SVMMom

So I am filling out the CSS Profile and am now sick to my stomach. We are self-employed and our business has been almost dead the last several years from the recession. No assets in business and only an income of less than $5,000 this last year. We are living off early distributions from our IRA account. Savings (except IRA) is gone. Home equity line is already maxed out and no way to get to rest of equity because bank would never give us a loan due to low income. Son has been in free lunch program for 3 years now, but our estimated agi is now $59,000 due to $56,000 in distributions. I thought we would have automatic 0 efc. I guess I was sadly mistaken.

Will Profile schools treat this like we actually MADE $59,000? We are an LLC and our K1 shows $4,200 as income from business. We did not even take any business deductions! And will they expect us to use remaining equity in home, even though the only way to do so would be to sell it and be out on the street?

mathmomvt

I believe that it will be treated approximately the same as a family that had earned income of $59K, though there may be some subtle differences.

From their point of view, you are a family who had $59K to live on this year. Since they don't consider retirement assets anyhow, the fact that you're eating away at yours doesn't really come into the picture. And really, you're no worse off than a family that earned $59K this year but has nothing in retirement savings, perhaps because they earned considerably less than that in prior years.

Schools differ in how they treat home equity. Is it substantial? You get some asset protection in general, so if that's your only asset, which it sounds like it is, it may not be come into play.

swimcatsmom

An IRA distribution is just regular income for FAFSA and undoubtedly CSS. My husband is retired and our main income source is our 401k and IRA distributions (and his federal pension). They show up as income on our taxes and are treated as such by FAFSA. Probably slightly worse than earned income in reality as there are no allowances for FICA taxes like there would be on earned income.

SVMMom

Equity is $170,000. Do you think they will count this? Only way to get to it is to sell the house (like this could even happen in today's market!).

mathmomvt

Yes, they will by default expect you to be able to get at some of that equity.

Two things:

1) Your home equity for CSS Profile should be based on what you could sell the house for in today's market. You may be asked to substantiate that if they infer a different value based on the purchase price and date of the property. We got a real estate agent to do a comparative market analysis for us and put it in writing.

2) You should explain that you are unable to refinance your mortgage right now to get out your equity because of the loss of income (if this is in fact true).

From a financial aid point of view, you'd be better off drawing down your home equity than your IRA, if you can get at it.