This is why colleges should just charge everyone the same price.
And if you put those assets into a 529 account for each kiddo, the money will be fully available for all qualified educational expenses.
One thing you need to consider before doing all of these financial gymnastics…the need based financial aid formulas are heavily weighted towards income. Assets are secondary. Add to that…most schools don’t meet full financial need for all accepted students. You might be doing all of these financial gymnastics for no financial aid gain.
Here is a thought…for child 1. Run the net proce calculator for each of her potential colleges. Do it both ways…one time with the assets in your name, and one time with the assets in the student’s name. See if there is a difference in the net cost estimates and aid.
Just keep in mind that the NPCs are for estimate purposes only. In addition, if you are divorced, own property other than your primary residence, own a business or are self employed, the NPCs might not be particularly accurate.
What was child 1’s EFC from the 2015-2016 FAFSA?
Thank you. Extremely helpful. My thought was that we would use all of her assets to pay for year 1, thus it’s not really an issue of MOVING her assets, but of SPENDING them during year 1.
EFC was 80K+ and greater than one year’s cost.
So, following up with what @thumper1 was saying, with an EFC of $80k+, since EFC is more income-driven than assets, there is little point to shifting the kids’ assets.
Madison85: Not sure what the basis for that is, given that you don’t know income, amount of child assets, etc.
Oh i see. You’re assuming that the “income driven” nature of EFC means the impact of my child’s assets would
be less significant. Regardless of the weight of our income, 20% of my child’s assets will be significant.
Here is what I assumed: You said all of child 1’s assets would be used to pay for year 1. So if the school’s COA is $60000, then 20% is $12,000, dropping your EFC from $80k plus to $68k plus, which would still be higher than most if not all COAs.
Ok thanks for that. But the 20% is the percentage of the child’s assets that are expected to be contributed, not the percentage of COA, right? Or have I misunderstood this? Do you have the precise formula for calculating EFC? That would be very helpful. Thanks.
You said all of child 1’s assets would be spent down for COA in year 1. I took the conservative approach in my calculation and assumed the child had enough assets to pay for a full COA of $60k. So, at most, your child has 60k assets and at most, 20% * $60k = $12k decrease to EFC for year 2 when child 1 has zero assets.
OK, since now you are asking for opinions:
The first thing I would do has already been suggested - make sure you understand how the aid formulas work, so you can know whether or not doing all sorts of financial gymnastics will make any difference.
How are you planning on moving assets out of the student’s name? There are good ways to do it and bad ways to do it. By good and bad, I mean ethical and unethical, as well as financially sound and unsound. It also depends on what kind of assets the student has that you want to move. Cash or cash equivalent is very easy (in a logistical sense) to move. Equities and other assets are more difficult to move. For instance, opening a student-owned 529 account (that will be recognized as a parent asset for FAFSA purposes) requires a cash contribution, so any student asset equities that you want to move into a 529 would first have to be liquidated, potentially raising capital gains implications.
Simply retitling the student assets as parent assets in order to receive preferential financial aid treatment would be deceptive and unethical. I hope you’re not planning to do that.
Right, if selling child’s investments with capital gain potential, recall that there are the kiddie tax rules. See IRS Form 8615, comsult your tax advisor.
Thanks. This is all very helpful. I was wrong to say i’d be MOVING the funds for child 1. I will in fact be SPENDING them for year 1 costs. I will, however, be MOVING child 2’s assets now (2 years in advance of college). I don’t see any ethical issue here.
It’s a gray area.
FWIW, I transferred 10K from my D’s account to ours before filing FAFSA and CSS profile. It didn’t matter, we were still full pay. Not even for subsidized Stafford loan.
Depends on how you do it.
@michganwannabee Try @thumper1 's suggestion of running the Net Price Calculator for a few colleges with child 2’s assets in his/her name and with child 2’s assets in a parent-owned 529 (i.e. add it to your assets) and see if the difference (also input 2 kids in college) results in an increase in need-based aid.
Ethical issues are not problem unless is it is against the rules of the college financial aid office or FAFSA. Fafsa rules are monitored by the financial aid officers at each college.
The way it works is that the assets AS OF THE DAY FAFSA is filed are what counts. What you do with the assets the day before, two days before, three days before doesn’t matter. You can give them away, spend them down, give them to mom and dad, to a guy on the street. Doesn’t matter. Doesn’t matter if mom put her money in your account, if you gave money to mom, etc, etc. All that matters is what is in that account on that day.
I’ve known many people who were unfortunate enough to have earmarked money in their accounts and been verified, and there is no budging from that money being for some home repair, mortgage or other monthly regular payment. Maybe for medical procedures, there would be an exception, but that snapshop rule is pretty strict.
By the same token, you can do what you want with the money. Give it to mom or dad, and they spend it all on themselves, you are out of luck. THat is the risk of giving someone your money if you want to play games that way. Parents can give the money to Uncle Joe or grandma to hold too, but they take the inherent risks that go into that. Not worth it. The rules are that if it’s YOUR money, then it counts as YOUR asset,whether you are parent or child. If you want to withdraw it and hide it under your mattress, it’s still YOURS, and it is fraud. Get caught, however that may happen, you are in it for federal fraud. But if you give it freely away to someone without stipulation, that’s your business.
For the most part, it doesn’t make a whole a lot of difference on the FAFSA except for those who need the money the most and who are the least likely to get this advice, unfortunately. A zero EFC can open the doors for additional aid, sometimes a tremendous amount. Example are schools that will give full room and board awards to those with a zero EFC and a ROTC scholarship. I personally know of these cases. Not a $20 EFC, or a $2 EFC but a big fat goose egg. Danged shame if some kid has a hundred bucks that day to report and misses out on that kind of goody.
I personally know of a case where a housekeeper 's son had about $6K saved up in his name from summer jobs and whatever else his family could scrape up. FOr that low income family to get a $1200 hit on the EFC , which comes off nearly directly from PELL Is ridicuous, but that’s the way it works. Then things that depend on the EFC and have cliff schedules can mean disqualification or great reductions way beyond the amount such a family should be hit.
Many families that qualify for small amounts of financial aid due to having 2 kids in college, careful planning, expensive schools that give good aid, know the rules and plan way in advance for this. Have the kid have an account joint with the parent with parent name and ssn first and just deposit the money in there. Make sure 529s are set up with parental ownership, not kid’s so that PROFILE schools count it as a parental asset, not the kid’s. All of these things are done by many parents who will not qualify for financial aid, and if by some chance they do fall into a level where they would, they are prepared as they are informed. Doesn’t matter if kid gives the money to mom to hold a year a go or a day ago when it comes to assets. The question is very clear.
A lot of people think a lot of things are not ethical with the financial aid situation, and they have good reasons to so think, with the “games” that can be played. So it is with taxes, with medicaid, with all sorts of things. I draw the line with the legality of it and whether it is likely to pass muster on an audit. Anyone feels it’s not ethical, then follow your own ethical rules. I can list a hundred things where it doesn’t look good, it’s not fair and one can talk about the ethical ramifications, but does pass the smell test upon audit or verification.
Are you saying that with the parent name and SSN on the joint account first, all assets in the account can be reported as parent assets on FAFSA? If so, you are wrong. The student will still report the student asset part of the account and the parent will report the parent asset part. See the FAFSA instruction that I included in post #35.