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Stop working = More college financial aid?
Old 11-10-2006, 09:39 AM   #1
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Stop working = More college financial aid?

I have always thought that I would stop working before my kids go to college. I was hoping that with no earned income, that then my kids would be more eligible for financial aid.

Now approaching the half-century mark and with one kid in high school, I need to make this plan more concrete. Am I crazy or does such a "loophole" exist for early retirees with college-bound kids?

Anybody RE and have kids in college? How's the financial aid picture?

Thanks!


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Re: Stop working = More college financial aid?
Old 11-10-2006, 09:58 AM   #2
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Re: Stop working = More college financial aid?

http://www.bankrate.com/brm/news/adv...20060516b1.asp

Quote:
It's all about what the parents do with their financial assets that will influence the family contribution," Chany says.

For example, colleges determine your expected contribution using financial data from the calendar year before your child heads off to school. It's wise to defer big bonuses and avoid large capital gains and IRA distributions during that first base income year, Chany says in his book, "Paying for College Without Going Broke," which is co-authored by Geoff Martz.
-maybe pull an unclemick and live on 12k the year before you apply
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Re: Stop working = More college financial aid?
Old 11-10-2006, 09:59 AM   #3
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Re: Stop working = More college financial aid?

I don't (yet) know the ins and outs of this, but I'll be learning. DGF's D will be going to college next summer, so she and her mother will be applying for financial aid in a couple months.

One thing I DO know is that they look at your income from the prior year. Ferinstance, we'll be putting in DGF's numbers for 2006, and her 2006 tax return. So, if you're planning on scaling back your income, do it prior to January 1 of your child's junior year of HS.

DGF doesn't have a high income, probably about the same level as a very frugal ER. Getting decent financial aid for her daughter is one reason we're not planning on marrying anytime soon. I'll be covering most of whatever the scholarships and finaid don't.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 10:09 AM   #4
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Re: Stop working = More college financial aid?

Quote:
Originally Posted by LOL!
I have always thought that I would stop working before my kids go to college. I was hoping that with no earned income, that then my kids would be more eligible for financial aid.

Now approaching the half-century mark and with one kid in high school, I need to make this plan more concrete. Am I crazy or does such a "loophole" exist for early retirees with college-bound kids?

Anybody RE and have kids in college? How's the financial aid picture?

Thanks!


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I posted a reply earlier but it dissappeard.

Anyways. Your income and the student income are the primary drivers for the FAFSA. The lower your adjusted gross income the higher the aid. keep in mind that your income during his/her junior year counts for the freshman year.

Most private schools require the PROFILE which is a less friendly application that inquires into your home value savings 401k etc...

Keep him/her away from such schools.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 10:12 AM   #5
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Re: Stop working = More college financial aid?

If you have a lot of money in UTMA/UGMA accounts, it doesn't matter if you are ER or not.........

That being said, household income + student income are key variables on getting financial aid or not..........
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Re: Stop working = More college financial aid?
Old 11-10-2006, 10:34 AM   #6
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Re: Stop working = More college financial aid?

Although one would normally want to defer Roth income until later, I have wondered if it would make sense for an older parent (59.5+) who was say, partially or fully retired to take Roth income during those years which matter to drive down AGI. If your child was getting $30k+ at a private school in aid, it might offset the lost tax deferral..In fact, you could probably put it back if working part-time in a Roth 401k.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 10:43 AM   #7
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Re: Stop working = More college financial aid?

Since once typically would be withdrawing 4% of assets for living expenses ...
And one might have a chunk of cash as part of their allocation ...
One could have only interest and dividend income in those early retirement years ...
and still be able to afford living expenses of $80K a year that would not really show up on a Form 1040.

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Re: Stop working = More college financial aid?
Old 11-10-2006, 11:12 AM   #8
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Re: Stop working = More college financial aid?

If I run the calculator at www.fafsa.org for an estimate of family contribution ...

They do not include retirement plan assets in their calculator, but do include non-plan assets.

With no earned income, $20,000 in unearned income (interest and dividends), $1 million in the mutual funds, unlimited in retirement accounts, some home equity, the family contribution is $0.

I can hardly believe that.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 11:29 AM   #9
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Re: Stop working = More college financial aid?

Yep that surprises me too. When i was going to school and getting financial aid in the late 80's/ early 90's, the rule was that basically all of the parent's liquid assets would get drained before financial aid engaged. So if you had $100k liquid, you would be required to spend $25k per year of school.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 11:51 AM   #10
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Re: Stop working = More college financial aid?

Quote:
Originally Posted by LOL!
If I run the calculator at www.fafsa.org for an estimate of family contribution ...

They do not include retirement plan assets in their calculator, but do include non-plan assets.

With no earned income, $20,000 in unearned income (interest and dividends), $1 million in the mutual funds, unlimited in retirement accounts, some home equity, the family contribution is $0.
I can hardly believe that.
LOL, this would only work if both parents could file 1040A (can't itemize, can't have cap gains, etc, for details look here: http://www.finaid.org/educators/needs.phtml ). If not, you are not eligible for simplified needs test and 1 mil will be assessed at 12%. Same thing with home equity (but only will be assessed for institutional methodology).


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Re: Stop working = More college financial aid?
Old 11-10-2006, 01:23 PM   #11
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Re: Stop working = More college financial aid?

In the online calculators, "liquid" assets were cash, savings accounts, etc, but not mutual funds nor bonds which were reported under a different category.

I think I could easily work it so that I didn't have any capital gains (i.e. all ETFs, no selling), no itemizing (at least every other year), and thus could probably file a form 1040A.

I will investigate further.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 01:48 PM   #12
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Re: Stop working = More college financial aid?

Does anyone know or have experience with........

How common is it for a school offering need-based financial aid to insist that the student accept a campus job as part of that aid? For example, the school offers a total of $15K. $10K as a grant and $5K as a campus job. The student/parent says they'll take the $10K but the school can keep the $5K and the job. How do schools handle this?
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Re: Stop working = More college financial aid?
Old 11-10-2006, 02:13 PM   #13
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Re: Stop working = More college financial aid?

I believe there are books written by people who worked in the financial aid system, telling you exactly how the system and the formulas work in the real world.

Decisions the parents and the kids make can cause a huge difference, and the system isn't always fair. You may as well learn about it, not to cheat it, but to make the most of it.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 02:51 PM   #14
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Re: Stop working = More college financial aid?

Also keep in mind that formulas and laws/regulations are changing yearly. So what was the best approach two years ago might not necessary be best this year.
Youbet, I'll ask DW about your question, she is a functional FinAid guru, maybe she will decide to humor us vs. charging us $$ for her expertise
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Re: Stop working = More college financial aid?
Old 11-10-2006, 02:57 PM   #15
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Re: Stop working = More college financial aid?

Yes, the drop in income will be beneficial. From fresh to soph years, my income dropped 10K, as I was ramping down, and I think this helped us get more aid.

If they were smart, the colleges would say "Hey, your income is lower because you are retiring. If that's the case, you can afford to pay more (or you can work more to pay more)!" But I don't think they even consider that someone might retire at age 50 or so.

For DD's college, they suggested work study the second year, but whether or not she took it was up to her.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 04:51 PM   #16
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Re: Stop working = More college financial aid?

I have a lot of experience with this,I am sad to say..............just thought I would add that FAFSA is really good at fereting out untaxed income (i.e. 401k contributions), so THAT technique to lower AGI wont work.
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Re: Stop working = More college financial aid?
Old 11-10-2006, 10:07 PM   #17
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Re: Stop working = More college financial aid?

Am I understanding home equity "counts" when determining aid? If so, does $1M in H.E. get penalized the same as $1M in the bank?
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Re: Stop working = More college financial aid?
Old 11-11-2006, 07:02 AM   #18
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Re: Stop working = More college financial aid?

Different states calculate "family contribution" differently. Private schools can and do things really different.

When I lost a job in 2002, my son got a free ride for his last year at Texas A&M. He had a great GPA. Most of my assets are in IRA/retirement accounts which don't have to be reported to TAMU. They didn't ask about home equity.
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Re: Stop working = More college financial aid?
Old 11-11-2006, 07:40 AM   #19
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Re: Stop working = More college financial aid?

We just went through this with two kids.

Let me just say that there is very little financial aid these days. Do not get your hopes up on this. Have your kid apply for lots of the little scholarships - like in your town. Our daughter got 5 of these at 1K each.

You pretty much have to be very low income/assets and have an exceptional student to get much.

A friend of ours ended up sending her daughter to Canada for college because the quality was high, and costs were much less. She was a single mom (no Dad) who made 70K per year - zero financial aid.
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Re: Stop working = More college financial aid?
Old 11-11-2006, 08:09 AM   #20
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Re: Stop working = More college financial aid?

one of our friends has five kids, one income less than $100,000. The eldest was accepted at an Ivy league school. He was offered zippo financial aid. He called and argues "but my son was valedictorian of his class of 350 and I have five kids". The officer said "most of our students are valedictorians sir." He ended up in a state school and got free tuition due to his outstanding academic performance. Still cost $5,000 for room and board though per year.

Much financial aid now is in the form of loans. I chose to work full time as the second income for an additional six years, we might have done better with financial aid if I had quit but I did not want my kids saddled with big loans like most of their friends. It is like retirement savings. I am responsible to save enough money to support myself. Social security and medicare may be totally different animals when I qualify in 12 years. It can be a big gamble to depend on financial aid from schools.
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