<p>For my dd to attend the college of her choice, I will have to work significant overtime. I actually don't make that much (we are house-rich and that's what screwed us for financial aid) but will raise my annual salary by 15%.</p>
<p>i also had a lot of overtime and some bonuses from my employer for 2004. I included these as a part of my income. One of the colleges to which my daughter applied, made a correction to our FAFSA and deducted the overtime and bonuses, leaving my "base" salary. (However, only one of the 7 colleges to which she applied did this.)</p>
<p>My question: (1) Am I supposed to include overtime and bonuses as a part of my income and/or my salary? (2) Will working significant overtime simply increase our EFC? My understanding is that income is assessed at 46% in determining EFC on both the FAFSA and Profile. (3) The market value of our home will rise from $248K to $300K next year and we don't have a mortgage. Any suggestions on how to mitigate our sudden "wealth"? Thanks!</p>
<p>b-u-m-p please...!</p>
<ol>
<li>Get a tax program. Doesn't matter which one. Plug in this year's numbers and use these numbers and result as the basis. Test different what- ifs.</li>
<li>You may run FAFSA as many times as you want, Test different what-ifs. </li>
<li>Use a Loan calculator. </li>
</ol>
<p>Your objective is to minimize taxes, EFC, and still have the same net worth. You may want to do a simple spreadsheet or graphing. As any working stiff knows, that the more you work, the return on that work (money) in not proportional and thus you will discover that sometimes it pays to be "poor" or "wealthy" but not middleclass.</p>
<p>A strategy is to use offsetting interest rates and tax incentatives to change what fafsa sees. Take a mortgage (8%, example only) use some of this $ to fund 401 or IRA, which inturn reduce tax liability (25% tax deduction + GWB's retirement program bonus.) Take some of money to immediately paydown PLUS and/or Unsubsidized Stafford. Take some of money to paydown the mortgage. You will accelerate one or more of 401/IRA, Student Loans, Mortage-which ever one will give you the most tax benefits and comfort. </p>
<p>Jaminmom has some good explanations on how mortgage and retirement programs affect FAFSA. </p>
<p>Questions that need to be resolved:
1. Closing costs of a mortgage may be relatively high strategy when compared what $ can be saved in taxes by using 401/IRA programs.
2. What is the total interest of mortgage vs total interest of student loans vs
what can be gained by any EFC.
3. Your comfort levels for interest, investments, will you continue to have OT and bonus's.
4. Your understanding of the tradeoffs.</p>
<p>These are all moving variables and very careful study and analysis is recommended by yourself, tax professional, and investment advisor. </p>
<p>Roger<em>Dooley has several fine essays on paying for college. I especially like his "Uncertainty Principle of College Costs."
<a href="http://www.collegeconfidential.com/financial">http://www.collegeconfidential.com/financial</a></em>aid/uncertainty_principle.htm</p>
<p>Without the all of the info, it is always dangerous giving advice, but with the given information, it seems to me that the best way to go is take out a mortgage and use that money to make up any gap in need. In doing so, you are reducing the home equity which is the sticking point in getting aid from the school of choice. If there are any outstanding debts whatsoever, they should also be paid out of home equity and any future loans while the girl is in school should also be paid that way, as reducing the home equity would increase the financial aid package. </p>
<p>Working more is most likely going to increase the EFC even if it is bonus money. If you are truly low paid, you can increase your earnings up to a threshhold amount (you need to find out what that amount is for a second income) and you will not be assessed on earnings up that point, but I have a feeling you are already above that amount. So, yes, about half of everything you earn will be earmarked for college. I suggest aggressive contributions to pension plans if possible or to 401Ks, even though the money is still counted as income, it is really the only way you can stockpile money without it being counted as assets. I recommend taking a PLUS loan once the student is a senior and FAFSA/Profile are no longer any issue to pay off the home equity loan if you are uncomfortable having that monkey on your back. Itstoomuch has brought up some excellent questions about some issues involved in mortgages. Also this is the time to use that money for some home repairs or stuff you may have been putting off that will need to be done, like dental work, a new roof, etc since every dollar of home equity you have is beeing assessed at the 5.6% level for financial aid purposes. However, there is the caution that the school is not necessarily going to give you grant money after you lower your EFC. You may end up with .....more loans. So after taking out a home equity loan with all of the headaches and points involved, the financial aid you end up getting could be another danged loan.</p>