<p>Over the last several months have been researching ways to reduce assets reportable on the fafsa. I had been told by several people that one could eliminate real estate equity from the equation by putting the real estate in question into a business entity (an llc or s corp for example). By doing this those assets would fall under q93 of the 2009-2010 fafsa worksheet and therefore not need to be reported if there are 100 or fewer employees. </p>
<p>Any comments?</p>
<p>Just like filling out your tax forms, filling out a FAFSA allows one to adjust their financial picture to their best advantage. For instance, taking cash out of the bank and paying off consumer debt.</p>
<p>See this link and run the formula to determine whether your situation will be helped by changes:</p>
<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/598255-2009-2010-efc-formula-guide.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/598255-2009-2010-efc-formula-guide.html</a></p>
<p>Since the formula is primarily income driven you should make sure your EFC is low enough to merit moving assets. A family might taken $20k to pay off a car loan, then find out their $150k income does not allow them to receive any aid and then wish they had that cash back.</p>
<p>As to the R/E, yes, if it is a legitimate business property, for instance, you own a small restaurant and own not lease the building or you are a CPA with a small office building, etc, that would not count. They do seem to specifically address people who own rentals as not being eligible unless hotel-like services are included. If you own a vacation home and are trying to count that as a business, that might be a tough sell. So, you need to imagine answering finaid questions and make sure your changes are legitimate and will pass muster if questioned</p>
<p>Thanks for your response, which confirms my information. I am fairly certain that am structuing things properly in regard to a qualified business entity/real estate assets. I thought I had researched this very carefully with various CPAs, attys, and even the Financial Aid dept. at a local university, however when I looked at Q91(As of today, what is your parents’ total current balance of cash, savings and checking accounts?), the 3rd bullet point says “Business and/or investment farm value includes the market value of land, buildings, machinery, equipment,inventory, etc. Business and/or farm debt means only those debts for which the business or investmetn farm was used as collateral.” This seems very confusing and has ever been mentioned to me when discussing the merits of moving real estate assets to my benefit for Q92 and Q93. While the income from the rentals will pass through to me and count as income on the FAFSA from my 1040, it seems as if the monthly cash flow/assets currently in a business account would fall in the same category as the real estate assets equity…off the fafsa books.</p>
<p>I am going to have 5 kids in college this fall and my income for last year was not great, so completing these questions without listing the assets is very important.</p>
<p>I’m not faulting the OP for trying to wrest the best result from the FAFSA form, but I find it extremely distressing that the FAFSA rules are written so that assets can be sheltered and paid professionals such as CPA’s can enable some to work the system . There’s no reason the FAFSA rules can’t be written to sniff out each family’s real financial situation and bring equity to the process. If the IRS can figure out how to calculate an Alternative Minumum Tax, surely other feds can find a way to calculate an Alternative Minimum EFC.</p>
<p>In a better world, your past X years of income would be what your EFC is based on. Throwing the asset factor into it does ‘penalize’ the savers.</p>
<p>If someone made 100K every year for the past 10 years and spent every dime of it, they will have a lower EFC than the person who made 50K 10 years ago and had their salary increase by 5K a year for the past 10 years and who saved like a squirrel.</p>
<p>That said, many people end up paying (much) more than their EFC.</p>
<p>But basing it on 1 year of income and then adding back the portion you saved (and single parents get 40% of the asset protection of a married couple) is not the ‘fairest’ of formulas. Another salt in the wound moment, adding back in what you saved for retirement as spendable income is a kick in the ___.</p>
<p>It’s impossible to come up with a formula that is foolproof, but what they have now is not remotely close to sane.</p>
<p>I can recall in the 1970s when home equity was not protected and people in California were having a fit, now a person with $0 home equity or $2 million in home equity are the same asset wise; however, if that person with $2M in HE is making an income to afford that house, then no aid is likely for him. If he bought the house 30 years ago for $100k in CA ans his taxes are low and his mortgage is small and his income is small, then maybe some aid.</p>
<p>Think about the formula, there are very few cases where some one has enough in assets (over about $50k for a couple) to bother moving them creatively and still has income low enough to garner aid. My kids are about done and we did not ever benefit from the HE limits to a percentage of income that top schools now offer, but even so, I think the ‘loophole’ applies to very few people.</p>
<p>In my experience people who go through great lengths to shelter assets usually end up with kids who want Profile schools! The vast majority of FAFSA only schools don’t meet need anyway.</p>
<p>As an accountant, my instinct is to tell you that if you need to resort to hiding assets, then you can’t afford the colleges you are looking at to begin with.</p>
<p>In today’s economy, there is no guarantee that the schools will be able to continue to provide the level of aid they have done in the past (since the value of their endowments dropped with the market crash and their latest contributions from alumni have gone south as well). So even if you succeed in getting your child into a school you cannot afford by manipulating your FAFSA this year, that kid may have to drop out next year when the school can no longer provide them with the same level of aid.</p>
<p>My advice - figure out what you can honestly afford for college for your child and aim accordingly. You never know what life holds for you next year (financially, physically, etc.) and getting in over your head in this economy (or any economy, since life holds no guarantees) is far too risky.</p>