College financial aid planning


Full time employment: Posting here.
Jan 13, 2004
This comment from another thread:

<rant> Financial aid NAZIs really pissed me off yesterday. NOT only do they want to put a microscope up my financial orifice, but wanted signed hard copies of 1040s for last 2 years. Even after I told them we didn't want any of their F---innng financial aid - they still insisted on 1040s etc. Round two today with FA director and up. Yesterday's idiot didn't know IRAs didn't count and tried to convince me there was a chance my son might qualify for a Pell grant. Not a chance in hello.</rant>

sparked me to start a new one on college financial aid...for those of you going thru the process now, or having recently gone thru it, what are the things I can do now, so that 9 years from now I can maximize my opportunities for assistance for the first of 4 I need to put thru college....

What I mean is, based on todays rules anyway, what is the best way to position yourself to look needy....i.e. is money in a retirement account seen differently than a non-retirement account...should you have a big mortgage or not? are their some asset classes/holdings that are factored in more favorably than others etc.

Not knowing how it works, my plan at this point is to have most of my financial assts in a tax-defeered account (i.e. IRA), have a low income (by defering cap gains where possible on non-ira money), possibly take out a big mortgage against my paid of house 2-3 years before applying and either "spend" the money, or somehow tie it up in such a way that it seems less "accessible" (i.e. rental property? another farm? etc).

Of course the rules can change between now and then, but any things to think about are welcomed!
From the link posted above:

In certain circumstances, a slight decrease in the parents' income may yield a significant increase in eligibility for Federal financial aid. If both of the following are true
The parents' adjusted gross income is under $50,000.
All family members are eligible to file an IRS Form 1040A or IRS Form 1040EZ income tax return or aren't required to file.
then the family qualifies for the Simplified Needs Test which disregards assets when determining the expected family contribution. So if the family has a substantial amount of assets and the parents' income is close to $50,000, the parents should consider taking steps to reduce their income below the $50,000 threshold. (There is also a special test called Automatic Zero EFC which applies when the parents' income is less than $12,000.)

Boy, now there is a silver bullet....if that $50K limit stays in effect, and especially if its indexed to inflation (or at least periodically adjusted), that sounds like the ticket for me....put your affairs in order so that during college years you get by on $50K per year in AGI...and even if you have a few million stashed someplace, they won't even look at that sounds like a loophole to drive a tandem-trailer thru.....
Thanks for the posts on this interesting subject. I appreciate the link to the info about maximizing aid. A level playing field is good. There were several items in the article that interested me, but this quote further piqued my interest.

"However, as noted above, most of the $10,000 in financial aid in this hypothetical example will be in the form of loans. A typical financial aid package might include a $5,500 Stafford Loan, a $2,500 Perkins loan and a $2,000 work-study job. Although these low-interest loans do represent financial assistance, many families only consider grants and scholarships that don't need to be repaid to be true financial aid. Don't be misled into thinking than a decrease in the EFC will mean that somebody else pays. "

If you can hit this currently magic $50k and correct tax form bogie, what's it worth in terms of aid and not loans? Is it worth the gyrations to try and hit this $50k number?


Have you considered a 529 college saving plan?  The money would be in your name, not the childs.  It grows and works basically like a Roth IRA (grows tax free, withdrawals are tax free if used for qualifying expenses).  Certain states are also state tax free if your state has a qualifying plan and the state agrees to it (like Arkansas does, for me).

I started a 529 stock mutual fund the day my son was born and have 150/month contribution to it on autopilot.   Whatever's there when he's 18 is his to use for education.  The rest can come from either Grandparents or from his own means (work studies, loans, etc.).  

I figured its just easier to deal with 150/month less now for 18 years, than to try to come up with 60-120K dollars or more when hes about to graduate. Being his parent, and being that my wife and I make too much for him to qualify for grants, I personally feel obligated to help on quite a bit of it (but not necessarily all).
I just finished filling out the kids FAfSA and I know Im screwed again. Last year with two in college they qualified for around $1000 each in unsubsidized loans. Guess who got to pick up the next $39000.

I't my own fault. I just didn't start planning far enough in advance. I went ahead and paid off my house and I max out the 401K but I had some capital gains and they ask about taxable investments. Our AGI still in the $150K range so I don't think it makes much difference.

I should have just maxed out my 401K years ago and bought a bigger house than I needed , then I could have quit work when the kids were in high school and sold the house after the kids were out of college.
Have you considered a 529 college saving plan?

Those are well and good, but college tuition rates are increasing at a rate higher than the 'average' rate of return for the stock market (supposedly 10%). Here in Washington state we have something called the GET program ( yes, it's a 529 as well, but not what most people think of when 529 is used) which essentially allows you to pre-pay for 'units' of education for later use. Before everyone says 'but pre paying is stupid', consider my plan-

I plan on buying some units for my future children in the next few years by using a loophole in the GET program... the transferability of credits between relatives. I will buy these units for myself, and then once I have children, transfer them to my child. Current prices are $61/unit, and a minimum purchase is 50 units.... so $100k of 0% money for 1 year earning 3% in my ING account will just about cover the 50 unit purchase. Nice. Free college education brought to you by Citi, Chase, and the WA state GET program.
One of the things that I've read is that individual colleges do not necessarily follow the federal method. They may consider retirement & house assets, or consider assets even if your income is below the federal threshold. I've also read that financial aid is overrated since it's all loans anyway. Does anyone here have any comments or experience with this? I'm potentially looking at three children in college at the same time, and hoping to qualify for a sizeable amount of aid.
About the only thing I did 100% right with my 3 kids and
was to spread them out so far (in age) as to make it
pretty improbable I would ever have 2 in school at once.
Other than that I basically screwed up everything else :)

Those are well and good, but college tuition rates are increasing at a rate higher than the 'average' rate of return for the stock market (supposedly 10%).

With all due respect, that simply isnt true.  Historical stock market has ranged from 10-12%, or thereabouts depending on whom your asking, and what periods you're looking at.  In the past decade, tuition rates nationally have risen as much as 6-7% max annual, which does put the figure well above inflation, but still no where near the returns of the stock market with "IRA" type protection. That's not to say you might have one particular college in mind that raised theirs 15%, but i'm talking about national averages, not specific instances.

I recently read too that tuition rate increases could normalize soon (for various reason) and drop down to more mirror the standard inflation rate.

There are other good savings vehicles out there.  But 529 plans are definitely one of the nice ones.  Several articles on the net talk of the virtues of them compared to alternatives (such as Coverdells).
I think it really depends on what colleges you're looking at, in which state (for state schools), what you think the market will do in the future, and how you think colleges will be funded in the future.

In WA state we have not been very good about funding our state schools and have been offloading much of the cost onto students. In fact, our senate is proposing to 'tax' tuition (schools will raise tuition by X%, and state will get half of whatever the increase about regressive taxing!).

In essence, we're both right- you're looking at the national averages, and i'm looking at my region since that's what applies to me... i'm also assuming that my kids will want to state in-state.   :)

BTW- for real numbers regarding national trends in college pricing, check out the 'Trends in College Pricing 2004' study by the college board.
I based what i should save on our large state school here, the U. of Arkansas at Fayetteville, using a calculator at some financial website (fidelity or vanguard). I think for 16 years from now, it estimated a 4 year degree to cost approximately 125K dollars.

my 150/month at ~ 9% could amount to about 65K or thereabouts so i'll have at least half of it. That'll just have to do, for our portion of it anyway. I just cant afford to save more atm, and i'm going to do my best to never get another loan in my life.
I'm 15 or more years away from the first college tuition bill so this is early planning and posturing on my part. I was poking around the site a little more and there is an aid calculator. I put in some WAGs to hit the $50k wicket. Two kids in college at the same time and both are eligible for $1700 pell grants. I assume that there would be additional aid from the individual colleges and eligibility for bigger loans.

"I've also read that financial aid is overrated since it's all loans anyway. Does anyone here have any comments or experience with this? "

This was my understanding prior to this thread and after playing with the calculator, this thought is reinforced. As we get closer, it will be worth a second look. Pay off the mortgage with any taxable accounts and use the HELOC to live for a couple of years. There is nothing here that makes me think I should redirect funds away from (or direct more to) the current 529 plans.

Kind Regards,

As an aside, does anyone else think that it's really sad that a college education will cost $125k at a public school? How can we remain competitive in a global market by pricing out so many students from higher ed?

I came across a statistic from the Brookings Inst-

Kane, Thomas (1999). The Price of Admission: Rethinking How Americans Pay for College.

Examined 3,000 colleges and universities from 1980 through 1992. Found large effects from changes in tuition policies and the business cycle on enrollment in public colleges:

Public 2-Year - Enrollment fell 14.9% for every $1,000 annual increase in price

Public 4-Year - Enrollment fell 10% for every $1,000 annual increase in price

Public 2-Year - 1% increase in unemployment rate results in a 2.1% increase in enrollment

Public 4-Year - 1% increase in unemployment results in no identifiable effect on enrollments
I have a somewhat unusual situation. I have joint custody of my son who is now in high school. He spends almost exatly half of his time with me and half with his mom. I do pay amore than half his expenses but his mom's contributions are significant. Each year my ex and I have alternated claiming him as a dependent. Even IRS accepts this. But how will this look in applying for college aid. I have good reason to believe that my remarried ex has more family income than my wife & I. It looks like if last half of junior year/first half of senior year is used as a base for resource assessment thaen it would fall to me as that is the year I would be claiming him to IRS.
I don't know how colleges will view this. Significantly different family resources each year. Anyone have an experience with this or have a good strategy for college financial planing in this situation?
The costs today and expected increases makes one again consider the benefits of a college degree. Granted if the 17 year old kid knows exactly what they want to learn or feels strongly about a particular line of work...coupled with the ability to get some or all of it paid for them...then I suppose 'why not'.

However, what position have you put yourself in by plowing yourself into six figures of debt before you even turn 21?

I've looked at all the plans...coverdales, 529's, ibonds etc. Everything seems to have a downside or a catch. I decided just to keep rolling the old portfolio along and to have college (if warranted, reasonable and beneficial) to just be one more expense to cover in 18 years.

By then I can tap my IRA or Roths to pay for it. The benefits of having kids very late in life...

If Gabe doesnt want to go to college, isnt sure about what he wants to do, or finds his vocation early in life (like I did), then he can look forward to getting a million or two in todays dollars around his 40th-50th birthday when my wife and I pass on, then he can ER too...if he wants to.
Am I the only one taking this approach?

We're planning for our college financial aid the old-fashioned way...

... we're saving for it. And we're enforcing the homework rules.

If the kid wants to go to Amherst, fine. Here's the college fund, now go get an academic scholarship and a sports scholarship and a job. Better make that several jobs.

If the kid decides to study at Leeward Community College, that's fine too. Here's the college fund, and by the way you'll have enough left over for a downpayment on an Oahu condo. (Maybe.) Or were you planning to go to graduate school?

If the kid decides to join the military or even go to a military academy, then that's fine too. The UTMA will be yours when you turn 21.

We started saving when the kid was born, but I retired when the kid was nine years old. Almost half of the $400/month college savings will be coming out of the retirement portfolio.

Sure, we'll fill out a FAFSA just so that the admissions offices will stop pestering us to do so. And maybe the year before we'll skip an IRA conversion just so that we can make our income look as small as it actually is. And of course we'll have spent down more of our taxable accounts by then, leaving us with mostly IRAs.

But we're not gonna spend the kid's UTMA on a car just to reduce her assets.
the year before we'll skip an IRA conversion just so that we can make our income look as small as it actually is.

I asked the following of the financial aid liason at the college my daughter will start attending this year:

If I convert an IRA to a Roth IRA this year, will that be viewed as extra income (relevant to aid for the sophomore year)?

Her answer was "no," and told me that I could write them a note explaining about the conversion.
The answer of "no" wouldn't bother me. Requesting
a note of explanantion would worry me a bit.

Sure, we'll fill out a FAFSA just so that the admissions offices will stop pestering us to do so.

Always, always, always file the FAFSA form even if you are 100% sure that you won't quality for any aid. Many institutions (including mine) require you to file a FAFSA in order to receive scholarships or financial awards of any kind, regardless of need.
But it's not just for gov't loans! If your kid goes to my school (public) and wants to apply for ANY scholarship they must have a FASFA on file or they will not be considered.
I once owned some acreage with a small hunting cabin.
It needed lots of work. The property was in a flood
zone and after some high water it was declared
a "disaster" with federal money available for repairs, etc.
Aha, I thought..........a chance to get some cheap money
to fix up the cabin. I arrived at the temp. fed. office to pick up the application paperwork. Took one look and left.
I could see at a glance the aggravation could not possibly be worth my time.

Nords -- Your approach is great for Double Income Single Kid...

Multiply what you've done by three on a single income and the task can be daunting...
Good point. Although I know that Yelnad's university offers a great group discount!
Golly - Did I stutter-er-er? - I've been through the process more than a few times...
Thank you, but I know the answer for us... YMMV

Yes, I think you are stuttering, because I don't understand what you're saying at all. Maybe someone can explain it to me.

We have thousands of dollars in scholarship money each year that goes unawarded. This is free money with no strings attached. It's not "aid." No repayment. All we ask is that the students send a thank you letter to the private donor. If students would just file the FAFSA then they would be considered for these awards. Some are need based and others are merit based. Some are specifically for run-of-the-mill solid "C" average students. Some are for students from certain counties or who are studying certain subjects. We struggle to give this money away each year because people refuse to file a form that could give their kids a few extra grand in their pockets.

It's your choice not to file the form, but you kid could be missing out on some well deserved awards.
I understand your logic. Really, I do. Merit awards shouldn't require any of that other information. But it just doesn't work that way. Maybe the FA officers get $1 off their own kids tuition every FAFSA turned in? :p
Hello folks,

There are rules for distributing aid. Follow the rules and by definition you are deserving if you get it. If you don't want the aid or to give out the financial info or submit to the financial proctoscope, that's fine, do as you like. These useful discussions regularly seem to migrate to an obtuse moral discussion of right and wrong or a useless discussion of how people were so manly back in the day... Please! ::)


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