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Does a EFC of 00000 mean you dont have to pay for college?

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Replies to: Does a EFC of 00000 mean you dont have to pay for college?

  • onhcetumonhcetum Registered User Posts: 470 Member
    my parents make upward of 100k a year, but they run a business,

    so after expenses, its around 60k left over (5k a month)
  • yosupyosup Registered User Posts: 1,851 Senior Member
    ...so again I ask. How the heck did you get such a freaking expensive house with an income of freaking $60k a year?!??!
  • onhcetumonhcetum Registered User Posts: 470 Member
    i dont know, we bought this house when i was very little (6th grade)

    for the past 6 years, we have been steadily chipping away at the 650k sum
  • mom2collegekidsmom2collegekids Registered User Posts: 82,545 Senior Member
    Something's not right.


    Are they subtracting the mortgage as a "business expense"?


    Either way, that mortgage doesn't fit with even a $100k income.



    After only paying for 6 years, they would hardly chip away ANYTHING.
  • 'rentof2'rentof2 Registered User Posts: 4,327 Senior Member
    And that EFC doesn't fit with a 60K income, house or no house.

    I'm thinking this all has something to do with the parents' business accounting.
  • mom2collegekidsmom2collegekids Registered User Posts: 82,545 Senior Member
    Some funny math going on....

    Even with an income of $100k, that mortgage would be unaffordable - especially since business owners pay the full Social Security contribution, and the family has 4 kids to feed. The prop taxes on the house would be high, too.
  • hmom5hmom5 - Posts: 10,882 Senior Member
    There are a few issues here. If your family owes $450K on a $650K home, that means they have $200K in equity which will be seen as an available asset by many of your schools.

    Schools that use Profile or IM often don't allow many of the business deductions the IRS does. They add them back into the AGI. So they may well see your parent's income as more than $60K. They may well also look at the business itself as an asset and attach a value to it.

    So you have a complex FA situation at schools that are not FAFSA only. They will also be asking about how you afford such a big mortgage on so little income. A bank wouldn't give you a $200K mortgage on $60K.
    Anyways, why would a low EFC hurt you? The lower the better (as in you have a better chance of getting more aid).

    This is a myth. Students with the lowest EFCs have the fewest colleges choices because most schools don't meet need. Only low income kids who can get into schools that meet full need are in a good situation if they're lucky enough to get in.
  • CountingDownCountingDown Registered User Posts: 12,415 Senior Member
    If the OP's parents got a no-doc loan six years ago when mortgage lenders were giving away loans like candy, or made the business look like they could support a mortgage on a $650k house, then I could see how they might be in that seemingly contradictory situation. If it's an interest-only loan, I'm not sure where the OP gets $200k in equity, esp. since the house was purchased relatively recently.

    OP -- many colleges will want to see your parents' personal and business tax returns. I've heard that many business owners get hammered in the PROFILE process because, as others have mentioned, lots of items that are deducted as business expenses get thrown back into the pot as sources of money to pay for college. I'm betting that a PROFILE evaluation is going to come up with a family contribution significantly higher than zero. PROFILE colleges don't care what your mortgage debt is, so the fact that your parents may be overextended or upside-down on their house is not going to be relevant.
  • mom2collegekidsmom2collegekids Registered User Posts: 82,545 Senior Member
    If it's an interest-only loan, I'm not sure where the OP gets $200k in equity, esp. since the house was purchased relatively recently.



    If the family put a lot down on the house, they may have gotten a "no qualifying" loan (which would account for the equity). But, still, the monthly payments would be ridiculous for a 100k self-employed income with 6 mouths to feed, insurance to buy, property tax to pay, and full social security to pay.


    I wonder if the student is inputting the numbers into FAFSA or the parent is. If the student is, then he may not be putting in correct numbers because the parents haven't been quite upfront with him.

    For instance, the student made the comment that they've been chipping away at the mortgage... Unless they've been making "extra payments," there's been no "chipping away" when the mortgage is only 6 years old - unless it's a short-term mortgage and then the payments would REALLY be high.
  • momofthreeboysmomofthreeboys Registered User Posts: 15,342 Senior Member
    Does a EFC of 00000 mean you dont have to pay for college?

    In general the answer is "no" a zero EFC doe not mean you don't have to pay for college. There are a tiny number of very selective colleges that claim to meet need without loans, but even a few of them require the students to take our Stafford Loans. A zero EFC would mean a family would qualify for some Federal Aid, but in general the available aid won't cover all the costs of many of the colleges and universities. Kids with family EFCs of zero have several options includng in-state colleges where they qualified for substantial awards, if they have the GPA/ACT/SAT scores the selection no-loan colleges, CC for two years and transfer, National Merit Scholar (if the student is a NMS) unis that offer substantial packages or colleges with good merit award packages + parent and student loans. If the parent is turned down from a PLUS loan, the student can receive a slightly larger Stafford loan each year. There are options, but zero EFC famlies need to do their research and the idea that students having a zero EFC is a "good thing" is, like the poster above said, a myth.
  • mom2collegekidsmom2collegekids Registered User Posts: 82,545 Senior Member
    and the idea that students having a zero EFC is a "good thing" is, like the poster above said, a myth.


    Very true....

    For many decent stats kids with 0 EFC, the options are limited. Their parents often cannot afford to borrow what's needed to pay for the costs that Pell and Stafford loans don't cover.
  • R124687R124687 Registered User Posts: 1,513 Senior Member
    One makes $100,000 year in a business
    After expenses they make $60,000.
    So the business has a $100,000 gross profit less expenses of $60,000.
    Whether this is paid as salary, or it's just profit (then were is the salary?), income taxes must be paid. So let's assume 25% (because I'm too lazy to look it up) taxes = net income of $45,000 year = $ 3750 per month for a family of 5.

    Even if they had received $200,000 (lottery, relative, whatever) and financed ONLY the $450,000 of a mortgage...the monthly payments on that mortgage (assuming the best case scenario for a jumbo mortgage, 7%, no PMI, 30 years).. would be $2993.

    So you actually CAN pay this mortgage. With about $750 per month left! For property tax, and utilities, home insurance, cars and gasoline, clothes, food, medical bills...you get the picture.

    I think OPs parents haven't given him the "straight scoop", and that's sad. He's trying hard to get an education and I hope they open up to him.
  • momofthreeboysmomofthreeboys Registered User Posts: 15,342 Senior Member
    ^^the parents will need to be upfront since the OP is applying to a wide variety of schools. Some of those schools are going to require Profile and that gets into much more specific questions about how people's indivdiual finances are structured espcially Business owners. Fortunately it sounds like the OP has applied to a variety of schools so presumably one of them will work out financially.
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