stephenandrew
Recycles dryer sheets
- Joined
- May 5, 2007
- Messages
- 148
Yesterday's Wall Street Journal ran an article on how upper middle class families who normally would not be elligible for any financial based aid for college might be able to rearrange their finances a bit to enhance the chances that they get some "free" money. The complete aritcle is here: Gaming the Financial-Aid System - WSJ.com
The part that I found most interesting/confusing was this:
Some families may want to consider margin loans, passbook loans (which use savings accounts as collateral) or a home-equity loan to help pay for college since such loans reduce net assets in the aid formula, says Mr. Chany. If, for example, you have a $20,000 stock portfolio and a $5,000 margin loan and have no other investments to report, you'd report $15,000 as the figure for your assets on the Fasfa. A major drawback: If the stock market declines drastically, you may be asked to put up additional stock as collateral or pay back part of the margin loan.
At first, this made sense to me, but after thinking about it a bit, I did not completely understand how this would work. If you took out a HELOC to make it appear that you have less equity in your house (or a margin loan in the case of stock), would you not still have to report the cash you received from the HELOC (or margin loan) as an asset on the Fafsa? This asset (cash) would offest the decline in your home or equity portfolio, would it not? Seems to me the change would be a zero net change.
The part that I found most interesting/confusing was this:
Some families may want to consider margin loans, passbook loans (which use savings accounts as collateral) or a home-equity loan to help pay for college since such loans reduce net assets in the aid formula, says Mr. Chany. If, for example, you have a $20,000 stock portfolio and a $5,000 margin loan and have no other investments to report, you'd report $15,000 as the figure for your assets on the Fasfa. A major drawback: If the stock market declines drastically, you may be asked to put up additional stock as collateral or pay back part of the margin loan.
At first, this made sense to me, but after thinking about it a bit, I did not completely understand how this would work. If you took out a HELOC to make it appear that you have less equity in your house (or a margin loan in the case of stock), would you not still have to report the cash you received from the HELOC (or margin loan) as an asset on the Fafsa? This asset (cash) would offest the decline in your home or equity portfolio, would it not? Seems to me the change would be a zero net change.