<p>5.6%? Not in our experience. They took the value of our “asset” and divided it by 4. In the case of the real estate, they might have taken 80% of the estimated value, which made sense given the market in 2008. There were some funds put aside in S’s name, and they expected them to be fully expended over the 4 years. So 25%, not 5.6%.</p>
<p>Consolation is likely talking about a Profile school. Like I said, they can assess your assets any way they choose to. Many profile schools also tap primary home equity in their formulas. </p>
<p>The assumption is that you can borrow against these real estate assets, refinance, or sell. Or…get the money from elsewhere.</p>
<p>While it seems unfair, the reality is that colleges are not going to award your child need based aid so that you can retain significant assets. Need based aid is generally for folks without significant assets.</p>
<p>Perhaps it is because my kids are first gen college, but I didnt think it was that confusing.
The Fafsa is pretty straight forward, even if the EFC is a bit of a surprise.
:eek:</p>
<p>We did not have college savings- besides savings bonds, because of years of un & underemployment. We did have retirement accts, which desperately needed to be built back up, but no complex self employment, small business or real estate holdings outside of our primary residence.
So while our circumstances are perhaps not reflective of many on CC, I think they are shared by most people with college age children.</p>
<p>We didnt consider private schools at the outset- they are hella expensive!</p>
<p>However, our neighbor mentioned that although his college classmate (Steve Jobs) dropped out because of insufficient aid, his alma mater did pledge to meet 100% need, so we thought it couldn’t hurt for our oldest to apply. Our Profile EFC was roughly the same as our FAFSA EFC so it made the cost roughly the same to attend as if she chose the 2nd college on her list which was an instate lac.</p>
<p>But we were very conscious of needing a great deal of aid, ( so she did NOT apply early decision) and I filled out PROFILE as soon as it was due ( which I think was October or November of the year before attendance) and FaFSA on January 1st. </p>
<p>Because 100% need can be met with ANY combination of grants, loans and work study, we were prepared for maximum Stafford loans. She also recieved a small Perkins loan, and work study.
We also were *very *lucky that Reed assumed our EFC was the same as FAFSA, both Ds had friends who had applied but their need was assumed to be more than they could afford.
We couldn’t really afford our EFC easily either, but given we would be paying out the same even if she attended an instate school, we bit the bullet and refinanced our mortgage in order to pay it. ( which you should only do after careful consideration of all your options)</p>
<p>Reed was the only private school she applied to, & she only did so because they met 100% of need. This was incredible foresight if I do say so myself.
Because while some ( many) schools may offer their strongest packages to freshmen, they may not be as generous in later years. If she had been attending a school that ** didnt pledge to meet 100% need ** after 9/11 when her dad was laid off, we may have been told* " sorry, we are out of funds for this year, maybe we’ll catch you next year"*
But instead, as soon as he actually recieved a paycheck with his new ( lower) salary & job classification, they increased the grant to make up the difference.</p>
<p>
I do not look at the asset “tax” this way at all. Historically, on average, the assets will also be appreciating at a rate similar to the 5.6% “tax” … so the 5.6% hit on assets essentially “taxes” the gains on assets while not gutting the asset pile. Depending on how the markets are doing this can work out a lot better or worse some years.</p>
<p>To me the more common issue is that a lot of families can not come close to the expected contribution from income … they can not easily adjust spending habits to live this far below their means … and often hit their assets to cover part of the contribution the formula determined from income.</p>
<p>Itsv…my heart sank reading what you wrote, because you are in a similar position, except that we own a few more rentals! Sounds like the expectation will be that we cover it all! Kid 1 is high scoring, but not perfect 2400’s, one-hundred percent A’s (since she went off to an early-college school where all classes are college level. A couple of the math-oriented ones earned B’s.). </p>
<p>So looking for those scholarships! I will buy the book you have suggested and thanks so much for your advice!</p>
<p>Sylvan, I know the expectation is to use the asset, whether by loans or selling. We will not take out loans at our ages, so we will be selling (wish they were totally paid off, but one might be before the next kid). Our kids are going to have to make it happen. It wouldn’t be wise to burden ourselves at this late date with new loans, and it just isn’t a possibility. Either the real estate covers what they need, or they get scholarships and work for the rest.</p>
<p>Sylvan, it sounds as if the schools don’t care what the costs of maintaining the rentals are, if rent is counted as an asset as well as any equity. Believe me, we dip deep into our pockets every year, hence, the paper losses. Using just the rental income would present an inaccurate picture. The value of the properties has not changed in over a decade, since we bought them. We are in an area that did not decrease, like California or AZ, but certainly didn’t increase in value.</p>
<p>Momofthree boys, I know what happened in Michigan, and knew longstanding successful landlords personally who went under when that market dried out. I’m sorry you had those issues. </p>
<p>Early applications are certainly going to have to happen! Her school is so demanding that this is going to need to be done soon.</p>
<p>ITSV, thanks for your response. I guess I was inquiring about schools that do not stipulate on their web site any deadline for merit aid consideration. My D will be applying to our state flagship, and I do know that there is a NOV 1 deadline if you want to be considered for merit aid. In any event, thanks for your insight. I will be adding a “scholarship consideration deadline” column to my college search spreadsheet!</p>
<p>Everyone “needs” aid in this current market. College is completely unaffordable except for the top 1% (and we have a pretty good income). It’s outrageous.</p>
<p>I am the child of a disabled WW II Vet and I had a sweet deal. I wish it applied to grandchildren.</p>
<p>
You don’t enter the entire rent absent of expenses/costs on your 1040. They use the net amount from Line 17 rather than the entire rents, although the amount of “loss” allowed and the depreciation allowed are subject to some question. None of the schools are going to just count 100% of your rents as part of your “income” number. It’s likely that the equity will be a larger factor for you since you have owned them for awhile.</p>
<p>
</p>
<p>Its not a question of selling and owning rental property is also not the issue.
An asset is an asset is an asset.</p>
<p>See Post # 7:</p>
<p>
</p>
<p>Thats it in a nutshell.</p>
<p>
What you need to keep in mind is that, if you have owned the asset for a long time and will realize substantial capital gain when selling, the FA formulas will tap the capital gain as income in the year you sell (47% for FAFSA is you are in the highest category, which is not a high burden to meet) and 5.6% as an asset (again, FAFSA). The privates may use different formulas.</p>
<p>So if you own stock or a piece of property for 15 years that has doubled in value, around 30% of the value will be counted for FA purposes in year one if you sell it.</p>
<p>And that 5.6% counts against money sitting in the bank as well, which these days makes essentially 0%.</p>
<p>
Be aggressive in your favor in determining the value. Figure the price that it would need to be to sell in one day. Subtract out commissions and other costs. Use the Fed tables for housing inflation if they work in your favor.</p>
<p>As someone mentioned above, you can expect CSS Profile schools to disallow depreciation expense, as it is a phantom expense. Most other expenses that are actual cash out of your pocket will probably be allowed. Although, they may disallow rental losses entirely. Owning real estate that loses money is a choice, after all, and you can’t expect the school to subsidize your choice.</p>
<p>If you are going to liquidate an asset, do it early enough that it doesn’t show up as income on your taxes. Unfortunately, with a rising senior, it is too late for this.</p>
<p>Again, it’s not about owning rental property per se, it’s about owning valuable assets. I have a friend who owns some land that’s been in her family for generations. Unlike rental property, it produces no income. But it’s a valuable asset, and both FAFSA and Profile count that land toward her net assets. You may own rental property that’s producing zero or negative income, but it’s still a valuable asset, same as my friend’s non-rental land. Its value depends on the market, and it may now be worth less than you paid for it, but as long as it still has a positive market value and you have equity in it, they’ll count it, calculating that you’re financially better off than someone with a similar income who doesn’t own an asset of comparable fair market value. As well they should, IMO. </p>
<p>This sometimes hits farmers especially hard. It’s a little different in our part of the country now because high corn and soybean prices have sent farm incomes soaring, but for many years a lot of Midwestern farmers were “land rich but cash poor.” A farmer might be sitting on $2 million worth of farm land and scratching out a net income of $50,000, sometimes less; the FAFSA would come back with an EFC of $99,999 (the highest they go). How are you supposed to come up with $99,999 on $50,000 in income? The answer is, you’re sitting on a valuable asset which you could sell or mortgage, and it may not feel like it, but you actually are financially better off than the guy in town making $50K who does not hold a $2 million asset. So suck it up.</p>
<p>Harsh, perhaps, but that’s how it works. FA is not about making college financially pain-free.</p>
<p>Upthread it was said that 100% meets full need schools can use any combination of loans, grants, and scholarships.</p>
<p>I don’t believe that’s the case. I can’t recall the source, but I have read, and experienced, that the (very few) 100% full need met schools only use Stafford and sometimes Perkins loans in need. If they offer other loans, they are offered toward the EFC, not the need.</p>
<p>This was our experience at one of the few true 100% need schools. Our need was calculated at about 28K–it was met through Stafford, work-study, and grant. Additionally, we were offered Parent Plus for the EFC, not toward the need.</p>
<p>I realize these schools are rare, but I think the definition is important.</p>
<p>
Or you may have negative equity in your rentals (as happened to me in the late 2000’s) and the school can arbitrarily assign a positive value to it, and decide to not count whatever legitimate expenses they want. Since the market for real property is illiquid, it is difficult to absolutely say it is worth $xxx. So it is very easy to wind up with an asset that you would cost you money to sell, that is costing you money out of pocket, yet adds a significant amount to your EFC.</p>
<p>In the case of your farmer, he may not have the income to make loan payments, and therefore can’t get a loan. And if he sells off 20% of his land to put his kids through college, he has reduced his income by 20% for the rest of his life, and possibly the lives of his children if they inherit the farm. That’s a pretty steep price to pay.</p>
<p>Their money, their rules, though.</p>
<p>
Those are still loans… and can add up to $27,000 over 4 years.</p>
<p>yes, but might point is “any combination” implies that they could offer all loans, which is not true. 27K is a doable school loan.</p>
<p>sschickens. I hope I wasn’t confusing but I was agreeing with what you were saying. For those colleges with late deadlines (like June) or with rolling admission deadlines- merit money goes to those earlier in the application change so it pays to apply as soon as you can put together a great application. </p>
<p>Other relevant websites are :</p>
<p>[College</a> Navigator - National Center for Education Statistics](<a href=“http://nces.ed.gov/collegenavigator/]College”>College Navigator - National Center for Education Statistics) Look at the net price calculator or financial aid section and see what the average contribution is for a family at specific income levels. This will help you find the school more generous for families who have lower efcs than mine. </p>
<p>[Higher</a> Education Opportunity Act Information on College Costs](<a href=“College Affordability and Transparency Explanation Form”>http://collegecost.ed.gov/) This website is by the college affordability and transparency center. Use the search function to find the colleges with the highest net prices. Play around with the tabs to find other useful information and search function. Here are the results for the private 4 year schools with the highest net prices. [College</a> Affordability and Transparency Center](<a href=“http://collegecost.ed.gov/catc/Default.aspx#]College”>http://collegecost.ed.gov/catc/Default.aspx#) I found that search especially interesting because my DS’s counselor has 3 of the top ten on every student’s college list and this high school is not from a high income area of our city. The result is a lot of my son’s friend and their families are paying a ton for college since that is where the students applied. </p>
<p>The other thing to consider are regional tuition reduction programs like the Western Undergraduate Exchange which allows residents of nearby state to attend college at less than the OOS price. Some of those colleges (which are all public) allowed students to stack a merit scholarship on top of the tuition reduction which made the college very affordable. </p>
<p>TranquilMind: Parents/Students commonly think that only the 2400 SAT and 5.0 student gets the merit scholarship. That is so not true. My DS was not either of those however he applied to colleges 1) their website indicated that for his scores they would give a merit award and/or 2) the colleges where trying to attract a student like my son to their campus and/or 3) there was a scholarship competition that he could enter. My son’s full ride was a combination of three scholarships. He got one for each of the categories I mentioned. So with your daughter if money is an issue then do not apply to colleges that do not give merit scholarship. Do the research and especially have her make contact with admission reps for colleges she is interested in and ask them about merit scholarship. My current high school senior has found many scholarships at colleges that are not on their website but which the admission rep has told her about. It does take work to find the money but trust me it is so nice each semester when I don’t have to pay. Not everyone can get a full merit ride but there are many scholarship at colleges (which are your best source of money). </p>
<p>Good luck.</p>
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<p>Oh, I completely agree. I’m not saying it’s fair. A lot of farm kids find it difficult to qualify for need-based aid because of the speculative asset value of farmland, which is not real money to a working farm family unless they’re prepared to go out of farming. And the hit to income from selling 20% of your farmland could be a lot more than 20% of your income, because some costs are fixed. The tractor and combine are going to cost just as much whether you’re farming 1,000 acres or 800. Plus, if you sell land you’re probably looking at a big capital gain and a big increase in income for that year, which puts need-based FA further out of reach. </p>
<p>On the other hand, the colleges do have a point: that farm family sitting on $2 million of land is ultimately financially better off than a family with a comparable income and no such asset. I just think the FA formulas aren’t, and probably never can be, sufficiently sensitive to the nuances of every corner of the economy to produce outcomes that everyone can agree are fair.</p>
<p>^The situation can be similar with rental property, since if you sell it you are losing some percentage of your income-producing capability. To me, one of the problems arises in the difference between how “business assets” are treated compared to “rental property assets” and possibly on the third side to “farm property assets”.</p>