How to handle employment change

Paying for College
1

<p>Long term lurker who is looking for some free advice.</p>

<p>We currently have two kids happily enrolled in top 40 LACs, doing well there. Both schools have annual COA’s in the 50-55k range. Son is a junior – he has a 10k merit award and his first two years we weren’t eligible for any additional aid as our EFC was in the 45k-50k range. This year with a second student added to the mix we found ourselves eligible for some aid – at the school she chose to attend she received a 22k grant, son got a 3k grant to go with his scholarship, we took the max Staffords, and we handled the rest out of our income and savings. We started the process with about 40k in each kid’s 529 (mentally allocating 10k per kid per year). Our income has always been variable as I have a small business and my husband is in sales. Last year’s income was about 30k for my business (about 20k net) and my husband grossed about 110k. We have approximately 400k in home equity, about 250k in non-sheltered investments (apart from the 529’s), and about 150k in sheltered retirement accounts.</p>

<p>With both kids we chose to go the monthly payment route – for son we pay 3500/month, for daughter 2500/month – so we have a lovely extra 6k/month cash outflow for 10 months of the year. We apply 2k from the 529’s and the other 4k we have scraped together from our combined net income. It’s been a bit tight but workable. Due to differences in scheduling we have 2 more payments left for daughter, and I believe 4 more left for son, for this school year.</p>

<p>Anyway the problem is that husband lost his job as of the first of the year. He is closer to 60 than to 50 and doesn’t particularly want to get another job even if he can find one. He feels he can do just as well or better self-employed, so he wants to set himself up as a consultant. In the meantime we will be living off my income, his unemployment insurance, and our savings and investments. Our income has dropped radically and our expenses have risen, as we now have to pay for our own health insurance through Cobra, an additional cost of about $1800/month. Even if his plan is a success it will be months before we see any revenue at all from it, and of course our normal bills as well as our college bills aren’t going anywhere in the meantime.</p>

<p>So - a few questions. First of all is it at all worth it to call the FA offices at the two kid’s schools and see if we can negotiate down the remaining payments? Neither school claims to meet full need, and the FA awards are based not on last year’s finances but the previous year’s. If we do call and try to get a reduction what’s the best way to present the situation? Obviously we have enough money to make the remaining payments but we need to focus on asset conservation as much as possible until we raise our income again. </p>

<p>Secondly, and more importantly, how the heck am I supposed to fill out financial aid forms this year? Our 2010 tax information will be almost completely irrelevant; we will have no historical information. Does the FA system even take into account non-negotiable expenses like self-employed payments for health insurance? My husband thinks he will do quite well with this plan but of course we have no idea if he is correct, and it’s a big risk. If I fill things in just using current numbers (my estimated income and his unemployment for example) and he ends up doing well can the schools revisit and ask for more money? If I pick a number that seems reasonable based on his business plan and it turns out to be totally wrong can I go back and ask for more money? I am at a loss, realistically we won’t know if this strategy is successful for at least 6 months if not a year or more. I don’t have to submit information until the April/May timeframe but as I quite possibly could get more aid this year than last I want to get closer to the front of the line for returning students.</p>

<p>I am actually most interested in the answers provided by the FA professionals that I know read these boards. I know our situation is not unique in this economy – hell it’s not unique in my social circle where I have seen many husbands just like my own set up home offices and strike out on their own. But how to translate pie in the sky estimates of future income into today’s reality?</p>

2

<p>Just as an FYI, when I had over a year of unemployment (husband retired…me sole income earner) we did not receive an adjustment until the following year. At the point of unemployment we only had one in college. The finaid officer explained that they “figure” that families have severance and resources to “survive” a year and that they will find work at somepoint during that time. I went into it thinking OK, the old rule of thumb was one month searching for every $10,000 of income. That first year finaid forms were awful because they are based on the previous year when I was working (severance plus the year’s salary, bonuses etc. we looked flush on paper but scared to death personally.) Son is not in-state and I don’t think that people in that particular state understood the devastation that was happening in our state and how long it takes to re-establish a job at our age. It took 15 months for me to locate a new job and the second year I was again able to check the dislocated worker button since it was month 13 and they gave us the Perkins and W/S plus number 2 was heading off so our EFC was cut but S1 was gapped big-time. S2s colleges were more generous. We had been like you, pretty much full pay. I did take a small PLUS loan toward the end to tide me over and keep the cash flow going and we did drain savings we had not planned on draining which is painful and added years to the point when I can retire and our expenses went up of course covering insurance etc. and two tuition payments. It’s possible your colleges have more resources and can help out with some sort of emergency loans etc. I would definitely call as you have nothing to lose and your college may have resources that “ours” did not. </p>

<p>I’m not a finaid officer, but wanted you to know how it went for us. Best of luck. It’s not a “fun” thing to be doing at our stage in life with kids in college but there are thousands and thousands and thousands going through this. Most of my friends are settling into their “new lives” so there is light at the end of the tunnel and it’s amazing how little financial adjustments get made along the way. I’ve cut our food bills in half by being a better and smarter shopper. We’re smarter about turning lights off and using the set-back for heat. We’re smarter about our driving habits and not wasting gas. We dropped a membership we never used. We didn’t buy any new clothes or eat out at restaurants and still “live” by the lifestyle that was established during that year a half. Dozens of small changes can make a month of so of tuition payments. </p>

<p>Our financial planner used to put us through this exercise of accounting for all of our income. I was shocked to find out that I couldn’t account for some of it. What was it - tips, buying someone lunch, wine after work with co-workers…I simply couldn’t “find” it. He told us that most middle income people can’t account for 10% of their income. They simply don’t know where it went. That can be significant dollars. I think now I know where every penny goes. We “forget” that as we go from broke college students to 50 year old working people with good cash flow.</p>

3

<p>Adjustments for unemployment are professional judgment, and while there are very broad guidelines issued by the Dept of Ed re: PJ for loss of unemployment, by definition each PJ case must be handled on its own merits. Schools handle these cases differently. Some will do an adjustment immediately, others will wait a certain amount of time.</p>

<p>Where I work, your current situation would only result in an adjustment only after a certain number of weeks have passed. At that point, you could file a special circumstances request. We would require documentation of all income earned from the start of the school year to date, as well as an estimate of the income to be earned (including unemployment payments) for the remainder of the school year. The only thing it would net is a Pell grant (if the income to date + expected income is low enough to merit a Pell grant) and/or possibly some sub loan in place of unsub. For many in your shoes, the review doesn’t net any changes to aid. For next year, we would take the request in the spring, asking for year to date 2011 & expected future income at that time. That might net a better package, depending on the situation.</p>

<p>Other schools will adjust the EFC to 0 based on unemployment. Still others will ask you to wait until it catches up to you with 2011 as a base year (that is, for 2012-13). It all depends.</p>

<p>The very best thing to do is call the school to ask. Be prepared to give them all of your income info to date & expected income information, as well.</p>

4

<p>My husband lost his job about two weeks after May 1 (the deadline for accepting college-admission offers). I think that the financial aid office of the school that my daughter planned to attend said that my husband had to be out of work three months before he could ask if more financial aid was available. By August, no more money was available, but I can’t complain; the original FA package was very generous.</p>

5

<p>I want to share our experience with financial aid at the small LAC our D attends. My husband’s company, seeing a downturn in the economy, initiated pay cuts in early winter of D’s senior year of high school. We contacted the colleges she had applied to, and updated our financial information. By the time my husband was laid off in early spring, D had already received her acceptances and had committed to one school. We were still waiting for the financial package to arrive. We contacted the financial aid office again, and they had us send them updated information. During this time, the original financial aid package arrived, but we knew it was based on the old information. Several weeks later, we received an amended financial offer, which included a few thousand dollars more in grants, as well as eligibility for federal work study and subsidized Stafford loans. My husband was able to land a position after only a few months of unemployment, but the college told us that the amended financial aid would remain in place during D’s freshman year.</p>

<p>Unfortunately, the company that had hired my husband was also affected by the poor economy, and they laid him off after nine months. We again contacted the school, and sent them the documentation they requested. They were even more generous this time, increasing her grants significantly. That really helped, as this time, it took my husband 6 months to find employment. For next year, we likely won’t qualify for any financial aid, but that’s fine, now that we have income.</p>

<p>I hope your children’s colleges will prove to be equally helpful in re-figuring your eligibility for additional aid.</p>

6

<p>mom2twostudents, I would certainly contact them asap. If their policy is to wait and see if the situation improves over a period of months, it may be possible for you to take a Plus loan for the remaining payments. The interest rate isn’t great, at 7.9%, but it would allow you to conserve cash. You can opt to defer payment until after graduation, but there is nothing to prevent you from paying on it before that time. Just a thought…</p>

<p>Best wishes to you and your H as you begin this new venture!</p>

7

<p>Thanks everybody for all the advice - obviously we have nothing to lose by contacting the schools asap, so we will set that in motion. I doubt we can expect much, but I didn’t realize that they would be most interested in our 2010-2011 school year income, which is actually quite a bit less than our annual figure. Last year’s earnings were very front loaded, with the bulk happening in the first half before corporate decisions made earnings tank. Regardless we will most likely just continue to make this year’s payments, whatever they are, from our income and savings rather than incur additional debt at a higher interest rate.</p>

<p>It’s next year that I am most concerned about. Kelsmom, what methodology would you use to estimate income for 2011? I know what I can expect from my own business and obviously unemployment is a straighforward number, but I would be very suprised if by the end of April we have much of a handle on my husband’s outlook for the year. Also do FA officers allow us to subtract out the Cobra payments as a special circumstance or is that just considered another optional expense that has no bearing on the equation?</p>