Two easy fin aid traps for parents

Parents Forum
101

<p>Yulsie, this dosen't work well in CA where you have great appreciation in gereral, but your property taxes are grandfathered when you buy. People can't trade up without increasing their tax bill very substantially. We spend way more of gross because of this in CA. Works well in most places though!</p>

<p>Boxmaker, the thing I've come to understand is that home equity really does make choice of college possible for many. If you borrow the whole $175K at today's rates, even after the first 2 years of teaser rates, your added payment would not be more that $1000/month. So $12K a year for the most expensive schools. Doable for most middle class people with substantial home equity.</p>

102

<p>I don't mean this as a flame but how are you middle class families not able to meet the EFC? Just to give an example, a friend of mine has an EFC of ~30k and his family makes a gross income of approximately ~150k. Are you honestly saying that is unfair? Is it more of an inability to actually pay or is it a desire to keep your current standard of living?</p>

103

<p>Shizz, I know a family that makes very little money. They live in a big old comfortable house that the grandparents gave them, and it is paid for. They struggle to pay the taxes on it but it is in a decent area and the schools for the kids are great. To sell would mean moving to an even more borderline neighborhood (this house is on the verge of a seedy area) and really after all the fees that go into buying and selling, don't know how they would swing it. So yes, they do want to keep their standard of living and yes, there are families squeezed in a one bed room apartement in a truly bad neighborhood, but for the sake of family life, is it really better to leave this house where they have lived for so many years? Believe me it, is not a Taj Mahal in the least, in bad repair, and the furniture is stuff picked up from the curb. But it has been a nice windfall for the family--should they sell to benefit Son#1's college education? Also they have no pension money as they have not made much in salary which means not a lot of social security, so the house represents the parents' retirement. If that were in a 401K or other qualifed pension plan, it would not show up on the PROFILE. Borrowing the money is dangerous as they are living hand to mouth already. They really cannot afford another payment of any sort. That's where the dilemma comes and I don't have an answer for that one. What it comes down to is that a choice has to be made sometime if the whole family decides to sacrifice by moving from a home where they have lived for a while into a more dangerous, seedier environment and riskier schools for the 2 remaining kids to pay for the first kid's college. I would say the cost of the most of the move would leave just about that much cash to pay for college. Now even taking the house out of the equation, the family has a higher EFC than they can comfortably pay, so it really comes down to the indisputable fact that they cannot afford the PROFILE EFC that includes the home equitywhich includes most of the more select and generous private schools.</p>

<p>The other time that families often find themselves in this bind is if they own a home business. It may not pay out much, but the value of the business is considered. Can't borrow against it, cuz if you take the loan proceeds and give it to the college, you don't have enough to make the loan payments. You're barely getting by as it is. And, again, the business is your pension as well since you have no qualified retirement money. </p>

<p>The other scenario is if you are just starting to make this kind of money and had some rough years that you are still paying off. The forms do not take into consideration prior years' income and situation, nor do they care about other debt. Yeah, you can send a letter, and if it is truly a catastrophe like a major medical situation or something truly disasterous in all aspects, they might maybe make some consideration, but in my experience, they don't. Especially if the reason is something as mundane as a business going bad, or having to help out grandpa whose investment went down hill and would have lost HIS residence if you did not help. Or a cousin need uninsured medical procedures, that you funded. They have heard it all, and they are not really very receptive to these stories. </p>

<p>Also some very good kids have some irresponsible parents. You can't make your parents start an austerity regiment. So if you are so unlucky to have parents who blow their money, make bad investments, had some bad luck, YOU, the student have to bear the consequences. Federal methodology and colleges too place the fianancial responsibility on the parents, and not all kids have parents who want to pay for college educations, especially at today's prices. They may have made some mistakes they are paying for, they may simply not be able to manage money and are just too tired to sell a too expensive house and move. Having moved more times in my life than I even like to think about, I can understand. This last move nearly put me under, and if I had had health issues, I think it would have. I'm getting old, slow and tire. The prospect of another move makes me hurt, and I know we should be contemplating one more to fit into our financial plans. I just hope I have the strength to do it. And I can tell you, moving to a cheaper place does not reap immediate benefits. I feel pillaged each time, paying all the move related expenses and there are always necessary repairs at a new home, especially if you are moving into some worn out homes which has been our usual situation up until this last one which was a new home--but it still had things we had to reach into our pockets to take care of if larger,more expensive problems were to be avoided.</p>

104

<p>Jami, your honest, to the point posts are always good to read. The middle class is caught, and the upper middle class in some places. The expectation that parents should sell a home is unreasonable. It probably won't change and kids need to have the reality reflected in their expectations.</p>

105

<p>And yet, Kirmum, as you can see from some of my other posts, you can see why the home equity should be included, as there are families who do not have that windfall of a house. It is difficult, and the answers "sell the house" and "take a home equity " loan are not so feasible in many circumstances. Ironically if you got the windfall in cash and blew the money, you would have had the fun of spending it and not be assessed on it a few years later.</p>

106

<p>
[quote]
The other time that families often find themselves in this bind is if they own a home business. It may not pay out much, but the value of the business is considered

[/quote]
How do they treat a one person accounting practice, or a self-employed plumber? How do they value a business with no real market so therefore no market value? Like someone buying Picasso's painting practice-it's personal to his talents and unsaleable.</p>

<p>This is just one of my many issues I can't find answers to. Who knows this stuff and is willing to advise a parent prior to applying? I mean it would take an hour just to tell them how weird the situation is. LOL.I'm willing to pay an hourly rate for professional help if I can be assured it is accurate. There is a fin aid guy on the board from MIT that I asked specific questions to but I think I freaked him out with the complexities of our situation. He ran away.</p>

107

<p>I can give people a good idea, Curmudgeon, but I won't do it cuz shooting the messenger still happens. And having to pay for that bad news can make it justifiable homicide. No one on the jury who went through the FAFSA/PRofile enema will convict. </p>

<p>The value of a business is primarily determined by the income it generates. The problem comes when the generation of the income is all determine by the work available in a given year. In my case, I tutor, for instance. If I have a banner year and every spare moment is filled, then my business is worth $X. But that does not mean I will generate that amount next month. Business can just drop off. I have no true continuum or flow of customers as it is truly catch as catch can. The same goes for a lot of businesses that are just run out of the house. A one year windfall could be a disaster.</p>

<p>I have a friend who bought a dilapidated old house for a song because it was in bad shape from a fire. The owner collected the insurance money and practically gave her the house. She and her husband literally rebuilt that house painstakingly putting every penny they could in it and they made it into apartments which the zoning permitted. Her husband is only sporadically employed for a number of reasons and her job has been cut to very much part time and there is little work available in this area. Because of her husband's health, they have to keep an expensive insurance policy which is the first bill they pay each month because it is unfortunately pretty much inevitable that they will need it. The apartment building generates about $40K a year which is pretty good,, and is most of their income. Well, the problem is it si considered worth quite a bit to generate that kind of income. They can't mortgage it, cuz they are right to edge on monthly payments already. If they sell it they are not likely to get the kind of investment return on it as they are with it as rental property that they are both diligently managing. No way. Also that is their retirement--they have no pensions other than social security. No financial aid for them because not only is the rental income counted, but so is the value of the building as the source of income, as an asset. So home businesses, small businesses are a really nasty piece of work to assess . Every single lperson I have estimated (and most were friends) would argue with me and really be angry at me for giving them the bad news. And that's with me low balling the impact somewhat. So essentially your market value is based on the income generated even if there is no real asset to sell like, say a portrait painter. He paints according to request. There is no frigging book of business that exists to sell--it's not like a plumber who may be servicing customers and can turn them over to a successor who will buy his book of business. There is nothing there to sell--but it is assessed the same way.</p>

108

<p>Yes, there seems to be no doubt that they will assess any situation the worst possible way for you!</p>

109

<p>I, too, was shocked at my EFA. (19,000) My house is paid for, partly because my father and I bought it together when housing values were down, and he died a couple years ago. My D's father is deceased and am a single school teacher. So you know my income isn't very much. Taking out an equity loan is impossible - I couldn't afford the payments and still pay for college. Also am an older parent - don't have many years left to work before retirement. In TX it's only teacher retirement, no Soc. Sec. D's first choice gave us the second worst package. No merit aid. That would have helped. Second choice, no merit aid, but a better FA package, and it is negotiable, after a couple calls with the college. Third choice, worst package of all - impossible. However, we hear that if you call and tell them that it is your first choice they find an additional $7-8,000 in grants. Her last choice, however, gave her merit aid good for 4 years, full tuition. Unfortunately it is a lower tier school, although the program she wants is ranked very highly. It's just the rest of the school that isn't all that good. And she is concerned if she decides to change majors, she would have a difficult time getting into a good grad school. So, here we are. Her career path won't give her huge salaries that will help pay for all those loans that supposedly are aid. She will visit the tier 1 school that is willing to negotiate. If she likes it, she will have to give up her first choice school. She has been awarded a couple outside scholarships, and they will wipe out her required contribution, and the rest goes to lower the school's grant share. It is almost not worth trying to get more scholarship money per year than your child's required share, unless you can find enough to cover full tuition. The only thing I have learned is that if you can find a tier 1 school that has money, and beg, you just might be able to get enough grant money to make it feasible. That's what we are working on now.</p>

110

<p>Do those colleges know about her outside scholarships, Eviatjr? I ask because many times when the school finds out about them, financial aid is reduced. I do know a student who after much negotiation was able to strike a doable deal with a private college. When her check (made out to the college and to her) from an outside source came, it reduced her aid,dollar for dollar, and she was right at the barely could make it line. She ended up at her state school. They are supposed to be told about the scholarship and many times the money even goes directly to the school, so they will find out.</p>

111

<p>That's what I mean. The outside scholarships first will reduce her share, then they reduce the amount the school gives in grants. At least that is the info we have received from the schools we are looking at. We just found out about two of those, and called, and they won't reduce my share at all. The nice thing is, in the school where she has a full tuition merit aid scholarship, the scholarships will apply to room and board, etc., but she will have to claim them as income and pay taxes. That would be a relief, but the school just isn't the same tier, and the opportunities won't be as good.</p>

112

<p>Curmudgeon wrote:
[quote]
How do they treat a one person accounting practice, or a self-employed plumber? How do they value a business with no real market so therefore no market value?

[/quote]
I'm a free-lancer, self-employed, work from home. The financial aid people at my son's school insisted on valuing my business as being equivalent to one year's net income from my business, even correcting a previously submitted FAFSA to reflect that valuation. They claimed that there was a specific FAFSA regulation that provided for that --- but I did not see the regulation, so I don't know for sure if that's true. </p>

<p>But the bottom line, by that valuation if you make $60,000, they add a $60,000 business valuation on top of that. The consolation that they offered was that they claimed that we self-employed get to keep a larger chunk of our assets - that is the 5.6% contribution isn't required, its something less. But again, I never saw that in writing.... so I can't vouch for it.</p>

<p>I do know that there's not much point arguing. I have the same situation with respect to my house. In California, living in an old, 1100 sq. foot house in a working class neighborhood; current home value is well below median for the county I live in -- but a big number on paper. With a refi, I owe more on the house than I did when I bought it, and I can't borrow more because my income wouldn't qualify for one more dime. Can't sell and put the money into another house as suggested above, because all the other houses would cost the same or more -- my equity would give me a down payment, but my income wouldn't allow me to qualify for a bigger mortgage or sustain bigger payments. Rents, of course, are sky high. So the only possibility for a move would be to move to another area... far away. Which of course could be disastrous to my livelihood... no guarantee of finding work elsewhere. </p>

<p>That being said, I did end up with an EFC in the $12-$15K range with my son. I could afford to pay some of that and deal with the PLUS loan payment on the balance. The problem for me isn't necessarily that the process is unfair -- I have to admit that at least as a self-employed person I can write off some expenses (home office deduction, for example) that does help a little. My big gripe is that it is all so unpredictable.</p>

113

<p>itstoomuch:
Ah, the OWNERSHIP SOCIETY! I love it! This year, we get to OWN our health care too. The (huge) corporation my husband works for just went to one of those health insurance plans where you get to make "decisions" about your health care. We now have a $6000 annual deductible before ANY insurance kicks in. (See, we get to decide if we want to go to the doctor or not.) And that even though we still pay $350 per month...</p>

<p>This thread has made me feel so much better actually. When you read CC too often you can get the impression that the only big decision is whether to choose Harvard or Columbia (poor darlings). Nice to know there are other families for whom that is neither here nor there.</p>

<p>Son has chosen a school where he got the best merit money and has turned down offers from more "prestigious" schools that we can't pay for without huge pain. The school he has chosen (Denison) is a great school and I think it is a great fit for him. </p>

<p>I have to say though, looking back on it, I wish we hadn't filled out ANY financial aid stuff. According to the calculator, it looked like we were not going to qualify for any aid (and we didn't), and it did not seem to matter one bit for merit based decisions. I feel like all we did was give away confidential information for nothing in return. I KNOW THERE ARE MANY EXCEPTIONS TO THIS, AND I DON'T NECESSARILY ADVOCATE THAT FOR OTHERS. I'm just saying that for us I wish we hadn't bothered. Live and learn I guess.</p>

114

<p>One thing I feel compelled to mention is that receiving a college education, (no matter how much we deem it otherwise), is not mandated by state or federal law. Our country does not require anyone to earn a college degree; & they only partially support it with the federal loan programs. If you want it to be otherwise, then I guess our University & college system would be like those in European countries where it may be funded for the students, but it is much, much harder to earn a spot in school in the first place.</p>

<p>College is (and always has been) something that most people pay for themseleves. You CAN get a break by being a great student, or a great athelete or a great musician, etc. & earn some amt. of scholarship if the school values that enough.</p>

<p>But in most situations, a college will assume that if a family has decided to send a kid to college, then families who have more money than other families, will end up paying more. It seems to hurt more now because there are more kids aspiring to college, more demands on our $ prior to college, i.e. cost of living; more of a sense that college is a necessity. But I'm sure it hurt my dad (& his parents) all those many years ago in the 40's & 50's, that only the first of nine children could be sent to college. The others probably "deserved it", or "were smart enough" for college, too, but it simply couldn't be done.</p>

<p>My dad never earned a college degree. Any of his other siblings apart from the oldest, earned their degrees later in life through the privilege of serving in WWII first and coming home alive. Don't even mention the daughters...they were probably only planning on working after high school and hopefully marrying.</p>

<p>We think our life is hard, but it's not too bad, really! ;-)</p>

115

<p>Just an aside here to say thank you to weenie for making me laugh - albeit ruefully about the "ownership" society. :rolleyes:</p>

<p>And you're correct irishbird, for most of us I would guess that our lives are really not too bad, but as parents here searching for the golden ring of how to deal with this all we just can't help ourselves when the cupboards are looking potentially pretty bare. ;)</p>

116

<p>"No one on the jury who went through the FAFSA/PRofile enema will convict."</p>

<p>I love it.</p>

<p>CalMom:</p>

<p>What happened with the finaid valuing your business? I have an at home biz and I have always valued it as realistic resale. Was this a private or public school which revalued it on FAFSA?</p>

117

<p>Just my 2 cents on the outside scholarship thing:</p>

<p>I contacted my financial aid counselor at GU, who said outside scholarships will chip away at the following, in this order:</p>

<p>EFC
Loans
Work Study
Grants</p>

<p>So the grants are the last to be hit. :)</p>

118

<p>One thing that is interesting about this whole shebang is that it reveals that lots of folks get suckered into thinking they can afford things (like prestige colleges) that they may not be able to, or at least not without what they consider to be great sacrifice. I am old enough to remember when the "prestige" colleges were indeed bastions of the rich, only mildly mitigated by the plan of J.B. Conant at Harvard to use SATs to occasionally find very talented students from the midwest and elsewhere to join them. In that same era, parents (many of whom had no college education whatsoever - your parents or grandparents may have been among them) sacrificed mightily to afford sending their kids on to state schools, and didn't think about Ivies, or prestige LACs, etc. It wasn't a part of their consciousness. They weren't on the table, and I doubt many folks felt the worse off for it. They just weren't an issue. </p>

<p>Then the colleges began selling this "need-blind" nonsense. They even tried to collude with each other to ensure that one wouldn't compete with another on the basis of scholarship aid, until the Justice Department stepped in and said that amounts to illegal restraint of trade. So now they masquerade in this "need-blind", "100-of-need" world as they do their darndest to poach candidates from each other, as they do every April.</p>

<p>The economics have changed, too. In 1967, it was possible for me to work 84 hours a week in the summer, weekends in my senior year of high school, and carry two bookstore jobs, and actually pay for a Williams education. That's just not feasible for any kids I know today.</p>

<p>Yes, EFCs stretch lots of folks, in ways that are unpredictable. Yes, housing equity should go into the mix - especially when some folks don't have any -- and that has traditionally been the way upward mobility has happened in this country, providing equity for small business start-ups and the like. Well, your kids are the "start-up".</p>

<p>But if the bill of goods wasn't sold, fewer folks would apply, and selectivity (i.e. "prestige") would drop. Remember: these are "luxury" goods: no one "needs" a Harvard or a Williams or UChicago education. If one wishes to make a luxury purchase, one needs to figure out how to pay for it.</p>

<p>We told my d. at the outset that she could go anywhere she wanted - provided the (private) college gave her pretty close to full tuition. We weren't going to co-sign on huge loans. That was our decision, not hers. We weren't going to put her in hock before she started out in life. It's just the way it was. For us. Others may feel differently. We were lucky, and hit the lotto, but I can imagine it having been different. Life would have gone on for us; my d. would still have gotten a great education because of who she is rather than the name on the diploma, and we would all continue to go about the business of becoming the best people we could be, without the expense of the luxury purchase.</p>

<hr>

<p>"Boxmaker, the thing I've come to understand is that home equity really does make choice of college possible for many. If you borrow the whole $175K at today's rates, even after the first 2 years of teaser rates, your added payment would not be more that $1000/month. So $12K a year for the most expensive schools. Doable for most middle class people with substantial home equity."</p>

<p>Yup. P.S. My house is worth well less than $175k. But it works for me.</p>

119

<p>Yes, cur, the rules did change in 1997 so if you've been holding out--now's the time to sell! :)</p>

<p>However, though you can use this exclusion repeatedly, you can only apply for the exclusion every two years.</p>

<p>
[quote]
A 1997 law substituted an exclusion of up to $250,000 ($500,000 for a married couple filing jointly) for the old “replacement residence” rules. Unlike a previous once-in-a-lifetime exclusion for senior citizens, the new exclusion may be claimed repeatedly, but usually only once every two years.

[/quote]
</p>

120

<p>Somemom, I don't know the answer to your question.</p>

<p>I do not have a business that can be resold. I am a freelancer. I do not have a business. I do not sell anything other than my own skills. I have carved out a very unique niche for myself, and can't even define or label what I do in an easy way. There is no standard valuation for what I do. </p>

<p>So I don't know whether the valuation that was assigned to my "business" was due to the fact that I was unable to give the colleges figures they liked, or because of some sort of official rule. I honestly don't know any more than I was told above. It was a private college; they did claim that FAFSA rules required that particular valuation - but I don't know if they were accurate or honest. I didn't ask to see the rule they were citing, because they ended up giving me an award that was reasonable. </p>

<p>All I am saying is that if you are self employed.... you cannot predict what things will be with accuracy. All I can say is -- stay away from ED. It can work both ways -- you may be very pleasantly surprised. But you just won't know until you actually see the award.</p>