I’ve thought about this a great deal recently. I have five children that I hope to eventually send to college, so getting financial aid is a big dollar question for me. I have decided that I won’t qualify for financial aid when the time comes because of my assets, even if I have zero or no income. I would be interested in everyone’s opinions on the conclusions that I have reached. Especially if you have personal experience that contradicts anything I’m saying here I’d be interested to hear about it.
1. Almost everything you read claims that assets don’t matter, and income is what determines your financial aid. This is probably true for most people, but false for ER types. The formulas apply roughly 5-6% of your assets to your child’s tuition – so if you have $1m or more you will not qualify.
2. The federal methodology says that your assets don’t get counted under the simplified means test (income <$50k and 1040A), but what I have read is that this is not the case for the bulk of the financial aid money. So, you might get a Pell grant, but when the financial aid officer sees that big asset balance he’s just not going to give you any institutional money.
3. Even retirement assets and home equity are counted by many institutions. So for some institutions it may make a difference to put all your assets in a big house or annuity, but for many it will not matter. I’m not sure how you can find out before making such a dramatic move if it will be effective or not.
4. Some people claim that almost all financial aid is loans anyway. This does not appear to be the case when you look at the stats (when you see that average financial aid is, say, $25k a year for a school, and average loans on graduation are, say $35k in total), but it makes me wonder how much work I should really put into qualifying.
5.
dt123 said:
I will tell you that in higher education circles (where I hang out in my alternate universe) there are plenty of Crunchy Granola types who will tell you it is wrong, and gaming the system, to do the following: 1. save up $200K for Jr.'s education, 2. when Jr. is a HS senior, pay off your $200K mortgage, so that 3. the $200K is not counted as an asset for financial aid. (Money in the bank counts, home equity doesn't count.)
The university tuition system is broken. Anytime you disconnect the people who pay for a service and the people who use it you have a problem. If universities simply charged everyone $40k then there would be an outrage, but because most people pay a fraction of that they can get away with charging anything. The idea that it should legitimately cost $40k to educate a kid is just silly.
Schools feel that they are owed every single penny you have, even over and above the $40k price tag – as you can tell from the constant requests for money even beyond the tuition checks you write. With that in mind, I don’t feel bad working the system to whatever effect I can to qualify for all the aid I can.
6.
2B said:
I have always wondered why anyone would pay over 5X the cost of a high quality public college. The "return on investment" in the way of income just isn't there.
I disagree with those who say that the return on investment is not there for the big-name schools. If you look around at the CEOs, investment bankers, lawyers, etc that are making big big money in the world you will see a lot of big name schools. There are a lot of people who didn’t have that background, to be sure, but if you want to maximize your income then a big name school can allow you to skip several years of “proving yourself” at a lesser job or a lesser institution. The value of that over a 20 year career is huge.
Now, with all that said, you have to be the sort of person that is going to persue something that makes big money, and you need to go to a school that offers this sort of opportunity. There are plenty of schools that cost $40k+ and have limited cache.
