students accumulating $$ before college?

[Jolynne Smyth]

Trying to get savvy on the financial stuff since son is a HS junior now (as suggested!).

One small question---son is planning on earning some (relatively) good money this summer but I'd heard (at fin aid seminar) that every dollar a student accumulates over approx. $2700 is one dollar less that they'll get in financial aid.

If I have this (approximately) right...does it make sense (from a fin aid perspective) for a student to buy a laptop/car or other large item that would benefit them in college, before they are assessed for aid?

I know this is minor in light of the other financial decisions the parents make, but wanted to advise son correctly...

Thanks for any thoughts..

[swimcatsmom]

For FAFSA there is no asset protection for the student. 20% of student assets go to the EFC (Expected Family Contribution). (except in cases where the family qualifies for the simplified needs test or automatic zero EFC).

For 2008-2009 a student has @ $3080 in income protection (I say @ because there is a little additional protection for ss, taxes etc but it varies according to the actual earnings). Over that 50% of the student income goes to the EFC.

If there is an item they are planning to buy then yes it makes sense to buy it before submitting FAFSA.

[Chedva]

every dollar a student accumulates over approx. $2700 is one dollar less that they'll get in financial aid.

This is overstating it a bit; it's not a dollar-for-dollar tradeoff. As swimcatsmom said, it's more like 20 cents on the dollar.

Also, please remember that only the most selective colleges promise to meet 100% of a student's need. Those extra dollars that the student earns could be very important in meeting any gap between the EFC and the amount of aid actually awarded. So I would not discourage a kid from working and earning and saving those extra dollars.

That being said, yes, buying something that they would have bought anyway does make sense. Buying something just for the sake of getting the money down doesn't.

[SlitheyTove]

As ludicrous as it might sound, how about if a student has funds in a non-Roth IRA accrued prior to submitting FAFSA? Are those funds regarded as unprotected for FAFSA purposes?

Also, I'd guess that it might be better to buy something like a laptop for college the summer before freshman year, rather than the December of senior year in HS. Would it be legitimate to, in essence, "loan" those funds to the parents? The parents could use them up right away for something needed (hot water heater, car repair, something really fun and exciting and wild ). Then in June or July, the student coud go computer shopping and the parents would pay for the computer.

[Chedva]

IRA funds, whether owned by the student or the parent, are not considered assets for FAFSA purposes. So they are protected.

[hsmomstef]

don't forget -- you can purchase gift cards for things such as a laptop, books on amazon.com, etc. As long as you are carefule and note expiration dates and any fees or restrictions, you could easily spend money on these gift cards that could then be used at a later date to buy a laptop, books, dorm room supplies, etc.

[Jolynne Smyth]

Thanks for those insights/thoughts.

Just also thinking if son bought a laptop, it at least would keep him from spending a lot of the $$ frivolously on non-college-related stuff (video games, etc.).

Chedva-- didn't know this:
"please remember that only the most selective colleges promise to meet 100% of a student's need"

--good to know (bad news--good to hear early..!).

[warriorboy648]

So is this based on how much they earn or is it based on how much they save?

[swimcatsmom]

Both.

Income = how much they earn. $3080 protection for FAFSA - after that 50% goes to EFC.

Assets = how much they save save (or have saved over the years). No protection under FAFSA. 20 % goes to the EFC.

[calmom]

No matter how you do the math, having more money is always better. It is true that more $$ in the bank may equal reduced financial aid, but it is always a net gain - that is, if the kid has $1000 and thereby loses $200 in financial aid, the kid is still $800 ahead of the game. So for a kid who is working to earn the money, I think that the student is always better off to maximize their earning capacity. That is likely to reap collateral advantages as well -- for example, the kid with good work experience is likely to be able to find a higher-paying work-study or outside part-time job when they get to college, better paying summer jobs or internships, etc.

The big mistake to avoid is to save parent-earned money in accounts in the kid's name. That is where there simply is an unnecessary financial aid bite -- you could put that same money in 529 account in your name with less of an impact on financial aid.

[Jolynne Smyth]

Good thoughts, thanks. Appreciate the stats, swimcatsmom.

Kind of agreeing Calmom--son is really not going to earn tons & tons over the protected amount, and --financial situation being what it is--anything can help.

[bethievt]

Jolynne

If you're not reading it already, you could get a lot from the Swallows to Capistrano thread running in the Parents Forum. It is loaded with great FA info.

[curmudgeon]

Originally Posted by chedva

This is overstating it a bit; it's not a dollar-for-dollar tradeoff. As swimcatsmom said, it's more like 20 cents on the dollar.

chedva, is that right? I thought it was 35% a year? Thankfully (it appears) I'm out of the FA game and admittedly things change often but I remember 35%. I could be wrong or it could have changed.

[swimcatsmom]

It was 35% till 2007-2008 when it changed to 20% (for assets).

[curmudgeon]

Originally Posted by swimcatsmom

It was 35% till 2007-2008 when it changed to 20% (for assets).

Well, dang it. It may be past time to put this old horse out to pasture. I knew when I wrote it that it had probably changed but I didn't take the time to check. Sorry.