I still would not advise borrowing against your retirement at all.
Ok I ran the Collegeboard EFC calculator with 3 scenarios (based on numbers as given, 3 in household, state PA, not guaranteeing accuracy but to get an idea)
- AGI 61,500 with 100,000 investment assets EFC $10,388
- AGI 50,000 (after 11,500 IRA contributions), did not add capital gains, EFC $5,300
- AGI 46,000 (income 2016 plus 3,000 dividends) EFC $4,585
So it looks like even if you cashed in mutual funds to fund IRA (to get under $50,000 AGI), EFC would not be in range to get any/much Pell grant. And capital gains would also have to be figured in.
In scenario 3 she might get about $1,000 of Pell.
So it does not seem worth it to not cash in funds or dip into retirement for a one time $1000 grant.
It is important to plan for 4 years of a college’s cost. Outside scholarships are a small amount and only for the first year,
You could have delayed P1’s retirement for a few more years, P2 could work more, student could work more, take out max loans, go to another school.
Anything that increases income or reduces expenses.
But now you are here and I don’t know if changing schools is wanted or feasible and in my opinion you should use the mutual funds for college (without doing anything with retirement money) and D also needs to contribute as much as possible with work, loans to reduce the amount parents have to contribute.
These are just my personal observations, but you might want to talk to a professional and run your own numbers.
The good thing is you have investments, out of current income you would have an impossible time meeting the expenses and like others I would not recommend touching retirement funds.
Have D check into departmental scholarships at her school.
Thanks. It is a private school in Wisconsin. Last year our family’s cost (after college merit scholarship, state grant and college need-based grant) was about $18000 before direct student loan of $3500. So roughly speaking I’m thinking net cost after direct loan to be roughly $15000 per year. Daughter will be responsible for a portion of it. After thinking about it more, with college and all other things considered, we probably need about $15,000 per year additional considering what daughter contributes to annual bill.
I did think it was probably not worth it to scrounge to try to get our agi under $50,000.
If we sell mutual funds and create a capital gain we would have to use form 1040 next year which would not allow us to try to meet the simplified means test, and it would create capital gain income, but it would also lower our investment totals for fafsa
Are you trying to get more need based aid? If so, question one is,.does this college meet full need for all,accepted students. If not, there is the very real possibility that your aid,won’t change…at all.
Is,there any reason why you are not considering having your daughter take the full Direct loan including the unsubsidized portion?
And if this school turns out to be unaffordable, is there a Plan B?
Simplified needs would only apply for under $50k income anyway.
And even if income was under $50k the Pell grant would probably only be $1,000 at most and only for senior year, because sophomore and junior year are based on 2015.
Either way between income and assets you are not going to get much federal aid, not sure for Wisconsin.
Sounds like your best bet is using the investment income to pay for your share.
But D also needs to increase her share by working more, taking out max in loans, if she wants to stay at that school.
You mention a merit scholarship for freshman year, was that not renewable or did she lose it?
Like Madison said, look into claiming AOTC for this year. You should have $4000 of expenses for tuition, fees, books left after all scholarships and grants are subtracted.
Have your D ask the financial aid office if she can get the remaining $2000 loan for freshman year, the total is $5,500 not $3,500.
Between the AOTC and additional loan of $2,000, you might have an extra $4,500.
Daughter’s merit scholarship is renewable, and she will still receive that. She did also receive several small outside scholarships that were for one year only. I’m not sure we will be eligible for AOTC this year because I think most of our payments ended up going to room and board. Her 1098T was online and not mailed to IRS or to us because her scholarships, etc. value was a couple hundred dollars more than value we paid for tuition, etc. We are fine with retirement accounts (in 7 figures) plus social security will start in a couple years at age 65. I think we just have to use our $100,000 investments over the next couple years and generate capital gains- plus daughter contributing with loans and working. She has work study now and will work in summer.
Did your DD take the $5500 loan for frosh year? If not, it’s not too late to take. Once she takes that out, you’ll be refunded about $5500 that personally paid and you can have that for next fall.
Each year, your DD needs to take the max loans.
It’s too bad that she’s attending a school that you really will have difficulties affording. Do you have any other kids to put thru college? Can the retired parent get a job?
How much can CC earn/save during the summer?
What aid (grants/scholarships) did she get from this univ? If she got no free money besides Pell, then it may be wiser for her to do her soph year at a CC, and then return to this school.
Be careful to look at the potential tax implications of your decision.
If her scholarships/grants are strictly to be used for tuition, then you can only claim expenses like fees and books for AOTC. But if they can be used for any expenses (check with school) then you could have some of the scholarships or grants cover room and board, have your D include that as taxable scholarship in her income and claim AOTC on $4,000 of qualified education expenses = $2,500 credit
It depends on how much capital gain you have in your mutual funds. Most people lost about 5-10% now.
https://www.irs.gov/instructions/i8863/ch01.html#d0e187
scroll down to Coordination with Pell grants and other scholarships and fellowship grants, it gives some examples on how this can work.
Is the school Beloit? Do you know if they will increase their institutional grant since she is losing the outside scholarships? You might want to see her updated FA package to know for sure how much you will have to pay.
Also if you are instate for WI. How much would UWISC be?
If your D is living on campus, maybe she could look into off campus apartment share or like I said, being an RA to help save money on room and board?
I hope this can get figured out to being the best solution for OP and DD.
Thanks to all. I appreciate it.