SharingGift

When applying for financial aid (PFS), what types of debt are included for calculating net worth (assets - debts)? This is my first time, and I'm wondering if home equity loan is included. Thanks for your input.

girlgeekmom

I'd have to go back and look at ours, but there is, I recall, a section to discuss debt that may not appear on your 1040. We used the section to describe a construction loan (150-year-old house, leaky roof, no insulation)... some schools probably have different approaches to how much of such information they consider, and in what way.

...so by whether your home equity loan (or one you are considering) is "included," the short answer is "it can be." But whether it's taken into account by each school, you might want to speak with FA officers to discuss. From what we've seen, FA officers do want a complete picture. But each school's algorithm is different.

baystateresident

If it's a second mortgage it will show up on your tax forms...FA officers get most of what they need right off of your 1040 believe it or not, which is why you sign a form giving them the right to order it straight from the IRS. There is a section to explain your own family's circumstances. Good luck!

SharingGift

Thanks girlgeek & baystate,

My D is applying to CHADES schools. Anyone knows which schools deduct home equity loan debts from assets, and which others do not?

I did not have home equity loans in the past, as a result of doing my best to live within my means:-(. Where is it reported in 1040? I guess it goes to Schedule A... which line?

baystateresident

SharingGift- the schools all use their own formulas, so there's no way to know without asking. Best thing to do is apply to a wide range of schools and compare offers. The tax return comment was made at CHADES though ;-) I believe the second mortgage shows up on the 1099 or whatever that form is that the bank holding the mortgage gives you in January every year. The schools will ask for those forms too, as well as your W2s.

girlgeekmom

Home equity loans are not the same as second mortgages. As such, you don't get 1099's for them, unless something has changed recently (which is entirely possible). I *think*—but check with your accountant—that they would be on schedule A with other itemized deductions. Because home equity loans are really a line of credit, with your house as collateral. That's not the same as a second mortgage, which is a fixed amount amortized over a fixed period - just like your first mortgage.

As baystate noted, every school calculates FA somewhat differently. If in doubt, contact FA office at the schools to which you're applying.

CKSABS

If you have a home equity line, you receive a Form 1098: Mortgage Interest Statement that is also reported to the IRS.

girlgeekmom

... so, after reading What Is Tax Form 1098? | US Tax Center I would infer that a HE loan or loc would be viewed as part of mortgage debt/interest.

Still, a school might ask what it was used for, so it is wise to be prepared to answer accurately—"We've always wanted a triple jacuzzi" is probably not going to go over really well; OTOH repairs and upkeep are typical homeowner expenses and from what the FAO's we asked (because of the aforementioned construction loan) told us. they would be considered part of our family's general expenses.