First time filling out FAFSA for our child, and trying to wrap my head around what seems to be a glaring blunder on the form. Here is a realistic scenario (and applies to me) that the form does not appear to comprehend at all:
FamilyA and B are each sending their child to college. FamilyA has total net worth of $100K (reported on FAFSA) plus a house (purchased for $1M, current market value $3M) that is not allowed to be reported. Meanwhile, FamilyB has been renting their primary residence all this while (say, paying rent about equal to FamilyA’s mortgage payments), and has a net worth of $3.1M (to be reported on FAFSA).
A month later, FamilyA sells their house to FamilyB for $3M cash and begins renting a small apartment for $2000/mo (still far less than FamilyB’s new house property tax alone). Now their FAFSA net worth is switched: FamilyA would report $3.1M, while FamilyB would have to report only $100K.
Not considering primary home financials completely changes the fortunes - in terms of securing financial aid - though both families have had the same actual net worth (of $3.1M) before and after submitting the form. How can FAFSA not understand this?
I had to read this 6 times before making heads or tails of it.
First, if a family is sitting on 3 million in cash after selling a home and they are choosing to rent instead of buying another house, then they have 3 million in cash with which to pay for a college education.
Second, assets are viewed at about a 6% rate vs. income which is the primary indicator of your SAI number.
I’m also assuming your student is not applying to a CSS school but only a FAFSA school, so not a meet-needs school.
Your typical FAFSA only school, which doesn’t meet need, will not give you any money anyway unless you are low-income. Oh and if its a public school and you are out of state chances are you aren’t getting any need based aid.
What-if scenarios designed to show flaws in the system serve no purpose. First of all, the FAFSA formula, set by Congress, seeks to assess financial strength of a family so that aid can go to those who need it most. It is impossible to cover every single situation, and some people have lower SAIs than you might expect as a result. But as has been noted … federal aid is not going to assist either family, other than the fact that they can borrow loans. And that is all the FAFSA is intended to do … provide an SAI that is used to determine federal aid.
There are five or six (possibly more) scenarios similar to yours using different combinations of income, assets, etc. Every year there are likely a dozen kids spread out over the country whose parents report an income of $80K but who have a signed Picasso in the dining room worth millions (does not show up on FAFSA,) have a signed Cartier diamond bracelet in the safe deposit box which was owned by Elizabeth Taylor (purchased for a few million at auction) and various other “trinkets”. And yes, they fill out the form, they qualify for financial aid based on their income and “normal” assets.
The system was designed to balance equity, administrative costs, and ease of administration. That means it won’t capture every single asset (just getting valuations on the bracelet and Picasso is time consuming and expensive) and it won’t cover every single scenario (we’re all familiar with the kid with divorced parents who lives the life of a multi-millionaire when he’s with Dad but is a near pauper when he’s with mom… and Dad won’t pay a dime for college).
So people in high cost of living areas will get “less” than what is fair then people in low cost of living areas. People whose entire income is self employment often get less than someone with the exact same disposable income, but who are fulltime W2 employees with a part time gig on the side. And on and on.
Most of us take comfort from the fact that an affluent family who downsizes into a small apartment in order to qualify for financial aid may discover that even after the move, the sale of the house, etc. their kid does NOT get into a college which meets need. Ditto the reverse situation. There are many colleges where your ability to pay is just irrelevant. They admit you. They may or may not offer you a small discount. Whether you choose to pay and enroll is entirely up to you…
Thanks. Agree that the FAFSA form cannot capture every single contributor to a family’s net worth, but owning vs. renting a primary home is a very normal and common scenario that should have been accounted for. And especially when it can swing the net-worth advantage for a home-owning family by millions of $$, more so now with house prices having appreciated so much (well above college tuition fees in many places), that goes unreported to FAFSA.
But it’s not going to result in federal need based aid regardless. If the school has its own money to award, and if the awards meet need, these schools will usually request additional financial information (e.g., CSS Profile).
True, thanks. I have now understood from posts above that this FAFSA oversight may not be as “unfair” to renters even for the scenario I mentioned, as there are other criteria that need to be met, and additional factors that determine the actual amount of federal aid granted.
Although, I still think the primary home should be factored into net worth calculations for the reasons mentioned, and to even things out; whether or not the CSS profile asks for it.