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Old 08-27-2016, 05:40 PM   #41
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Not sure I can remember all the specifics but at some point, I think I allowed my daughter to claim herself on her taxes. I gave up the tax deduction for her. This allowed her to deduct some items. I was unable to deduct it on my taxes. Of course, one must have earned income to do this. She worked during summers, on breaks and minimally during college semesters.
Under currrent law, if an individual is eligible to be claimed by another person, such as a parent, they can not legally claim themselves on their income tax return. For a student, if they provide more than half of their own support, either from wages or their own "wealth", then a parent would no longer be eligible to claim that student as a dependent.

Also, if 19 or older, make over $4000, and fail to meet the test as a full time student, then they can't be claimed as a dependent on a parent's return and thus can claim their own dependency. A full time student is one who pursues a full time course of study in school or trade school for some part of five month during the calendar year.

You can not legally "let" them claim themselves unless they qualify.

From IRS Pub 17, chapter 3:
"You can take one exemption for yourself unless you can be claimed as a dependent by another taxpayer. If another taxpayer is entitled to claim you as a dependent, you cannot take an exemption for yourself even if the other taxpayer doesn't actually claim you as a dependent."
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Old 08-28-2016, 02:48 PM   #42
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RE2boys: So with this, I went back and looked thru a few of her tax returns. You are correct and she did not claim herself. But...she did have enough income that she could take $2,500 in education credits on her return that we, as her parents, could not or did not take, I presume due to phase out or that it did her more good than us.

Sorry for being misleading. I guess I was remembering that we had a long discussion about whether or not she could claim herself and my memory thought she did. So much for memory! Claiming or not claiming herself wasn't the trigger that allowed her to deduct those education credits. Having enough income to do it along with the standard deduction was and again, it served her better than us.
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Old 08-28-2016, 03:08 PM   #43
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Sorry, folks, for hijacking this thread a bit. Even though college matters are in distant future for us, I'm always curious what other people discuss about on such threads.

After reading this thread, I came up with a few questions I'd like to get answers to in order to understand the nature of nuances we'll be dealing with when our kids are in HS.

- OP said that his/her income is modest, but non-retirement assets were too substantial to qualify for any help via FAFSA.
Question #1: Could you put a range of value of assets which would disqualify a family for any help?
If tuition+board is $50K/year, then $1M value in non-retirement accounts/rentals/529 plans would nix help...Does it sound about right?

- Some people say their earned income or AGI disqualifies for any help. Everything else is in retirement accounts.
Question: What's the range of income/AGI that disqualifies for help?

In general, what's the purpose of FAFSA? In my VERY limited understanding, it tells how much a student and his/her parents can borrow at subsidized loan rates which are not really low, IMO.

So, what do people do when FAFSA gives a negative response?
If they didn't save for college, perhaps they can get a mortgage against their hopefully paid off house or a home equity line with a lower rate than parental loans through FAFSA.

Finally, what is a co-op program and is it only applicable to engineering/IT students?

My dream is that at least one of our kiddos goes to our country in Europe to obtain a degree that's acceptable in the US (if chooses to come back).
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Old 08-28-2016, 03:14 PM   #44
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RE2boys: So with this, I went back and looked thru a few of her tax returns. You are correct and she did not claim herself. But...she did have enough income that she could take $2,500 in education credits on her return that we, as her parents, could not or did not take, I presume due to phase out or that it did her more good than us.

Sorry for being misleading. I guess I was remembering that we had a long discussion about whether or not she could claim herself and my memory thought she did. So much for memory! Claiming or not claiming herself wasn't the trigger that allowed her to deduct those education credits. Having enough income to do it along with the standard deduction was and again, it served her better than us.
Glad it worked out for you. Just did not wish for folks here to get the wrong idea about when a student can claim themselves. Most times the student does not have sufficient tax liability to take advantage of the educational credits when the parents are not eligible due to high incomes.

Since my older son just started college, I've been trying to read up on all the educational tax benefits to see which would apply in our situation. Having been retired for 16 years, income doesn't make us ineligible for any educational tax benefits, but high worth made the FAFSA a waste of time. Next year son #2 starts college, and the sum of their expenses is still under the expected family contribution that FAFSA dictates.
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Old 08-28-2016, 05:37 PM   #45
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I put comments in red.

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Originally Posted by aida2003 View Post
- OP said that his/her income is modest, but non-retirement assets were too substantial to qualify for any help via FAFSA.
Question #1: Could you put a range of value of assets which would disqualify a family for any help?
If tuition+board is $50K/year, then $1M value in non-retirement accounts/rentals/529 plans would nix help...Does it sound about right?
One can look up FAFSA algorithms. So 5.64% of family assets are used, but that is not the only thing use.
- Some people say their earned income or AGI disqualifies for any help. Everything else is in retirement accounts.
Question: What's the range of income/AGI that disqualifies for help?
It is not just AGI because any contributions to 401(k)/403(b)/IRAs are added back in. So if a two-earner family is conributing $18K + $18K to 401(k) plans, then that's $36K right there. But there are FAFSA calculators on the internet and articles that answer this question more completely. Also note that EFC below Cost of Attendence could mean aid only in the form of loans.

In general, what's the purpose of FAFSA? In my VERY limited understanding, it tells how much a student and his/her parents can borrow at subsidized loan rates which are not really low, IMO.
I think the purpose of FAFSA is to encourage low-income families to go to college.
So, what do people do when FAFSA gives a negative response?
If they didn't save for college, perhaps they can get a mortgage against their hopefully paid off house or a home equity line with a lower rate than parental loans through FAFSA.
If they get a negative response, then the family really does have enough money to pay for college. Really. Tuition for college is about $5,000 a semester and commuter students can live at home. My son worked at minimum wage and made $3,000 in the summer, so working part-time during the school year could bring in $5,000. The American Opportunity Tax Credit is another $2,500. So all of that is more than enough to pay tuition and books. If parents still feed the student and provide a bed at home to sleep in. Most college students do not go to expensive private colleges.
Finally, what is a co-op program and is it only applicable to engineering/IT students?
I have not participated in a co-op program, but I think it is a systemized way that students work during college. Students are not prevente from getting jobs and working during college. I worked every year I was in college in order to help pay for college. My oldest worked in college, too. My youngest will work in college.
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Old 08-28-2016, 05:53 PM   #46
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You might consider hiring a private consultant. I have heard they are well worth the money since they know how to play all the college financial games.
It seems ironic to have enough wealth to hire a private consultant in order to hide enough wealth so you can qualify for tuition aid packages.
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Old 08-28-2016, 06:07 PM   #47
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It seems ironic to have enough wealth to hire a private consultant in order to hide enough wealth so you can qualify for tuition aid packages.
I have seen families of moderate means hire consultants and pay them money that could have been better used on college tuition. But some parents who did not go to college really worry about these kinds of things and fear doing the wrong thing. Unfortunately, they sometimes get scammed.

I think very very few wealthy families hire consultants and they get scammed always.
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Old 08-28-2016, 06:24 PM   #48
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The purpose of the FAFSA (Free Application for Federal Student Aid) is a standardized systematic program that attempts to measure the expected family contribution (EFC), what a family could afford to contribute toward a college education.
Many (most?) schools use it determine what kind of aid package to offer a student who has a shortfall between cost of attendance and the EFC. . I believe everyone who completes the FAFSA is offered a federal sponsored loan, though it may be unsubsidized (meaning you start making payments immediately if you have no demonstrated need.

The aid package can consist of outright grants by the school, federally sponsored work on campus, and loans from a variety of sources, including the above federal loans. The aid package is usually put together and offered by the school, some schools may offer grants, others may offer only loans.

Since the EFC formula takes into account over 5% of your non-retirement assets, I've seen it recommended that you spend down these assets by buying new cars, necessary home repairs/remodels, pay of mortgages and car loans, etc, prior to filling in the FAFSA. If you spend down $100K, you would reduce your EFC by $5-6K. And a certain amount of your assets are not counted, the amount depends the parent's age.

As 20% of a child's financial assets count toward the EFC each year, it is not a good idea to have much in a child's name (have him buy a car). The EFC also looks at the child's income so you could discourage your child tfrom work. I hate these provisions as it seems to send the wrong incentives for the child to save and earn.

The FAFSA doesn't care how deep in debt you are (that is a personal financial management problem) or what type of car you drive or what house you live in as those are personal decisions.

If the EFC exceeds the cost of attendance, you'll only be offered an unsubsidized federal student loan.

The EFC is based on family, so if you have two in college, the EFC stays the same so the likelihood of some aid is greater.

Co-op programs allow a student to work for a company, get paid, and gain experience in their chosen field. Many schools will grant college credit for the experience gained.
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Old 08-28-2016, 08:38 PM   #49
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Here's a thought. Pay for college expenses out of pre-tax accounts, i.e. 401K, IRAs, etc, even if not at the 59 age limitation. The 10% early withdrawal penalty is waived for all valid education expenses to include tuition, fees, and room & board. This may save you taxes if waiting to withdraw the retirement funds will put you in a higher tax bracket.

Might be beneficial if in the 15% tax bracket with kids at home, as opposed to 25% bracket after pensions and social security start.
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Old 08-28-2016, 08:42 PM   #50
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I put comments in red.

Your comments are in a quote in red... but I just wanted to post something...

From what I can see... if you do not have any tax liability then the college credit is only $1,000.... at least that is all I see on my estimated return...
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Old 08-28-2016, 08:53 PM   #51
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Your comments are in a quote in red... but I just wanted to post something...

From what I can see... if you do not have any tax liability then the college credit is only $1,000.... at least that is all I see on my estimated return...
Yes, of the $2500 maximum American Opportunity Credit, up to $1500 is used to reduce your tax liability (non-refundable credit), and up to $1000 is a refundable credit, similar to the earned income tax credit, where you can get back more than you paid in.
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Old 08-28-2016, 09:18 PM   #52
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Same for me... but I made DS take the unsubsidized loan as I DO want him to have skin in the game... and the total cost of interest will not be that big of deal in the long run...

I also think he will exceed what I said I will pay for his degree... so I want him to get loans from the beginning and be aware of what he is spending...

+1. Maybe they think more about dropping a course and losing dough, only to have to pay again later. I waited a couple weeks and borrowed the books from the dropees that could afford to do this.


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Old 08-28-2016, 10:20 PM   #53
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Finally, what is a co-op program and is it only applicable to engineering/IT students?
I can answer only for U. of Cincinnati, but- you go to school the first year like anyone else. After that you work one quarter or semester, then go to school one quarter/semester. The work is at an employer you find with the help of the school; they agree to pay you a decent compensation and give you more responsibilities as you progress, so it's far more stable and rigorous than a series of internships. All the co-op students I knew stayed with the same company every year. The school regularly gets feedback and makes sure the work relationship is going well. It's a 5-year program but the student comes out with highly relevant experience and usually an offer from the co-op employer.

In Dad's time it was only Engineering. It's been greatly expanded to include Business and other majors. Disney hires UC co-OP's; the FedEx logo was even designed by a UC co-op student.
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Old 08-28-2016, 11:03 PM   #54
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There are two major financial aid formulas used in the US: FAFSA, used by virtually all schools, and Profile, used by many well-known private and a handful of public universities.

FAFSA is a formula that is based primarily on the income (less reliance on assets) of the custodial parent(s) and the student. The resulting value may qualify a student for a Pell Grant (typically only if the family income is rather low) and qualifies most students for a federal student loan. Colleges may also choose to use the FAFSA EFC to determine which students get federal work study, SEOG grants, and Perkins loan funds, but these are under the college's discretion as to how they're allocated.

There are a number of strategies one could use to minimize the FAFSA EFC, but in many cases it simply doesn't matter. For example, at my state flagship, even with a Cost of Attendance of around $30K, students with a $17K EFC rarely get any aid other than a student loan. A family that tries to engineer an EFC drop from $32K to $25K at best ends up with a small subsidized loan.

And, some of the very things that can help at a FAFSA-only school don't help at all if your student attends one of the schools that uses the much more in-depth Profile form. Many tips and tricks I read about simply do not work in the Profile context.

Rather than trying to play games with financial aid, you might encourage your kids to seek out schools with relatively larger merit awards for students with stats like theirs, or schools that are simply less expensive from the start.
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Old 08-28-2016, 11:35 PM   #55
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Just another point in this discussion...

They do not care if you are not the parent... my DS is really a step son... I never adopted him, but FAFSA does not care... I had to put my info down... it counted against him even if I was not going to pay...

And all stepdads do not pay... one of my DWs friends get remarried a few years ago and her husband refuses to pay for her daughters education... but all his assets had to be listed (I really do not know if they did as we did not ask, just saying if they filled it out right they would be).... also, since her real father is still alive his assets should be listed...
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Old 08-29-2016, 08:37 AM   #56
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I have seen families of moderate means hire consultants and pay them money that could have been better used on college tuition. But some parents who did not go to college really worry about these kinds of things and fear doing the wrong thing. Unfortunately, they sometimes get scammed.

I think very very few wealthy families hire consultants and they get scammed always.
It's a great point. When I read articles about private college consultants and their 'successes' helping families, I have a hard time reconciling the value of such 'services' vs. saving that money and paying for college. I think it's similar to investments managers managing your money and you believing that you get more value from such services. Some people really need hand holding. Others who could do themselves still choose to hire such a manager because they think they'll get additional value as their friends and acquaintances do the same, media says to do so too. As the popularity of college consultants grows and media embellishes their useful services perception starts to shift among parents and more people will hire them still.

PS. LOL and Reb2Boys, thank you for your responses to my questions.:-) It was helpful to get a 'shortcut' answer from real people vs. trying to read article after article about FAFSA on Google.
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Old 08-29-2016, 10:45 AM   #57
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I am one of those college consultants.

However, I don't focus on trying to help families "game" the system. Instead, the real value is in helping families and students understand which colleges are likely to be better financial fits because I understand the rules.

For example, there are a relative handful of elite private colleges that will not ask for the non-custodial parent's income/assets. In the case of a student where the parents are divorced and the non-custodial parent isn't willing to supply information or funding for college, it is important that the student not focus on the colleges that simply aren't going to work financially, and instead focus on those that will.

Every year I meet many parents who are surprised to learn how financial aid does or doesn't work and how it varies on a college-by-college basis. Clarifying those issues BEFORE students build college lists avoids a lot of tears.

Yes, the inheritance mom received when her dad died is an asset for financial aid, even though dad wanted her to use it for a dream vacation.

Yes, the family vacation cabin is an asset for financial aid purposes even though it has been in the family for fifty years.

Yes, if a divorced parent remarries the income and assets of the new spouse will be incorporated into the FAFSA calculation if the student lives with that parent...but some private schools using Profile will instead look only to the income/assets of the two biological parents.

No, Suzy will not get a merit scholarship from MIT. They only give financial aid.

Yes, there is a way to request a waiver of non-custodial data in cases where there has been domestic violence or sexual abuse or long-term absence of a parent. No, just because a parent is unwilling to pay for college doesn't mean that colleges will offer financial aid.

No, you can't gain in-state tuition at most public universities by moving to that state and having your parents not claim you on their income tax return.

Just because your financial aid form shows that you have a lot of financial need doesn't mean that all (or most) colleges will give you enough aid to meet that need.

There is a lot of misinformation out there, and a lot of life insurance salespeople selling wonky products in the guise of college planning. And a whole lot of misleading news articles.
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Old 08-29-2016, 12:52 PM   #58
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Welcome to the forum Potstickers! I noted that your only posts to date are within this thread. We're always learning new viewpoints regarding our financial lives and hope to hear your voice more frequently.

Do you get into advising on 529 plans? I just recently moved most of my sons' 529 plan to the Colorado Stable Value offering. One just started college a week ago, the next is only a year away and decided to reduce volatility of the investments.

Again, welcome aboard!
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Old 08-29-2016, 01:01 PM   #59
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I never went to college. MOST of my friends did and some of those graduated...even less got the MBA. I have little college but seem to have a fairly high earning potential FOR NOW...

I have what my 'ole man calls 'street smarts' and therefore he never offered to pay for much. He bought my first semester's books, and loaned me the money for tuition at a CC. When I soon realized working at Wal-Mart would not get me through college...I dropped out of college.

FF, today I'm doing better than both my siblings in terms of earnings. Both have MBAs so I don't quite see the necessity but I am highly technical. Self-taught with some college course work here and there.

I wouldn't recommend that approach as it was a tough journey from my perspective compared to my peers in universities...alas now they are paying their loans back and I am investing in stocks.

I have a 529 setup for my kid, no way in hell I'm gonna leave my first born high and dry. I'm third born so I think my ole man was like screw it aint no way I'm paying for all 3 college. My sisters got little help as well. We all work for MegaCorp...fun times.


I think the 529 account is at about $3-4k and kid is not even 2 yet...more than my ole man ever had saved. My plan is to make it look like I am poor so my kid can also qualify for some good aid.
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Old 08-29-2016, 01:06 PM   #60
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@ Potstickers,

Thanks for posting. Welcome to ER forum! I kind of suspect you've known this forum for a while...a lurker?

So, as I'm still curious how this college thing works in this country, could you share some more with me (us):

- It sounds that you say it's better to meet a college consultant before a HS-er starts applying for various colleges to prevent later 'tear'. In which grade would such a HS-er approach the consultant?

- How to find a competent college consultant? What questions to ask?

- What's the cost to hire him/her?

- What volunteer and extracurricular activities are very important for the US colleges? This is not required in other countries, BTW, though yes, athletes get more favorable treatment, but they still must show academic achievements before college.

- Any websites/books that are not misguided that you'd recommend to read?

Thank you.
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