Using Home Equity with Financial Aid over multiple years?

https://smartasset.com/retirement/all-about-roth-ira-rules

Neither Roth IRA account balances nor Roth IRA contributions are reported as assets on FAFSA. Also, since Roth IRA contributions are made on an after-tax basis and are therefore included in AGI which is reported on FAFSA, they are not otherwise reported on FAFSA. This is distinct from tax-deferred pension and retirement savings contributions, which for parents are reported as untaxed income on FAFSA line 92.a.

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But they are reported as retirement assets on the Profile — and then ignored.

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Yes, the CSS Profile asks for the value of retirement accounts…but this is not used in the financial aid calculation.

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I meant “tax” metaphorically, and am also trying to converse not about FAFSA but about CSS and especially how colleges use CSS.

However your note applies to anyone here who is concerned with FAFSA and/or preserving a Pell Grant.

Profile is simply a data collecting tool. How each school that requires Profile to be completed for institutional need-based aid uses the data collected differently, according to individual school policies and methodologies. My impression is that this information can be difficult to pry out of financial aid staff. For most of the Profile schools, the Net Price Calculator can be a good predictor of need-based aid available, so adjusting the values entered in the NPC can provide a general clue as to how each college uses Profile.

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Yes I know that’s why my personal interest is in CSS and how it is used.

Super Interesting to the whole point of this thread:

adding 50,000 cash in hand to Smith College NPC did not move the needle.

But, revising my home equity holding down and mortgage debt up did move the needle, increasing the amount of aid.

Of course a human reviews these things, but if it really were only a machine this would send a signal to refinance and cash out all your equity now.

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That’s interesting.

There may be a threshold at which increasing assets moves the needle— I have found that as well.

So I would try at 60k, 100k etc to get a comprehensive understanding.

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The difference between 50k cash in hand and 100k cash with equity adjusted to the same new level is only $200

100k cash with my former equity profile does move the needle up by more than 2k.

However when I adjust the equity to the level where I expect to have 50k cash in hand, 50k or 100k hardly matters.

Home equity and not cash in hand seems to be the big driver.

When I increased cash to 150k and proportionally reduced equity even further, to about 85% debt to value, which is about as much as anyone can get, COA did go up. So there was a limit.

I was unable to manipulate the figures in any realistic way to get my cost of attendance to crash, note.

According to this NPC, you can hold cash and a reduce equity, at moderate levels of each, and maintain your FA support.

Of course, I think the human operator might view it differently than the algorithm

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If married, could he make 7000 contribution/year for each spouse?

The asset protection allowance at the more generous schools can be pretty high, like in the 50-60k+ range. So that amount of savings is ignored and then each additional dollar of savings reduces aid by ~5%. You can figure out the exact threshold by holding everything else constant and manipulating only the savings amount on the NPC.

Home equity is more complicated, as some schools ignore it, some ignore some of it using institution-specific formulas, etc. Others can probably provide more info about how that works.

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Yes, this is discussed upthread.

Good point about the asset protection allowance. I knew it existed but not that it was css-school specific. For FAFSA schools, it is standardized.

For home equity, Edmit has a website that tells you how it is calculated for many schools.

Edited to correct the link below:

Home Equity and Financial Aid Calculator (edmit.me)

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But if your aid award differs significantly from the NPC, you can ask the FA office why and you may have a good likelihood of getting your package adjusted if you don’t have unusual circumstances that were captured by the profile but not the NPC.

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If your personal interest is strong enough, and the results you are seeing when you manipulate the Smith NPC perplexing enough, then go ahead and contact the Smith financial aid office and ask questions. Certainly what you learn by doing that will be more informative (and accurate) than anything you read here.

The Cost of Attendance is not changing. The COA is the same for every student each year for a specific school, assuming similar academic and living situations. Think of the COA like the factory sticker price on a new car. Buyer A may get a better deal than buyer B on the dealer’s lot, but what’s changing is the discount offered, not the sticker price (or COA in the case of a college).

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Yes…and the asset protection allowance for FAFSA married couples is pretty low these days. Gets lower and lower and lower.

I know. It’s kind of shocking how much it has decreased.

And for single parents it was ALWAYS really low. I think mine was under $10k when it would have been $60k if I were married at that time.

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That raises a good point for OP to be aware of too…COA in the NPCs is often not set at 2022-23, the year OP’s twins will be freshman.

Some NPCs have COAs that are a few years old, so make sure it is as current as possible. As necessary, add a minimum increase of 3%-5% for 2022-23 vs 2021-22 costs.

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I know it’s a matter of personal opinion, but without a crystal ball I assume that higher education expenses will increase 5% each year. Actually, with the inflation we experienced in 2021 that has not yet abated, that may be a bit low.

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