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ER and College Costs
Old 04-07-2013, 12:27 PM   #1
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ER and College Costs

I've just started to delve into the cost of college as I'm on the doorstep of ER and have 3 to put through the higher education system.

From looking at the online EFC calculators, your assets outside of primary home equity are added to the EFC as a rate of 12% of total assets. If you could "hide" your assets this could be a significant savings in college costs. Now don't mistake me, I'm not trying to cheat the system, but rather take advantage of the rules as they are.

Seems like the ultimate goal for a family in ER would be to qualify for the Simplified Needs Test. To this you need to get out of filing a 1040 tax form. Of course this is difficult for one who relies on investments for part of their income. If one has Capital Gains/Losses to report, you must file a 1040 and can't use the 1040A or 1040EZ.

A way to get around this would be to shelter your assets by paying off your mortgage and using a HELOC to be able to access the equity if needed. Also, for the time the children are in college, move all other assets to TIPS or the like where you would have no Capital Gains to report. The savings you will make through addition financial aid eligibility will make up for the loss of potential gain by being invested in stocks during this time.

For my particular situation, if I keep assets as they are (lazy portfolio) my EFC is $25K. Employing the strategy as outlined above lowers it to $3K. That's quite a bit to make up should you keep the assets invested.

Any experience from the group with legitimate ways to decrease you EFC?
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Old 04-08-2013, 02:13 AM   #2
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Have you tried Goggle?
legitimate ways to decrease EFC - Google Search

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Old 04-08-2013, 07:53 AM   #3
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Originally Posted by NanoSour View Post
.... Seems like the ultimate goal for a family in ER would be to qualify for the Simplified Needs Test. To this you need to get out of filing a 1040 tax form. Of course this is difficult for one who relies on investments for part of their income. If one has Capital Gains/Losses to report, you must file a 1040 and can't use the 1040A or 1040EZ.

.... Any experience from the group with legitimate ways to decrease you EFC?
I'm a few years (about 11 years) away from worrying about college expenses, but interested in this topic. I hope to semi-ER or ER in 2-4 years, so it'll give me a handful of years to do TIRA to Roth conversions before my oldest start college. If things go well, I won't do any conversions while kids are in college.

I was planning to have net rental income of $25k/year and 5 - 6 years of living expenses, avoiding any selling of investments during college years. Living expenses would be in a CD ladder or something. I'll have to file a 1040, but the income should keep me in the Simplified Needs Test, unless it changed from a few years ago when I glanced at it.

I'm limiting how much $$ is in kid's savings account, 529 accounts are in my name for ownership, plan to have newer cars (avoiding any need for funds to purchase), etc, basically 4-6 years of calm living ;-) Let's see how bad my plan is in 15 years.
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Old 04-08-2013, 10:29 AM   #4
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I believe, retirement accounts are not considered when the rube goldberg machine poops out the EFC. The system is more heavily weighted towards income rather than assets.

Doesn't matter who's name a 529 account is in.

EFC is one thing, what else the school does is another.
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Old 04-08-2013, 10:50 AM   #5
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I'm in the same situation - three to put though college. My daughters enters college next year and twin boys in 2022. I'll research and update here and will be following this thread for updates from others. I went to seminar at my daughter's school and found out that 529 and Retirement accounts are not needed to report in FAFSA.
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Old 04-08-2013, 10:57 AM   #6
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How relevant is the EFC?

I recall from my college days (information that is 10-15 years old now) that I still received access to student loans and some tiny grants ($500 or $1000 per year) even though my EFC was much higher than zero (when my parents' income was included on the FAFSA).

But my experience is limited to relatively low cost public universities that didn't have a ton of money to dole out to make up short falls in tuition and fees if your EFC was near zero. Like ronoc posted "what the school does is another [matter]" aside from EFC.

Am I potentially missing out on big awards these days if I can keep the EFC near zero? We will have 9 years of college to fund for 3 kids, with a gap of a year or two between kid #2 and kid #3. So if we are missing out on say $3000 per year per kid it could be a substantial amount of money we are leaving on the table due to inartful structuring of our investments and withdrawals?

We already plan on having a modest AGI/MAGI to keep us eligible for obamacare subsidies and our own student loan Income Based Repayment plans.
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Old 04-08-2013, 11:13 AM   #7
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If one has only 401(k) or IRA or 403(b) or Roth IRA (all tax-advantaged) retirement accounts, then one may have a chance. If one has any taxable accounts or 529 plans, then count about 5.6% of it towards your EFC (where did your 12% come from?)

Also note that the form asks how much you contributed to retirement accounts in the previous year and assumes you can stop those contributions and use all of those contributions for college.

Note that the CSS PROFILE is different and they can do what they want with your retirement accounts.

Financial aid officers can also see $5 million in your retirement accounts and laugh at you.
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