Stop working = More college financial aid?

[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!


Moderators: Please feel free to move to LifeAfterFIRE or other

 

[maddythebeagle]

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

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

 

[mja]

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.

 

[Corporateburnout]

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!


Moderators: Please feel free to move to LifeAfterFIRE or other

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.

 

[FinanceDude]

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..........

 

[New Thinking]

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.

 

[LOL!]

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.

 

[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.

 

[free4now]

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.

 

[sailor]

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).

 

[LOL!]

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.

 

[youbet]

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?

 

[lazyday]

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.

 

[sailor]

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

 

[TromboneAl]

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.

 

[jazz4cash]

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.

 

[farmerEd]

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?

 

[2B]

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.

 

[Callie]

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.

 

[shorttimer]

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.

 

[astromeria]

There must be info avialable somehwhere on which schools are typically more generous(?). My daughter got some aid (but yes, mostly loans) to go to Rice U--being from Massachusetts and applying early decision may have helped. Oddly, there's a LOT more money available for sports scholarships than for scholar's scholarships--maybe they should call them "athleteships"

 

[LOL!]

Of course with $100K income one should have difficulty getting financial aide.
I'm talking about income less than $20K. We could even make it less than $15K a year income while spending down non-retirement accounts in early retirement.

 

[2B]

Of course with $100K income one should have difficulty getting financial aide.
I'm talking about income less than $20K. We could even make it less than $15K a year income while spending down non-retirement accounts in early retirement.

That's a good approach. Typically, Texas public colleges look at 1040 net income and non-retirement assets. If you don't have much in the way of income, your chances go up. I think I remember that when my son looked at Rice I saw that they wanted to know about home equity and retirement assets.

Except for MIT, I think most private colleges are trying to extract as much cash as possible out of the student's families. If you are "poor" (blew all your income and didn't save anything) and/or the right "flavor," scholarships will come in large amounts. If you have significant assets, you pay the full fare and support those that don't. The right "flavor" means athletic ability, ethnicity, sex, region of the world (diversity) and anything else they are looking for. State schools do the same thing but not as extensive.

The company I worked for hired a couple of MIT engineering graduates. They both said that MIT "prided themselves in not giving scholarships but loans are readily available." A year's tuition was almost $40K! They also said that there were good summer jobs generally available that paid well. 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.

BTW- Lousiana has a lot of great scholarships at LSU for out of state students with good academics. It's also easy to get in-state tuition. Texas public colleges give in-state tuition to any student with any scholarship and many departments give out $1000 scholarships to almost any B+ student that applies. That gives the student (or parent) the lower tuition which is much lower than most eastern public universities.

 

[astromeria]

If you have significant assets, you pay the full fare and support those that don't.

Not so. A college education costs more than even the full freight, so people aren't paying "extra" for other students. The difference is subsidized by the college's endowment (in the cases I'm familiar with) or, with public colleges, by state taxes.

 

[youbet]

author=astromeria link=topic=10482.msg191634#msg191634 date=1163254972 Oddly, there's a LOT more money available for sports scholarships than for scholar's scholarships--maybe they should call them "athleteships"

Well, in some cases. But, I stopped and thought about it and quickly named a few dozen colleges that give zero athletic schlorships and lots of need-based aid. Of course, I'm referring to schools whose athletics are incorporated with NCAA Div III or NAIA.

As far as the larger schools, I wonder how much of the huge profits they make from football and basketball go to academic or need-based schlorships? For example, would Notre Dame have nearly as much money for academic schlorships if the huge revenue from football was to be dramatically reduced or even eliminated?