Tips and/or Tricks to know with FASFA

Parents Forum
101

<p>I'm not going to offer an opinion on this, because I think what is likely to happen as a matter of practice could be misconstrued by some as a way to create another loophole. Kinglin can fix things if wants to. </p>

<p>I would like to point out that I started another thread about changes to the student loan program that will affect all students and families relying on borrowing for next year -- the cost of borrowing is going up dramatically, both in terms of interest rates and loan origination fees. </p>

<p>So it is a very unwise decision to leave yourself short financially by spending on cars or vacations now, if it means you will end up needing to borrow later. </p>

<p>For parents, that means that the best strategy may be to maximize contributions to IRA's - that will protect the assets (but not income) from consideration, but at the same time leave assets potentially available to pay for college if needed - as under most circumstances there is not a penalty for early withdrawal of assets used to pay qualified educational expenses. That's where a Roth IRA comes in handy, as you don't have to pay tax on the withdrawals, either. </p>

<p>For students, I honestly think the best strategy is to make any necessary purchase early on, but otherwise to try to bank or invest the money in ways that maximize return. While a student might get less aid money, they will still come out ahead if they have more money -- yes, you pay a bigger share of your college expenses, just as you will pay more taxes if you earn more -- but in the end, the best strategy is still going to be to maximize assets.</p>

<p>I'm very concerned about my own son, who has worked full time for the past 2 years, but will be returning to college as a transfer student next year. I think he will get hit with the double whammy of having half his income taxed, plus 35% of his assets -- plus, as he is age 22, my income & assets will also be considered. I can see that leaving him with a very high EFC, but obviously his income will drop as soon as he is back in school, and of course he has also been bearing the expenses of supporting himself, paying rent, & buying his own food. My guess is that he will qualify for very little aid. I will help him out, of course - he shouldn't get stuck with the portion of the EFC that is calculated from my income and assets -- but I think it will be tough going.</p>

102

<p>Calmom: You are so very right, in most cases income is the primary figure in determining aid amounts. The place where considering moving assets is helpful is when the family is on the borderline. Keeping the cash flow available to pay your EFC should be paramount.</p>

<p>It is a small group whose income is low enough to qualify for aid and yet who still have assets which require a change in allocation to present a favorable finaid picture. I have seen a friend try to play that game of moving assets, yet his EFC was high and he later wished he had the liquidity available for university expenses.</p>

<p>I am sorry about your sons double whammy, 24 is a long time to wait for your child to be independent. I remember when my husband's grad school included his parents income & assets even though H was over 25, that was a rude awakening for an EFC!</p>

103

<p>Yeah - many colleges do look to parental information even beyond age 24 when it comes to their own aid determinations.</p>

<p>There is a slight side benefit for me - my son's return to college should reduce the EFC for my daughter - but I have a feeling that his share of EFC will be larger. It will be very easy to compare once both FAFSA's are done, as my daughter has zilch - no income, no assets whatsoever - so the FAFSA figure for her will be based entirely on my assets/income. </p>

<p>Oh well, I told my son when he left college 3 years ago that the choice would have terrible consequences for financial aid. I do think it is unfair, though, as the system really punishes young adults who decide to work and live on their own for a time. It favors continued dependency over independence and a strong work ethic.</p>

104

<p>Hmm, let us know how bad the hit is, my D is about to graduate and take a year off from school before heading to grad school....I am wondering about her working vs some other edifying project.</p>

105

<p>From somemom -- "It is a small group whose income is low enough to qualify for aid and yet who still have assets which require a change in allocation to present a favorable finaid picture."</p>

<p>You would be very surprised. Out of all of the people I have worked with, 30-40% realize significant savings from moving assets. But you have to remember, moving assets is only one piece of the pie. When you combine this with proper selection of schools, the savings can be tremendous.</p>

<p>Now I have found that in some areas where incomes are inflated, that group will not have as much benefit as others.</p>

106

<p>Calmom, schools that follow the IM or CA methodology are not supposed to apply the double whammy of 50+35 but look at a contribution of about 25% combined. You may find this information in a past post of Dan Barkowitz.</p>

107

<p>Thanks for that info, Xiggi - I really appreciate it. </p>

<p>To Somemom: regardless of how bad the financial aid "hit" is, the best choice my son ever made for himself was to quit school for a time and go to work -- his on-the-job education was far more valuable than anything he would have gotten in college. He was lucky to get a job that paid reasonably well and also turned out to function as an intensive internship. So in the long run, he is better off for it, even if completing his formal education will cost more than anticipated. I wouldn't advise taking some menial, low paying job just for the sake of having employment -- but definitely your daughter should not turn down anything that offers an opportunity for learning and personal growth. In a way, my son has gotten two years of education in which he was paid to learn on top of the education he pays for. It doesn't come with a degree, of course -- but it definitely lays a good foundation for the future.</p>

108

<p>So, I've read every post.. some are very confusing.
So here is a flat out question.
when reviewing FAFSA form, about 35% of the student's and parent's entire assests(i.e. stock) will be calculated in being used toward college? or is it just the student's asset?</p>

109

<p>About 35% of the student's assets; about 5% of the parents assets.</p>

110

<p>5.65% after the asset protection allowance for the parents. Students have no asset protection allowance. $1 loses 35 cents.</p>

111

<p>My son and I attended a presentation by a college financial aid person last night. A few things were new information for me. He said students should always file FAFSA forms the first year since some merit scholarships are tied to the FAFSA. That is, the student might not qualify for need-based scholarships, but might for a merit scholarship at the school because he had filed the FAFSA. I had no idea that was the case.</p>

<p>Pertinent to the discussion on this thread, the financial aid person also said that his college audits 30% of all FAFSA forms, with prime targets being those who the college suspects have been switching assets to qualify for higher need-based scholarships.</p>

112

<p>Xiggi,</p>

<p>Thanks, I found the answer at your suggested Barkowitz MIT blog - quote:</p>

<p>"There are also three additional allowances against parental income that are used only under the CA methodology:
(1) Medical / Dental Expense Allowance – any amount spent on medical and dental expenses greater than 3.5% of total income is allowed as a deduction under the CA methodology.
(2) Annual Educational Savings Allowance – an allowance for savings for other children in the family who are pre-college age (1.52% of total income per pre-college age child). By allowing for this amount, the formula is encouraging families to save some money for college out of current income for younger siblings, and
(3) Private Elementary and Secondary School Tuition allowance – an allowance to reflect ongoing costs for private school tuition for younger siblings; no allowance is allowed for the current student applying to college, but a maximum of $7900 per child."</p>

<p>Of course $7900 tuition allowance per child per year doesn't cover the cost of most private secondary school tuitions ... but it is something</p>

113

<p>justaparent:</p>

<p>pls note that MIT belongs to the 568 Group for purposes of calculating finaid. Other colleges in the group have agreed to use the consensus approach, but non-members can do differently.</p>

<p><a href="http://www.568group.org/membership/index.html%5B/url%5D"&gt;http://www.568group.org/membership/index.html&lt;/a&gt;&lt;/p>

114

<p>So, I've read every post.. some are very confusing.
So here is a flat out question.
when reviewing FAFSA form, about 35% of the student's and parent's entire assests(i.e. stock) will be calculated in being used toward college? or is it just the student's asset?</p>

<p>See post 39</p>

<p>"For the FAFSA, the Student's Assets have an Assessment Rate of 35%. This assessment on assets is added to the 50% assessment on student's income -minus an Income Protection Allowance of $2550. The total gives the contribution by the student to the EFC, </p>

<p>The Assets of the Parents -after deducting an Education Protection Allowance- are assessed at a rate of 12%. This figure is then added to the AI or Available Income of the parents to create the AAI aka Assets and Available Income. From this figure, there is a gradual assessment with a maximum of 47%. The Income of the parents is also subject to Income Protection and an Employment Allowance before becoming the AI.</p>

<p>It is for this reason that people say that students assets are assessed at 35% but the parents assets have a rate of 47% times 12% or 5.64%. </p>

<p>Please note that schools following the IM or CA methods use different assessments and do not make such difference between students' and parents' income and assets.</p>