i hope the OP is looking at all the options.
He just said that the annuity is forced by the insurance company because the beneficiary was not of age. If so, there is no requirement that it be used for education once it is distributed at age of majority (sounds like 18). The annuity is just a holding vehicle which allows the insurance company to close the claim without having to go through a court appointed guardian process.
If the student’s assets are in some sort of investment/annuity/trust with restrictions, that 's a whole separate issue. But if the assets are liquid enough so that they can be spent on family bills or simply given to the parent, yes, that is permissable. But it won’t change this year’s financial aid package since the assets are already reported and that snapshot of the assets given as of the day PROFILE was filed would hold in most cases. You can appeal the situation, but that would be a Professional Judgement thing. Also, some schools will take the initial student asset reported freshman year and carry it forward at some percentage to future years. I do not know if NWU does this. It’s a question you would have to ask someone in the know in the financial aid office.
If the school permits a gap year for your student, and that is not always an automatic “yes”, and if the assets are not carried forward as I described, yes, if your student wants to give away his assets, spend them, whatever, he can do so as long as the assets are not in some restrictive investment. Anyone can spend and give away assets from year to year.
My concern before was the annuity vehicle itself. So, ok, it goes to son at 18 and was established by the ins co…
My question to fellow posters: so does it seem, in this situation, it’s treated as a trust? Because generally, only non-qualified annuities (paid with after-tax dollars) are reported on CSS.
I understand it may be functioning a a trust. I;m abbreviating my question but wnder if it was properly reported on the CSS.
At age 18, it sounds like this annuity money will be controlled by the son. Will he consent to paying off family bills? He could say NO to that…this is money that could help him with college bills.
Just saying.
Yes, I was wondering the same thing. OP, where on Profile are you reporting this annuity?
Two other things:
-A life insurance benefit is not taxable income, but any interest earned while the funds are being held in an annuity is taxable.
-The OP stated that it was the mother’s wish that the life insurance proceeds be used for the child’s college expenses. I find it interesting that the OP is (seemingly) so casually disregarding that wish.
It seems like it was the mother’s wish for the son to go to a good college. Instead the father’s wish to use the money to pay off debt. But if Northwestern is not affordable this year, then it is not going to be affordable next year because more financial “aid” will just mean debt. They have given whatever free merit money they are going to give. Choose an affordable school.
Gearmom, what are you talking about? NU won’t mean more debt next year. The max loan the family will take is the Direct Loan. NU meets full need.
Upstream, this parent said he could pay $10,000 a year. Add to that the $25,000 which is 1/4 of the annuity money plus a $5500 Direct Loan…and they have more than enough money to pay for this kid to attend NU next year.
Godsmile…what WAS your financial aid package to Northwestern? What was YOUR net cost for your son to attend this college…now? You accepted the offer, so presumably this was able to be made affordable.
How much can you contribute in the upcoming year?
Will your contribution plus 1/4 of the annuity money, plus the Direct Loan make NU affordable…now?
Remember, there are personal expenses, travel, books included in the cost of attendance that you can control…and economize on.
While the total net cost might be reduced if the asset is gone, the parent contribution will likely remain…THE SAME. If it’s not affordable now, it won’t be a year from now.
And remember too…NU expects students to contribute as well…so hopefully this student has a small part time job.
According to NU’s website, other than National Merit Scholarships and School of Music talent scholarships, financial aid is strictly need based. It was previously mentioned in this thread that NU meets 100% of need. Also, the great majority of aid that NU provides is in grants that do not have to be repaid; loans are a relatively small part of a NU aid package. So, it sounds like OP has the ability, with assets on hand and FA, to pay for his son’s expenses at NU. If OP wants to use some of those available assets to pay off high medical debt, he should make an appeal to NU and see if professional judgment can provide some relief.
@thunper1 I was saying not to expect more free money and that if they could nor afford it this year then they could not afford the school next year.
They may very well be able to afford it this year, and as assets are spent down, need-based financial aid awards should go up.
@MiddKid86 That is true but OP seems very resistant to using the money in that way. The student has 25K a year and with the loan is at 30K. Halfway there. With the parent contribution and a summer job, the students would be fine. However, if the student did not have the 25K, what kind of need based aid exactly do you think he is going to get to make up for that amount? The student is very lucky to have so much ready for his college.
OP, we’ve had other threads where a parent wanted or needed to use a child’s assets- cases where it was wrong. . Your situation is a little different. You have some good seasoned finaid posters here who can help explain and suggest, if you are willing to provide a little more detail.
There is a possibility the annuity didn’t need to be reported as an asset. As stated, income (interest) would be, that’s the 1099. That should be checked. It is a loose end I would dive after. Aside from that, some are saying-
IF we’re talking about 100k, and NU wants you/son to pay 40k this year, we usually see that as some portion from the parent and some from the child’s assets. Technically, he is being asked to contribute roughly 20-25k (maybe plus some summer earnings, maybe some from a student loan. If you lay this out for us, exactly as NU wrote in their offer, we can try to help interpret.)
Then, the 15k balance for this fall, technically, is yours to fund. If you can manage, good. If not, some parents take the Parent Plus loan for the balance. Or maybe your son contributes 30k and you pay 10.
It;s not that the school is expecting him to pay the 40k out of his pocket. And not that he would be expected to pay 40k each year.
A year from now, his asset balance is down by he amount he paid this year. Say, 100-25=75. Next year in theory, his contribution is lower because his asset balance is lower.
If other posters feel I mis-stated, my apologies and I welcome corrections.
Many families want to optimize financial aid, and if there is a legal way to do so, it’s wise to do so. I can tell you right now that if one of my kids came up with NPCs for target schools of, say $25K a year, and if an inheritance for education of say $50K was receive, I would not have it sitting there in the kid’s name on the day the FAFSA and PROFILE are filed so that the award is reduced by $10K as a student asset, maybe more. I’ve seen PROFILE school reduce the asset by 30% and then carry the amount forward to future years. The money can dang well go towards his education by reducing the family’s expected contribution, reducing loans that student may still have to take out, not what the school would be giving for financial aid. There is no reason in the world the kid can’t give the money to the parents to use however they please. If the kid does not want to do so, or the asset cannot be turned over or it’s too late in that it’s already reported, that’s a whole other story.
The OP wrote that the family contribution computed by NU was in the $40,000 a year range. If the OP uses $25,000 of the asset, and $5500 Direct Loan, and $10,000 of his own contribution, he is there. And it could be less as there are some controllable costs in the cost of attendance.
If the asset is gone…then the family contribution would be reduced by the amount the asset adds to the family contribution.
This would NOT change the parent contribution at NU.
So…the question…can the parent afford his contribution, or not. It’s likely going to be the same parent contribution even without that asset.
It’s a moot point if the school is not affordable any which way, I agree. But if it’s affordable, better to position assets in a way where the contribution is less.
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age 18, it sounds like this annuity money will be controlled by the son. Will he consent to paying off family bills? He could say NO to that...this is money that could help him with college bills.
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From purely a pragmatic view…
the money should go towards the bills. Then NU would give him more aid.
it would almost be silly to put the money towards college, and still have the debt. Pay off the debt and get more aid.
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was saying not to expect more free money and that if they could nor afford it this year then they could not afford the school next year.
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@gearmom why would you say that? If the asset is gone or diminished after paying down the debt, why shouldn’t they expect “more free money”?? That school meets need.
@thumper I could be completely wrong, but it did seem that the OP was wishing the money had gone to him because if it had, he could pay off the debt and they would have received enough money to go to NU anyway without it. Would that have been the case?
The parent contribution to NU probably won’t change. What would change is the the asset allocation wouldn’t be included in their costs. And they would presumably pay off the debts…if that is even possible with the structure of this annuity.
But if the parent will be required to pay $10,000 this year…and he will be required to pay $10,000 next year…the question remains…can the parent afford to pay $10,000 a year for this college?
gearmom, this parent is trying to figure out what to do. We all try to maximize aid, as Mom2ck is saying. Dad is trying to figure out how to get his son to - and through - Northwestern. He is clearly a newbie, faced with a set of challenges - and not quite knowing what to do.