Using MEC to shelter assets, pay for college

politeperson
Wed, 21 Jul 2021 18:00:36 +0000

A cash out refi to pay off high rate student loans is reasonable. Also a reasonable way to finance college if borrowing will be needed. However, make sure it is truly no cost. Some brokers will pitch a “no cost” refi that rolls costs into the mortgage. Obviously, that is not no cost even though it may be no money out of pocket.

Glad you decided against the insurance product.

If your child is considering schools that provide need-based aid, you should run the price calculators and play around with different home equity and savings numbers to understand what effect this might have. At schools that don’t consider home equity but are pretty good at sniffing out savings disguised as life insurance, the advisor’s advice would reduce your aid.

In general, income is the most important variable determining aid. Savings isn’t usually the biggest factor for most people. But if it’s a factor, the best place to “shelter” savings from aid calculations is in retirement accounts, then home equity (for schools that don’t consider it), and then in spending down savings to reduce anticipated future expenses (paying down debt, slightly accelerating necessary home maintenance such as roofing, etc.). For those with significant assets, it’s tough to move the needle much by doing these things. As mentioned, it almost never makes sense to make financial planning decisions solely for financial aid reasons.