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How do I decrease my EFC?

bernie23bernie23 Posts: 1Registered User New Member
edited December 2012 in Financial Aid & Scholarships
I played around with the FAFSA4Caster to get any idea of my EFC before submitting the actual fafsa form. I was shocked that my efc was $21K. I have a salary of $30K. I do get close to $20K in alimony and also $24K in child support though. I guess that's what is killing me. The area I need help is here. I have a very large amt of $ in savings. I haven't invested it and was planning on saving for a house. I think the assets and add'l income is problem. I know I have to claim alimony - do I have to put in child support? Also, can I move money out of my savings legitimately or will they see that I moved a large chunk out at some point? Should I reduce my savings to help me with the EFC or won't it matter much? Is there anything I can do to lower my EFC before I actually submit it? I thought with my low salary I would do better but I guess the assets and add'l income is going to hurt. Help!
Post edited by bernie23 on
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Replies to: How do I decrease my EFC?

  • goaliedadgoaliedad Posts: 2,199Registered User Senior Member
    If you are in this year's FA derby, your choices at this point are rather limited.

    If you have over $50K in assets (bank accts, stocks, etc), then lowering that figure will have a small impact on your EFC (IIRC from other postings the tax rate is about 5-6% on assets over $50K - so for every 20K you *don't* have your EFC goes down about $1K.

    There are no liquid places to put your assets on short notice that will make them available for house purchasing in the near future and reduce your EFC.

    Other than spending the money on other things you may need (new car, home repairs, etc) before filing FAFSA, the only other place that you might be able to bury money is in a *ROTH* IRA. Regular IRA's show up on your FAFSA, whereas *ROTH* IRAs do not. But even considering that today you could make 2-years (2007 and 2008) contributions, that would for a single parent not even knock off $1K from your EFC.

    Unless you can figure out a way to trade your future stream of alimony for a house (your residence), reducing your income in the next couple of weeks (unlikely), I would say that you are pretty stuck, unfortunately.

    Perhaps brighter minds than mine will have ideas...
  • swimcatsmomswimcatsmom Posts: 14,942Registered User Senior Member
    the only other place that you might be able to bury money is in a *ROTH* IRA. Regular IRA's show up on your FAFSA, whereas *ROTH* IRAs do not. But even considering that today you could make 2-years (2007 and 2008) contributions, that would for a single parent not even knock off $1K from your EFC.

    I am confused by this statement - Assets in regular IRAs are not reported on FAFSA.

    OP - yes your additional income and unprotected assets will be what is causing the problem. If you have considerable savings that are earmarked for buying a house the best way to protect those assets is to buy a house. However as only 5.6% of assets go toward the EFC the income is probably the main reason for the EFC. Finaid.org has a very accurate EFC calculator at FinAid | Calculators | Expected Family Contribution (EFC) and Financial Aid

    Try running your numbers through that and playing with them to see what it brings up. That will give you an idea of what is contributing to your high EFC. As you do have to report you alimony and child support there is probably little you can do to reduce your EFC.
  • emeraldkity4emeraldkity4 Posts: 32,417Registered User Senior Member
    if your child support is ending when kid turns 18 & starts college, that info should be given to colleges directly and they will probably adjust your aid.

    For someone who is making less than $10 an hour, I wouldn't say investing in a house is the right thing at this time, I would go back to school to increase job prospects- it wouldn't lower your kids EFC, but yours would take into account your child in college
  • somemomsomemom Posts: 9,196Registered User Senior Member
    http://www.ifap.ed.gov/eannouncements/attachments/0809EFCFormulaGuide.pdf

    Here is the escat formula on FAFSA, you can see where your EFC is derived and determine whether anything helpful is smart and worthwhile. Assets of $10k in excess of your protected amount only produce $1200 in EFC, thus one would need to determine if making that $10k unavailable (pay down home mortgage) would work out long term- will you need that $10k for family expenses?
  • goaliedadgoaliedad Posts: 2,199Registered User Senior Member
    I am confused by this statement - Assets in regular IRAs are not reported on FAFSA.

    My apologies about my lack of clarity. Yes, assets in any IRA are not reported on FAFSA. It is the *contribution* to the ROTH that is *not* counted in the *income* section whereas the contribution to the conventional IRA is added back (after it has disappeared from your initial AGI number).

    Neither contribution has an effect on the income part of the formula. The fact that you are in effect putting more money in the Roth (not getting the up-front refund of taxes) allows you to bury that tax money. For example if you put $4k into a conventional IRA, and have a 25% marginal tax bracket, you will get $1K back in your pocket through your tax refund which when put in the bank is an asset assesed by the FAFSA calculation. If you put that same $4k into the Roth IRA and have the same 25% marginal tax bracket, you do not get the $1K back and that $1k does not get assessed by the FAFSA calculation.

    Don't worry. You don't lose that $1000. You get it back when you don't pay taxes on that $4k (and whatever it earns) later in life.

    You just get to shelter more assets from the Financial Aid grab with a Roth contribution than a conventional contribution.
  • hudsonvalley51hudsonvalley51 Posts: 2,396Registered User Senior Member
    emeraldkity4 -- Where did you get the idea that the OP was earning less than $10 per hour? She said she earned $30K, which is closer to $15 per hour. Alimony and child care produces an additional $44K. I know that $74K in income may not FEEL like a lot of money in real life, but it is significantly above the average household income in America (and probably WAYYY above the average household income for single parent households). This fact, and the big savings account, makes it very easy to comprehend why the EFC is in excess of $20K.
  • emeraldkity4emeraldkity4 Posts: 32,417Registered User Senior Member
    my bad I used her EFC amt
    But still for an adult in US- $15 an hour, is not so much & I still think improving earning capacity will serve her/him, well in the long run.
    At our age, we can't just think about how our kids are going to get through college, but how we are going to pay for our "later years"
  • 3bm1033bm103 Posts: 3,537Registered User Senior Member
    Not only that, but the 24K in child support is not taxable, therefore making that $74K yearly income better.
  • vballmomvballmom Posts: 3,132Super Moderator Senior Member
    I think bernie's options will depend on how many children she has, how soon they'll be going to college, and if the child is planning to go to a public or private school. If she has one child who is going to college this year, then putting some amount of money ($10K, $20K, even $50K) into a child-owned 529 plan would make sense. The trick would be to not over fund this account, but it would serve to shelter some of bernie's assets at least for this year.
  • entomomentomom Posts: 23,644Registered User Senior Member
    A 529 will not shelter assets. 529 accounts are still assets just like savings, stocks, etc. They usually count as parental assets, which is better than being the child's assets which would raise the EFC.
  • vballmomvballmom Posts: 3,132Super Moderator Senior Member
    A student-owned 529 will shelter assets in 2008. Student-owned 529 accounts are not counted as assets this year due to the loophole in the law. Therefore a student-owned 529 is an effective shelter for students who are going to college this fall. The law changes in 2009, which is why I asked if her child is going to college this year or sometime in the future. If the child isn't going to college this year, then moving assets to a 529 (either child- or parent-owned) will not be any more effective a shelter than keeping the money in a cash account.
  • rainmamarainmama Posts: 603Registered User Member
    goaliedad - Thanks for that explanation of a Roth IRA; I've never investigated those, but it's interesting that it can actually help shield income in the short run. Am I correct in guessing that this would be a reasonable strategy if one is within 5 years of retirement age? In otherwords, within 5 years of having to pay tax on withdrawals if we continued to do tax-free contributions to a traditional IRA?
  • goaliedadgoaliedad Posts: 2,199Registered User Senior Member
    rainmama,

    Just a little confused about your question.

    I will mention that with Roth IRAs I understand that you can withdraw your principal (not earnings) 5 years after they are initially put in the account without a tax ramification. Now they do show up as "non-taxable distributions" someplace in the FA paperwork, so you would have to wait until the January where you file your last FAFSA (middle of Junior year) to start such withdrawals in order to avoid any FA consequences. You then could use that money to pay down whatever loans you had to take.
  • rainmamarainmama Posts: 603Registered User Member
    goaliedad - Thanks, and yes, I had a feeling I wasn't being too clear. I am just trying to figure out when a Roth is better than a regular IRA, even absent FAFSA concerns. But I'll try to find an article to read so I don't have to bug you.

    Well, I tried the calcuator linked above, and boy was that depressing. The FAFSA amount was fairly close to what I got using the Princeton and Dartmouth online calculators, but the "institutional methodology" one was shockingly high, thanks to our inflated home equity. The tough thing about borrowing against equity is that then you have largish additional payments, and therefor less income to devote to the college costs. Catch-22.
  • purplexedpurplexed Posts: 242Registered User Junior Member
    Commercial message:

    Single parents who save liquid assets for their children's educations get penalized more than families with two parents.

    The asset protection allowance for a single parent, age 50: 20,100. For two parents, same age: 49,000.

    Yes, the formula only takes a small percentage of parent assets, but it still doesn't make it right than single parents get less than half the asset protection.

    Search links posted by sueinphilly under an EFC thread for more details and a full chart.
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