As my junior year is quickly coming to an end, I’m starting to seriously think about my family’s finances and paying for college. My mom and dad’s combined income is $120,000 a year; however, my parents are divorced and my father is retired. According to Penn’s income bracket with the corresponding typical financial aid awards on its website, they usually offer $45,000 a year to students in my parent’s income bracket. My parents, however, have more than $150,000 in savings. How will their savings impact my possible financial aid award? Thanks!
Is it in a regular savings account (or money market) or in a 401K? Regular savings is considered an asset available to pay for school. They would be assessed 5.6% of that asset in their EFC calculation (another $8400 each year).
For FAFSA purposes, the savings would be assessed at 5.6%. it is possible that assets are assessed higher at Penn, which is a Profile school.
^ Good point @thumper1
You need to ask each parent how much they can pay each year towards college. Depending on the “after affects” of their divorce, they may tell you that they can’t afford much. Divorces tend to have negative affects on family finances.
These colleges take into account that there are 2 separate households. If UPenn NPC is not set up to deal with divorced families you can can try the following:
- Calculate family EFC like it is an intact single family.
- Calculate parent EFC for yourself + custodial parent. Calculate parent EFC for yourself + non-custodial parent. Add them together.
1 is your worst case scenario, #2 is your best case scenario. The real EFC will be in between #1 & #2 but probably closer to #2.
There is a parent asset protection but it may be as low as 10K per parent. Savings amounts above that will probably be assessed at 6% per year. Your parents can put excessive savings into Roth IRA/Roth 401k if available. These money can be used to pay for the last year of college without finaid penalty. If your parents are still paying mortgage on their primary residence it may make sense to convert savings into house equity as equity is sometimes capped to earnings in finaid calculations.
You can get a feel of how UPenn finaid works by playing different scenarios with their NPC.
CCDD14. If the student does two separate calculations…one for each parent…before he adds the total together, he needs to DELETE awards that are duplicates. For example, if the $7530 Pell Grant appears on both awards, the student will only get it ONCE. Ditto the Direct Loans, any school grants, SEOG, work study, etc.
The other thing that plays into this…if the school uses the NCP information, it is very possible that both parent incomes/assets added together by the school will put the student out of range for need based grants, no loan policies, and the like.
I believe Upenn is a meet full need no-loan school. We are trying to estimate parents EFC here based on Upenn’s institutional methodology. If the student is eligible for federal/state aid it will just decrease the amount of grant aid from school. These schools usually have a family income threshold where if parents make less than X (usually 60-65K) then parent EFC is 0 and this complicates parents EFC estimations for split families when one or two parents make less than X but together they make more than X.
The OP’s parents combined income is 120K and 150K in savings - he should be eligible for a lot of grant aid unless they have considerable home equity.
The $150,000 in savings will add at least $8400 to the family contribution. If Penn uses something similar to the EFC, the family EFC would be in the $30,000-40,000 range.
So family contrbution is likely somewhere between $38,000 and $48,000 a year…or so.
Assuming that there will be 2 protected amounts of at least 10K the 150K in savings will probably add 7.8K to the EFC. This is assuming they drastically decrease protected amount for singles vs couples like FAFSA does.
My run of the UPenn NPC with 120k earnings and 150K savings for a family of 3 in PA shows total EFC of 30K before work-study. In reality OP’s EFC will be less, maybe much less.
Actually UPenn NPC does not display Expected Parent Contribution or Expected Student Contribution directly so my analysis above may be confusing. Maybe OP can just call them during the summer and get a quick pre-read based on his situation.
Thank you so much!!! You all have been extremely helpful. Also, does UPenn look at how much money is in a 401K? Most of my parents’ savings are in there.
Also, this is kind of a stupid question, but what is home equity? My mom paid approximately $120,000 for our home, and it’s completely paid off. My dad lives in an apartment, so I’m guessing he wouldn’t be considered.
Usually, the balance IN a 401k is not considered an asset. BUT the pretax contributions your parents make to those account for the tax year of your fafsa and Profile will be added back in as income.
Ask each of your parents to (separately) run the UPENN Net Price calculator, and see what the net cost is in each case. (Net cost meaning money you would have to pay or borrow.) Add the two together as a likely worst-case expectation. So, if the net cost for parent 1’s data is $12K, and the net cost for parent 2’s data is $24K, it is likely that your cost could be as much as $36K. I haven’t seen it be more than this at other schools, but it has often come in close to this number.
If either parent has remarried, then the step-parent’s income and assets should be included.
Your mom will have to conservatively estimate how much your house is worth today and this will be your home equity as she does not have a mortgage . Depending on how UPenn treats home equity up to the whole amount may be additionally accessed at 6% per year as the worst case scenario. Figure out your home equity and plug it into the UPenn NPC to see what will happen.
@ararab but the poster needs to delete ALL duplicate awards before he adds the net prices together. In other words…he will get ONLY $5500 total in Direct Loans…not double that just because it appears on mom and dad NPC results. He should also delete any duplicates of Pell Grant and Institutional grants. He isn’t going to get double the awards just because he has two divorced parents.
And lastly…remember that the combined incomes of both parents could put this kid above the income threshold to receive certain awards that won’t show up on the two separate and lower NPCs for each parent…things like no loan policies…or need based aid awards for incomes below a certain amount.
These are some of the reasons the NPCs are not accurate for kids with divorced parents.
Not only would Op have to delete duplicate awards,s/he would have to delete the federal aid they shows up as anticipated aid in the non-custodial parent calculation.
For example; of Op lives with mom, 50.1% of the time she is the custodial parent. If dad’s financial aid calculations shows Pell, FSEOG, FWS, wtc, op would not receive those awards and would have to deduct those awards out
What I was proposing does not work very well with the way UPenn NPC is set up. It does not display Expected Parent Contribution directly. However if the Non-Custodial parent who is retired, has income below 50K/y, little savings and no home equity his financials will probably add very little to the overall Expected Family Contribution. The OP should just do the NPC for his Custodial parent (mom) and himself and this will be his best case scenario. The real scenario should not be that different.
If on the other hand the retired dad has the most income and the most savings then it may not be correct. We do not have enough info to determine the real situation.
Thank you everyone! I am going to sit down with both of my parents and plug numbers in the UPenn NPC. Thanks again!!!
thumper – that’s why I suggested only looking at net cost. I’ve done this for a number of students with divorced parents, and it has proved very illuminating. Sometimes the offer is better, but it frequently comes in with an expectation of family contribution (between both sets of parents) between 85-100% of this calculation. The nice way about doing this is that neither parent has to share income/asset data with the other parent.