Using Home Equity with Financial Aid over multiple years?

I’m wondering how I can use home equity to pay for college without ruining my FA calculations according to FAFSA, CSS, and the college in the following year.

I’m not finding HELOCs are available to me, but only cash-out refinancing. But, if I do this intending to pay for multiple years, I’ll have chunk of cash or “savings” in the bank which will change my EFC and my contribution. I can see how I can do it for next year, but after that what can I do?

I suppose I could refinance once per year but the extra processing costs would pile up past ten thousand at least.

Secondly, I’m wondering what is the purpose in FA (npcs, css) of wanting to know my home equity if as soon as I tap into it in any substantive way, all of a sudden I’m “rich.” How do colleges expect you to use home equity if there isn’t a good way to access it?

You could wait until January of your kids’ soph years to do any refinancing/cash out, because FAFSA and Profile use prior prior year financials and assuming your kids graduate in 4 years, the financials of the calendar year when they are 2nd semester sophs/1st semester juniors would never be used for FA.

Example:
If you have 2022 HS grads, and they enroll as freshman in fall of 2022, you could refinance in Jan of 2024.

2020 is the FA year for their first year (the FAFSA/Profile you are filling out now)
2021 the 2nd year
2022 the 3rd
2023 the 4th

Note that only some colleges use home equity in their CSS Profile/need calculation. Run the NPCs with and without home equity to see which schools do and at what %.

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Are these colleges affordable? Did not mean this for @Mwfan1921 meant for the OP.

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Yes, the FAFSA uses prior prior year income…but assets are reported as of the day you file. So…if this poster files a FAFSA for his kid’s junior year in college….with money IN the bank…that would be an asset on the day the FAFSA is filed.

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True on the assets! Thanks for clarifying.

Should definitely do the junior year FAFSA in late 2023 before taking a refinancing in early 2024. Then, only senior year would have elevated assets (Some of which would be depleted after paying for junior year).

Yes cash in hand is my problem. I can’t wait however to do the refinance until Junior year.

The second question about home equity was perhaps a distraction but was a different question: what is the point of asking us about our equity if we can’t access it?

Would taking parent plus loans for the first 3 years (and then applying for the cash-out refinance after filling out financial aid forms junior year in college) work?

You are able to defer parent plus loans (I think) as long as your child is in college at least 1/2 time, and while you would be accruing interest, it wouldn’t show up as an asset for financial aid calculations. You could then pay off the plus loans after the cash out refinance, and keep the senior year contribution in savings until it is due.

Edited to Add: CSS schools that ask the home equity questions use that information differently. Many have a certain amount of equity exemption, but I think CSS schools are trying to make sure that families don’t try to ‘hide’ assets by paying off a mortgage and then pleading poverty.

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I suggested doing the refinancing in January 2024, so second semester sophomore year.

I can’t answer the home equity question…especially if a school doesn’t hit the home equity when they calculate a family’s expected contribution. I expect the ones that assess it, may do so to prevent people from depleting cash (favorable to applicant in terms of assets reported) by paying down their mortgage faster.

Obviously my speculation doesn’t matter, because we have to play by the colleges’ rules…it is the colleges’ money that people are asking them to contribute to the costs of their kids’ educations.

No these colleges are not affordable.

The only affordable colleges for us are need-met, no-loan colleges, but I’ll still need to borrow for them. Unfortunately it’s highly unlikely either of my 2 kids will be admitted.

There are some scholarship comps still in the running for one of my kids, but I’m not counting on them.

So borrowing, both me and my kids, is the only way, other than community college which is not something I have any admissions or financing questions about.

I can’t wait to do the refinancing but I understand your answer to be the most advantageous way, if you can afford it, to proceed with using home equity, as far as you can tell (and logic shows).

I just wonder if there is some way you can talk to someone and explain that the money you have in the bank is all borrowed home equity that you took for the purposes of meeting the financial contribution that the college itself asked for. Or, some other way that this incredibly obvious predicament is handled, since I can’t be the first one.

The only other thought I had independently is to use excess cash earmarked for meeting family contribution to invest in a business (providing that you can break even at least)

You can plead your case and ask for professional judgment, but that is hard to get and is generally reserved for people who have dramatic changes in income due to job loss, or disability, etc.

This is why a significant proportion of students in the US attend community college, or a 4 year college they can commute to from home. Students can often achieve all of their goals by taking one of those paths. I realize you aren’t looking for input on that decision, or how to pay for it.

You would have to report your ownership in the business on your financial documents as well.

There are a lot of investments in business that don’t pay off for a while and don’t increase the worth of a business, particularly customer acquisition. But it is risky.

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You would have to report your $ investment in the business as an asset. I encourage you to invest in your kids’ education instead of a ‘risky’ business.

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I wouldn’t call that handling this particular predicament of how to mobilize home equity. It is an alternative to handling it.

Can you take a 401k loan instead and then pay yourself back? There are no/minimal fees associated with that.

Never a recommended path, of course, but doesn’t have the pitfalls of the home equity.

Or parentplus loan.

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No some kinds of customer aquisition is an expense, not an asset, up to the level of your profit, because there are colleges who will add in a negative balance as a positive on your total income (unlike Adjusted Gross Income on your tax sheet). For colleges that don’t do that, you could invest past your level of profit.

I don’t know how we’re not talking about investment in my kids’ education. That is the whole point, how to get the money to invest in my kids education.

I can’t get a Heloc, and don’t have 401k funds to borrow against.

I’ve already been approved for my loan but now realize I might have to bail.

All the CSS colleges my kids applied to added business losses back in as income, although one can appeal that decision and ask for a professional judgment review.

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Yes most do it seems, so you would be limited to erasing your profit.

The amount remaining will be counted as an asset at 5.6 percent. If you invest it and do better than 5.6 percent would that be a viable option for you?

You can also call the colleges and ask about your situation. Maybe they have a better answer.

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