Financial Aid over four years when child has a large amount of savings

Paying for College
1

Our family has a unique situation. I work in the non-profit world (meaning: very low salary). My husband is free-lance, and while things are looking up slightly, he’s just been through the worst two years of his career (made almost $0 last year). We’ve dipped into our savings and are not in a position to provide our son with much assistance for college. He, however, was fortunate enough to work as a child actor, and has substantial savings. His savings means that he qualified for no Federal Aid. He received some merit scholarships, but he’s still looking at a huge outlay of money. Were he to get exactly the same amount of aid each year, he has enough in savings to cover Freshman and Sophomore year, and have a small amount left over (but not enough to cover even 1st semester of Junior Year).

My question is regarding financial aid over the four years, and I’m wondering if anyone can provide some insight.

On next year’s FAFSA, his savings will be more than 1/3 lower - how likely is it that he will then qualify for more Federal Aid? We don’t want to assume that is a given, and it would be heartbreaking to begin at his first choice, and have to drop out or transfer after sophomore year.

Does anyone have first-hand experience with how a child’s savings affects financial aid over four years? I’ve talked to the Aid office at his school of choice, but they are very careful not to say anything too specific - all their answers are “We’d have to see your FAFSA to know for sure.”

2

There is very little federal aid available. A student loan of $5500-7500/year and possibly some Pell Grant of $6K or less. Student savings is assessed at 20% available per year. Is this truly a FAFSA only school? If so it’s very likely they don’t meet need anyway.

3

Is he applying to schools that meet full need?

4

If he is applying to schools that meet full need, most would adjust each year as his savings went down. Have you run net calculators on the schools he is interested? You can do a “what if” scenario reducing his savings.

5

That sounds about right - student assets above a certain number are assessed at 50 percent. The question to ask the school is whether they will give additional aid in the future as those assets are spent down.

Some schools really don’t change their offer from year to year – even as tuition increases. You just have to ask.

Another thing- this year’s aid was based on your 2016 return, but if your 2017 return shows much less income, that can be a basis for appeal. Again, you need to talk to the school because there is no one single policy.

6

Here are the FAFSA Calculations: https://studentaid.ed.gov/sa/sites/default/files/2017-18-efc-formula.pdf

You can see how student assets are assessed at 20%.

7

Ok, I’ll guesstimate using an over simplified scenario with a lot of assumptions (I am sure there are a lot of; but, if etc that make this inaccurate but here goes):

Assuming he has $100k and they figured your EFC at $33k and CoA is 33k, they would be counting on $20k from his savings and parent contribution for $13k. If he uses his savings to cover the parent contribution portion he’d end up with $67k as assets the following year. He will be offered a student loan if he completed the FAFSA through the school of approx $5.5k

Assume same parent contribution, but reduced student asset by paying from his savings, the EFC would drop to $26.4k (20% of 67 and the 13). So now if school costs $33k a year you have need of $6.5k (33-26.4). But most schools aren’t meets full need schools anyway. And the most likely scenario is that school will consider your entire need met anyway, via a student loan to cover that gap. So sophomore choices are, take the loan or deplete savings further.

Assume uses savings again, the following year student assets are $34k x 20% is 6.8k+ 13k parent portion = 19.8k EFC. Now the student loans don’t cover the gap… 33k-19.8 = 13.2 -7.5k loan = 5.7k that somehow needs to be covered. If he doesn’t take the loan he’ll be left with only $1k for senior year.

Does the school meet full need? If so, do they consider loans meeting need, or do they use grants to meet need? Using a cash flow worksheet to plan ahead you can see why often students are advised and do bank the student loans made available to them the first year ($5,500), knowing they will need the funds later. I build an excel sheet that shows tax credits ($2,500/year x 4 = an extra 10k for the budget) to figure out the cash flow needed.

Banking loans $5,500+5,500+6,500+7,500 and the tax credits could cover the last year in this scenario, but you’d have to plan ahead.

Of course, every year policies change, so in the end who knows. Which is why the financial aid office is being very careful in their response.

Troy’s article is a great way to get an overview and insight into financial aid formulas https://www.forbes.com/sites/troyonink/2017/01/08/2017-guide-to-college-financial-aid-the-fafsa-and-css-profile/#67c3a6d84cd4

There are also online worksheets you can use to run through different scenarios.

Our daughter had a chunk of savings and we were hard pressed to keep hers whole, but were able to because she won enough merit aid. There were plenty of schools we just couldn’t afford to consider for our son (without him depleting his savings) so he didn’t apply to those (he didn’t want to dip into his savings and we can’t afford to cover his portion). We picked schools with CoAs that fit the parent contribution portion of the FAFSA.

There were still plenty of great schools to choose from, and I’d take working around my kid having a nice nest egg over the challenges faced by an EFC of 0 any day, especially when the few schools that meet need are like lotteries to get into. And I rested easy knowing if parent circumstances changed our kids had the resources they needed to finish on their own.

Run his current nest egg through a retirement calculator and see what he is giving up and make sure you’ve chosen a school that will be worth his investment. 100k at 18 invested for 40 years at 6.5% becomes 1.3 million

8

What about the scenario where the student provides more than 50% of their own support?

Then parents cannot claim him anymore as a dependent on taxes, and can’t claim AOTC.

If he pays all college costs with his savings and student loans, that may very well be the case.

9

Wouldn’t the student claim AOTC for himself, since he’s the one paying? He is likely to have taxes to offset from summer employment, but even if he doesn’t couldn’t he get $1,000? https://www.irs.gov/newsroom/american-opportunity-tax-credit-questions-and-answers

10

It’s very possible for a decrease in student savings over the academic years to result in an increase in need-based aid. But without knowing what kind of institutional aid program the school has, it’s impossible to say if in your case institutional aid would change at all, and without knowing general student and parent financial numbers, it’s impossible to know if federal and/or state need-based aid would change at all.

11

This is a kid graduating right now and starting Fall of 2018, or 2019?

Did your son ever open up an IRA or 401K? If not, he needs to do that ASAP (assuming he had earned income in 2017). His retirement accounts are not “available” for tuition and it is both a prudent thing to do AND a way to shelter some of his earned income.

And what was the purpose of saving his income if not for college? This seems like a great problem to have if your income fluctuates…

12

If he uses up all the money for freshman and sophomore years, he might qualify for FA for the rest of his schooling. It would really depend on the rest of the family’s income and assets.

13

Unfortunately, qualifying for need based aid isn’t a guarantee students will actually receive the aid they need to be able to continue. And what the school determines you can pay and what you actually can pay are often very different numbers.

14

Hmm… Maybe I have the percentage wrong? One way to see how much his assets are affecting your EFC is to run different scenarios in the FAFSA4caster

https://studentaid.ed.gov/sa/fafsa/estimate

The only way to know for sure how spending down assets will affect future years’ financial aid is to discuss this with the school financial aid office.

15

Assets for students are at 20%. Income over ~$6500 are at 50%

16

You apply for financial aid every year, for a full year, and they evaluate it using the information in each year’s application.

Some things are easier to predict than others. And some varies by how the school FA formula works. Generally, schools assume that 20-25% of a student’s own assets and income are considered available, but only a small fraction portion of the parent’s assets (like 5%) and income (20%) are considered available.

Making up some numbers from what you describe - suppose your son has $150 K in savings, and his school will cost a net $60K per year after merit. He does not have 4 years worth of savings, but he certainly has enough for his first year. He very well might still qualify for need based financial aid for his freshman year, especially if family income is low. If the school meets full need, then as he pays for his first 2 years, he will very likely qualify for more aid for his junior year.

How assets are used also makes a difference, especially at Profile schools. It is generally better to pay down from the student own assets first, as they are hit harder.

So suppose the school looks at his income (0) and assets at 25%, and they say he should be willing to pay $37,500 for his first year. They will look at his total cost less merit = 60K, and might give him need based aid of $60,000 -$37,500 = $22,500 for the first year.

But not all schools meet full need. Some schools might wait until the student has blown the full $150K before they will give aid.

Schools don’t like to talk about what happens in future years especially because so many variables can change (other siblings in college change, parent income rises, inheritances, etc.). But if you get a chance to speak with a FA officer, you’ll often find that schools that meet full need will be happy to explain what may happen if this or that. They do not give financial advice, but if you ask the right questions you can get an idea as to how they will help for the full four years.

If it is possible to meet with the FA dept in person, by all means try to do so. Remember that AID is a part of their name, they really do want to help.

17

@chillmom22

There is NO way for anyone here to answer your question without knowing the financial aid need based awarding policies of the college.

If the school guarantees to meet full need…and you continue to have significant need…it will be met.

If the school does NOT guarantee to meet full need…the aid your son got this year could be the most he will get…ever. Or he might get a small increase. Or they could,give him a larger increase.

No way to know…without knowing the college.

18

There are two threads here with the same first post, so here’s my answer from the other thread:

It’s very possible for a decrease in student savings over the academic years to result in an increase in need-based aid. But without knowing what kind of institutional aid program the school has, it’s impossible to say if in your case institutional aid would change at all, and without knowing general student and parent financial numbers, it’s impossible to know if federal and/or state need-based aid would change at all.