are the primary responsibles for financing their education by spending down their assets. Most people who are paying for private schooling have learned that a long time ago. </p>
<p>I believe that items such as non-deductibility of education expenses or non-taxability of income spent on education should be much higher on your list. For instance, the taxability of scholarships is nothing less than a perverse crime, considering that the original source of funding has most often been taxed once, if not twice. In the same vein, full-time students should NOT be subject to income taxes or social security taxes (the worst of the two evils) while at school. If the absolute elimination is not feasible, a deferral should be offered. </p>
<p>Lastly, I also believe that education credits should be granted, but should start at the botton. Every dollar spent on education SHOULD receive a combination of tax credits and tax deductions with the cost amortized by smaller public funding. The obvious impact would be the start of a revolution in the public school funding system that is long overdue. Making the public schools compete for paying students would go a long way in correcting the inequities of the present system. </p>
<p>In the current system, schools and colleges build budgets fully knowing that their increases are not necessarily approved by the customers who will pay, but by others. As far as raising tuitions, parents and students deserve part of the blame. Aren't we actively rewarding schools that spend the most by following rankings such as US News Report that glorify the art of spending unwisely to a science by elevating the spendthrift schools?</p>
<p>there is no doubt that investing money in a kid's name is a no-no for FinAid. It may not be logical, but at least the rules haven't changed in since the '80s, so folks can plan (kinda).</p>
<p>For anyone contemplating any type of FinAid, it is much better to leave assets in parental's name; plus, the kid can't buy a corvette and run away- LOL. (OTOH, there was 18 years of lower taxes by parking money in a kid's name, so a benefit WAS gained.)</p>
<p>But the 6% on assets is what frustrates me - that assumes we are able to earn 6% on invested assets and that is much higher than experience has been the past few years.</p>
<p>I guess I don't agree with you guys. If you had the money to put away, and your kids can now go to college with peace of mind, wasn't that the right thing to do? What does it matter what others do? We followed that plan, and I really don't see how it hurt us. If we can survive by living frugally, then why should we ever expect someone else to contribute to our kids' educations?</p>
<p>If I worried in general how unfair the world is, then I have a feeling i'd have to explain how I get to enjoy the accidents of birth which put me in the upper middle class of the richest country in the world.</p>
<p>I hope we've all noticed that those mailings that urge parents to start college funds for their babies are from brokerage houses, etc. Of course they want you to open a fund for each kid - that's how they make money. I agree - the info has been out there long enough that people can adjust their plans accordingly. I've come to the same conclusion as a poster above - saving in a child's name is great if you're saving $160,000/cost of private 4 year education. Otherwise it doesn't make financial sense (IMO). People with younger children who have money in the student's name might want to consider spending that money on musical instruments, lessons, orthodontia, or any of the millions of legitimate things people spend money on for their children. I don't hold the system at fault for my own failure to grasp the repercussions. Why were any of us saving money for our kids anyway? In our case, it was to pay for their education. I've just expanded my notion of education and come to feel it doesn't begin upon graduation from high school, but that it's all right to spend special savings on the kinds of things mentioned above. I can't see begrudging people financial aid when many families truly struggle. I've never seen figures on the number of people who are cagey enough to work this - I guess no ones investigated, and what's to investigate? It's legal to keep savings in a parent's name.</p>
<p>there is no assumption about earnings on those assets. The feds are just saying that parents should contribute 5-6% of their assets to pay for their kid's education. Yes, of course, the asset balance will decline, as will the efc the next year by a similar amount.</p>
<p>Xiggi notes,"
I believe that items such as non-deductibility of education expenses or non-taxability of income spent on education should be much higher on your list. For instance, the taxability of scholarships is nothing less than a perverse crime, considering that the original source of funding has most often been taxed once, if not twice. In the same vein, full-time students should NOT be subject to income taxes or social security taxes (the worst of the two evils) while at school. If the absolute elimination is not feasible, a deferral should be offered. "</p>
<p>Response: Yes, our tax system has some fabulous stupidity built in as you noted. Other examples involved taxation of unemployment. Here you have people who desparately need the unemployment, and the government taxes them on this little bit of money.</p>
<p>I do agree with you that scholarships should be completely tax free. An even bigger peeve is not to allow folks a deductions for college if they saved enough money to avoid financial aid.</p>
<p>Xiggi, I will illustrate one of the dumbest tax laws that Congress has ever passed. Folks that earn under a certain income are eligible for a hope tax credit, which is a dollar for dollar reduction in your taxes. This credit is available for the first two years of college. However, a student is not eligible for this credit if they were convicted of a felony involving drugs. This may sound reasonably fair, but if the student was convicted of any other felony,such as bank robbery, rape, murder, or even treason or terrorism, they are eligible for the credit! How's that for stupidity.</p>
<p>The answer, which doesn't seem to be happening, is to get rid of everyone in both houses of Congress every couple of years.</p>
<p>I just have such a hard time understanding the resentment people have about paying for college if they have the money. Should you get a break for being savvy enough to save for a Mercedes?</p>
<p>blech, we do that here in California and it's created a mess. Petition gatherers outside of every grocery store, dozens of propositions on every ballot, a lack of institutional memory among members of the state assembly and senate. An absence of long-term planning, a celebrity governor with a fractured staff, and on and on. Term limits have some positives but they have not proven to be not the golden ticket out of our problems.</p>
<p>Zegat, at least we can write off the Mercedes to the extent it is used for business. This is true regardless of assets or regardless of your income. There is no discrimination about that. This is not true regarding college education.</p>
<p>Well, I just have a hard time understanding how we live in a small house, drive average cars till the doors fall off (no Mercedes here), have a modest savings, and receive and EFC of nearly $40K, which would result in enormous debt for our oldest child's undergraduate education, never mind the younger sibling. How is it that now that my kid is accepted to the selective college, we can't afford it without emptying our emergency savings or 401K? Seriously, I'd like to understand. Are we too average?</p>
<p>There was actually an article in the Boston Globe a few weeks ago that listed a couple dozen schools that have revamped the way they look at financial aid. Among other things, they consider assets in the kids names the same way they view assets in the parents name - ie they don't penalize the parent for saving the money in the kids name vs their own. They also identified certain "high cost of living" areas (they named Boston, NY and San Fran as examples) and give a higher income protection to those areas. Finally, they cap home equity at a certain multiple of earnings - if you have $500,000 of equity and only $75,000 of income I think only about $150,000 of the equity would count as an asset. This would presumable ensure that you had the income to borrow against the equity.</p>
<p>I don't know if this will permeate the financial aid offices at other schools, but it is nice to think that someone out there realizes that the current formulaes just don't work for many families.</p>