could you unpack this? what do you mean “amount remaining”? Also “counted at 5.6 percent”?
thanks, as always!
If you borrow 200k against home equity and spend 50k for freshman year, then the 150k remaining will be assessed the following year at 5.6 percent (for css profile schools).
You could invest that 150k and if you realize more than 5.6 percent you have actually come out somewhat ahead. If you take a loss, then of course that doesn’t work.
Also many schools don’t use any home equity or don’t use full home equity— they cap the home equity contribution at a multiple of your salary — often 1.2 to 2 times salary. Edmit.com has a list with that info. Google Edmit home equity .
Also, if the home equity is what is making your awards unaffordable, you can appeal and ask for professional judgment review regarding that component of the assessment based on a significant mismatch between your income and your home equity assessment.
I can DM you in about an hour with some additional thoughts.
Edited to add that of course the gains will also be assessed at 5.6 percent but it might still work out mathematically. I have to run the numbers to make sure😊
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Editing to add that if you realize the gains then they are reported on your 1040 as income and assessed much higher.
I will do a spreadsheet later to see if this actually makes any sense. I may have been making no realistic sense.
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oh the remaining in the bank, lets say 100k, is only counted at 5.6 percent?
I didn’t know that! That’s not as bad as I thought.
so it shows I have an additional 5,600 to spend on, in my case, 2 kids?
So my contribution would increase by 2800 each the first year (ie. sophomore year) and start to dwindle as it is spent?
That still is better than PLUS I think, without running the numbers
Yes, that is what I meant by the 5.6%.
A good way to test this is to run the NPC for one of your schools with the varying amount of assets but keep everything else constant, and see how it affects your award.
Capital gains that are realized, however, are hit hard because they count as income and income is assessed much more heavily.
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yes you are right but you are using zero as a reference while you could also use PLUS interest.
Obviously anything compared to PLUS compounded is going to work, since it doesn’t get much worse than that, so maybe the reference could be PLUS deferred with interest payments.
If they go to FAFSA-only schools, the schools may assess that as being 5600 available to EACH kid, because FAFSA schools are no longer giving a break to families with multiple kids in college at the same time. My undersanding is that Profile schools have discretion to continue to give families that break, in which case yes it is about 2800 assesed “against” each kid. (I say about, because many don’t divide it 50-50. Some assume 60% of your contribution is available for each child. (And at least one that I know of actually asks how much you are spending on the other kid. I don’t know if they will use that actual number in preparing that package or not).
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I see, the profit return would have to exceed 5.6 in order to pay the difference that the capital gain would make. Very complicated to estimate.
Still comparing it to 7% PLUS, let’s say not compounded, it wouldn’t need to go that high because you are already making 3.5% in interest rate difference.
Good to know. Also, one of those schools that asks how much you are paying is in the running, but no acceptance yet. What was the school that you know of, do you remember?
The FAFSA thing I’m going to figure out separately-- we can limit it to CSS schools that promise to not screw us, and hope for the best. For this FAFSA debacle, I can only go so far as take people at their word and not think too much about it. If they are not willing to promise, then we skip that school.
My understanding is that FAFSA-only schools won’t be allowed to take siblings into consideration after next year, regardless of what they would prefer – but perhaps others can post about that.
And no one really knows how CSS schools will handle this – but it’s always worth asking.
But of course, FAFSA-only schools will ignore your home equity and will also ignore your family business (if less thatn 50 employees), so that may make them still come out more favorably.
What about 529? We had one for each child. I don’t know if you can open one now, but you may want to ask.
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Also, your kids are allowed to earn a certain amount each year that doesn’t count “against” their financial aid two years later, when it comes up via the prior-prior rule. It is $6970 for this year. So if either/both of them can work (work study or regular jobs) during the end of high school and/or during the summers, they can each cut the costs of college by almost 7k and that’s a big help towards paying the costs that doesn’t cause less aid in the future.
That’s true!
@UCDProf – if you invest that 100k difference in 529s, then the principal can grow tax free AND the interest you earn is not counted as income for financial aid purposes. But, the entire balance (principal plus interest) is counted as an asset that is assessed at 5.6%.
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I think you are eligible to open a 529 account. Here is the California site:
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That does not start until the 2023-2024 academic year.
The FAFSA only schools can’t change the FAFSA EFC. BUT these schools can disburse their institutional aid any way they choose to…it remains to be see what will happen in the 2023-2024 academic year.
True, but they have already filled out their FAFSA for 22-23 so I thought this was an issue for 23-24 and later.
Do you think FAFSA schools will have discretion to distribute their own funds in a way that preserves the benefit of multiple kids in college at the same time? That would be wonderful if that were true.
@MMRose this is an issue for the 2023-2024 academic year BUT no one knows how these FAFSA only schools will deal with disbursing their own institutional aid.
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On FAFSA that will effect pell grants but won’t effect student loan availability unless your really rich. In other words, federal money.
It does not affect grant aid from the school. There are some schools with grant aid that are FAFSA only but most are both FAFSA and CSS.