Plus loans also have the advantage of being discharged in case of death, as opposed to a cash-out home refinance.
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Maybe I’m not following this, but both kids will start next fall? And you have already filled out the FA forms related to the award for that year, correct?
If so, keep in mind you won’t be filling out the next round of FA forms (for year 2) until spring of year 1 at most schools. So take the cash out refi, pay for all of year 1, front-loading as many expenses as possible, and now that cash out amount is down at least 25%. Prepay as much as you can prior to filling out the next round of FA forms (insurance, taxes, car and mortgage payments, etc). I think you’ll find that the 5.6% isn’t going to apply to your total cash out at any point. Also, each school has an asset protection amount for you. At some schools it’s in the 50k range I think. You can play with the NPC to figure out where it is.
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I am thinking along the same lines as you as far as a solution. I have no experience or background with this, but could UCDProf cash out/refi enough for two years of tuition for his two kids based upon his current EFC (knowing this could fluctuate), then prepay Year 2’s tuition just in advance of filling out the FAFSA so it’s not sitting in his bank account or 529 on the day of filing? I’m not talking about a traditional tuition prepayment plan or tuition guarantee plan, just paying tuition a little early (this is an option at my kid’s school). He would have to refi again to cover years 3-4 though unless his financial circumstances change. Not sure what the risk is should one or both kids decide not to return for their second year though.
yes but a home loan has half the interest rate of a plus loan, and some of it is not subject to 5.6% because it’s evaporated in the first year.
right I’m talking about the remainder left after first year expenses are paid, that part of the cash out that I save for future years.
Thanks for the other ideas-- they make sense. I have insurance and property tax bills to pay (no car loans, but my 20 year plus cars won’t last forever).
Not sure if you can pre-pay future months of mortgage while also putting future payments on hold (if you know what I mean) but I think you can. It may even be the default or at least something that can be arranged. Banks don’t want you to pay too fast so skipping months may work (which is the only way this can work)
On the other hand, not paying mortgage then just leaves more salary going into my bank account but if I time it right, it could work and be a key tool in my arsenal for solving this problem. Thanks!
Remember FAFSA is not the issue here, but a financial aid officer’s evaluation, most likely of a CSS profile. My total equity will show as dropped for the next year, even with pre-payment of mortgage, while my debt will show as increased. So while my bank account balance will be lowered, it will be possible to see what I’m doing. That being said, isn’t that what the college wants me to do-- pay more than my means and find the way I can hand the money over to them, which is all I’m trying to do? It may work.
I’m following…as we have considered doing this instead of using our retirement savings/IRA.
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Not sure if pre-paying college, then file for FA claiming need for support for something already paid for, is a something that can work but I can look into it.
Another thing to consider if you and/or spouse are eligible to contribute to a Roth IRA: after the refi, contribute for last year, then this year; make next year’s contribution prior to completing the FA forms. Those contributions can be withdrawn penalty and tax free to pay for college. Do that In the year that your income will no longer be reported on FA forms, as it will count as untaxed income.
I’d think that strategy through and research it before pulling the trigger as I haven’t looked into all those details myself. Have a neighbor who claims he did this….
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I believe this would only work if the OP is age 59 1/2…the age you can withdraw without penalty.
You can withdraw Roth contributions at any time to pay for qualified education expenses. I believe earnings would be taxed if distributed prior to age 59.5, but there’d be no penalty if used for qualified education expenses.
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That’s good to know, thank you.
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Sadly Roth IRA withdrawals count as income for financial aid and that is assessed very heavily — much more than assets. So you can only do that in the calendar year that is after the two-year look back.
Edited to say that I see you already addressed that. Sorry!
I didn’t read the entire thing - but you say you need aid - and you’re unlikely to be admitted to meets needs schools.
What are your kids stats - perhaps they’re buried in the chain. There are easier to get into meets needs school and depending on stats, there are schools that are flat out cheap.
It scares me that you would take your home equity and use for school. Retirement is a better usage - especially when many inexpensive schools are available.
Which type school are you looking for and what are your kids profiles - I’m sure there’s suitable alternative out there for you.
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Some colleges don’t reassess need every year. My son’s school give you a package upon admission and it stays the same for 4 years with the option to petition for more aid if there is a significant change in circumstances.
This is what I would do.
Edited to add: This is what I thought I would do, before I read the rest of the replies. This thread is super helpful! So many smart and savvy people here - love this CC community.
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This would be unusual and require a manual manipulation of the loan processing. When you pay your mortgage, the payment goes to any charges or fees, then to interest that has accrued since the last payment, then to principle. If you pay 6 months at once, you’d pay the 30 days of accrued interest and then a LOT of principle.
Banks don’t like people to get out of the habit of paying monthly as it is then hard to begin to pay again. Look at what is happening with student loans. No payments have been made for 18+ months, and now they expect millions to begin paying again and those former students just don’t have an extra $150-$300 per month.
My daughter’s school would refund any over payment each semester, so pre-paying tuition wouldn’t have worked. One school refunded each Wednesday! so if there was a credit on the account on a Wednesday, I received a refund. One semester my daughter dropped a class and added another. Well, the dropped class went through (refund) but the added class didn’t. I received $1500 on Wednesday and by Thursday we received a bill for $1500. Luckily I noticed it in my bank account and had to repay the school.
So prepaying tuition doesn’t always work.
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Thanks for your concern.
I’ve had extensive discussions here on the parents of 2022 and 2022 3.0-3.4 threads about “affordable” colleges. (Despite having a 4.0uw valedictorian and 3.8uw)
What other people call flat out cheap is unattainable for us.
We are looking for basically any school they can go away to.
My kids can commute to the sub-par Sac State or, better, commute to community college and then commute to a Forbes top20, UC Davis. However not commuting is the single element of and entire point of this grueling search (and for good reasons I won’t go into). I will lay down in traffic to help my son get out of the house.
Basically my son has got an offer down to 22k total after loans and work study. That’s way beyond my means but I could borrow for it. It’s also probably the best he’ll get. My daughter will probably get some better, but seems to have University of Arizona with a 4.0 merit which will be slightly better.
So I’m looking at needing to borrow heavily, while my kids borrow too. There is no “cheap.”
I do realize that the amount and type of borrowing I’m contemplating is considered kind of crazy and I understand why (on an intellectual level). Future me may not agree with my claim to understand the consequences presently.
It depends on your frame of reference when people say things like there’s a place for everyone, etc.
We are so intent on not commuting that we’re looking at schools in Europe including places like Lithuania, Poland, Estonia as well as less “adventurous” and more costly places in Europe, which are still less than the US, as an alternative to community college should this not work out or we feel the debt is just too scary.
My kids are both terrified of student loans but it’s unlikely they can avoid them.
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what school is that? If you are talking about need-based aid, that is very rare
Yeah I didn’t think pre-paying tuition would work. I was hoping however that banks would allow skipped payments if you were ahead, in order to make more money. I will keep this as a “slight hope” in the tool bag and look into it once I have a loan processor, while looking for other solutions.
Can you unpack “calendar year that is after the two-year look back” as it relates to polite person’s idea. I think you mean that CSS and the like reference tax years two years prior. Side question- is that always the case?
As I understand it with my feeble mind, in this scenario I’m tucking away funds to use pay for the final year only.
Since we are talking about 3 years of this problem of having cash out money in the bank, that’s one third of the problem-- a significant fix!
Is the understanding that this will work, and that the IRA funds tucked away will not be seen by financial administrators, not be on CSS forms, and not accounted for in a revision of need-based aid?
I’m not sure I get why it would not count in their assessment of my wealth, but if not, great!
If it matters, in about 22 months I’ll be 59 1/2.