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I'm a refugee from another college discussion board, and have enjoyed reading the discussions here. One topic that always seemed to spark controversy in the other forum was how aggressive one should be in minimizing assets and income to maximize grants. Some people seem to think anything goes - moving money into an offshore account, etc. Others don't advocate stuff that's illegal, but are still pretty aggressive. At the other end of the spectrum are people who seem to think that doing anything at all to alter your financial profile is simply wrong, and that each family should let the chips fall where they may.

This board seems to have some well-informed, not to mention opinionated, posters - what do people think about this subject?

By burningman on Friday, December 14, 2001 - 10:32 am: Edit

If it's not illegal, and doesn't involve lying to the college, I think families should be as aggressive as they can. Spend down cash, prepay expenses, pay down the mortgage (if the school doesn't look at home equity), defer compensation if possible... Just like dealing with the IRS. Stay legal, stay honest, pay minimum.

By Roger (Roger) on Friday, December 14, 2001 - 05:38 pm: Edit

Welcome to College Confidential, CowardlyLion, and thanks for posting. I've noticed the same thing you have. Some posters get incredibly huffy during any discussion about aid maximization, as if it's everyone's duty to pay as much as possible. Others seem more than willing to jump on the next plane to the Caymans to stash their loot in a numbered account.

I think part of the reason for divergent views on this is that people perceive the nature of a college differently. Is it a charitable institution, deserving of our voluntary support? Is it a big business, providing a service for which we are charged a large amount of money? Is it like the IRS, rooting through our private financial life to decide its share of our income?

Actually, of course, all three of these elements are present in every college. But depending on how each individual weights these elements, that person's perspective on financial aid may vary a lot. I've never seen any research on this, but it sounds logical...

By burningman on Tuesday, December 18, 2001 - 12:11 pm: Edit

I view colleges, at least the most selective and expensive ones, mostly like the IRS. Every time I do a FAFSA and/or CSS Profile, I imagine them holding me upside-down by the ankles and shaking until my pockets are empty. It's hard to convince myself that an organization with $5 or $10 billion in the bank needs my charity. It's also hard to believe they need to go through every corner of my financial life to minimize any grants they might deign to provide.

I also don't have much sympathy for state-funded schools, which still cost in-state families too much (in most states). I think these should be the equivalent of public high schools, where everyone (in state) can afford to go and the maximum cost is still reasonable.

Plus, how responsible are schools for cost management? I just don't detect a business-like orientation to insuring college costs don't exceed inflation, much less go down. I think if you put Jack Welch in charge of an Ivy and asked if he could deliver an education of similar quality but for half the price, he'd be doing it within a year. He'd cut deadwood, demand greater faculty productivity, and, if that wasn't sufficient, draw on endowment earnings to close the gap. These schools don't want to reduce tuition - it just isn't on their priority list.

I'm sure there are some schools that are doing their best to offer great education value and more closely resemble true charitable organizations. The elite schools and big state universities, though, don't fit that image in my opinion.

By George Meany on Tuesday, December 18, 2001 - 08:27 pm: Edit

Burningman said:

>>These schools [Ivies] don't want to reduce tuition - it just isn't on their priority list.<<

Why should they reduce tuition? It's the elemental market force of supply and demand. As soon as the Ivies' yields start to fall below 30%, then we'll see some action. In other words, don't hold your breath.

By amd on Tuesday, December 18, 2001 - 08:37 pm: Edit

"Why should they reduce tuition? It's the elemental market force of supply and demand."

If colleges are strictly businesses, there is no reason why they should reduce their prices. However, colleges pretend to be other than businesses when it suits them. They canvass politicians to get their share of govenment contracts. I don't think that they pay taxes. Some of them claim to be need-blind internationally. They also claim to be concerned with societal goals in other ways.

By Joan Kay (Theparents) on Thursday, December 20, 2001 - 12:03 am: Edit

My spouse's employer will offer some funds to defray college tuition for dependents. Some of his colleagues have told me that they didn't declare this benefit on the FAFSA or college finaid. forms. What is the correct thing to do?? It is not technically an outside scholarship. I am puzzled.

By burningman on Thursday, December 20, 2001 - 11:11 am: Edit

Hi, Joan. If this is income to your spouse, it will eventually end up on a W-2 and as such will be reported to the IRS. It will show up on the FAFSA under "parent income". If they are calling this payment something else, like a scholarship check written to the student, you would have to find out exactly how they classify and report it. I would not recommend submitting a false FAFSA, but neither would I call this extra support to anyone's attention if you aren't required to do so. Some colleges reduce aid awards by the amount of outside scholarships, and they might well consider this to be such a payment. Some reduce aid awards fractionally, e.g., by half, so both the school and the family share in the benefit.

If the college has its own financial aid forms, they may ask about outside scholarhips, and other payments. Be wary of these, and if the nature of the payment doesn't match what they are asking for, why report it? I would, however, recommend against outright falsehoods on these forms, too - even if it's not a crime, outright lying is a line I don't cross. Plus, you could jeapordize any other financial aid if the award was detected.

Keep in mind that payments to employees are highly regulated, and the company will almost certainly have to record these for the IRS in some manner.

By Joan Kay (Theparents) on Thursday, December 20, 2001 - 10:54 pm: Edit

thanks for your reply. the employee benefit to be used for college tuition will not be income to us--i have researched this in articles and with the irs. this employer, which is also a college is allowed to do this for defraying undergraduate tuition only. I am still puzzled about whether this potential source of funds is the business of the financial aid office or not and belongs on the forms.

By burningman on Friday, December 21, 2001 - 07:47 am: Edit

Hmmm, interesting, Joan... I don't have experience with that sort of payment. You might nose around the experts at the college/employer to see how they treat those payments internally. It might also be good to find out if they report those payments to the student's college, seeing as how they are in the same "business". There should be some parents/fellow employees (of your spouse) with college-age kids you can talk to in order to find out how they have handled this. Get several opinions, if possible, to see if there is any consensus on the best method. Good luck, sounds like a great benefit! I'm jealous!

By Joan Kay (Theparents) on Friday, December 21, 2001 - 11:41 am: Edit

Thanks to burningman. I should ask around and get more opinions. Don't be jealous because most recipients have paid for this over decades by receiving much lower than average salaries. The benefit was discontinued to new hires after the 1980's. Try working at MIT or Harvard and you'll probably get something for your children. I think they did a story on this in the WSJ--the gist of it was how faculty at the top of the pay scale get subsidies to send their own children to another college.

By amd on Friday, December 21, 2001 - 12:41 pm: Edit

The Time magazine article that I read said that Penn professors get their children's education paid for upto a Ph.D, if I remember right.

amd

By burningman on Friday, December 21, 2001 - 01:29 pm: Edit

"Penn professors get their children's education paid for upto a Ph.D"

Nice work if you can get it...

By Curious on Friday, December 28, 2001 - 10:28 am: Edit

I have a question very relevant to this discussion. My husband says that if we put some money in a foreign bank account, the colleges won't know it is there. He said if we were Mafia types or terrorists, the government could break the secrecy laws, but for college aid we won't have to worry. We get to the Cayman Islands at least once a year, and he wants to open an account there. He's pretty knowledgeable about financial stuff, but I don't want our son kicked out of college or something a few years down the road. Is this idea of his safe? Does everyone do it?

By Dadster on Saturday, December 29, 2001 - 01:18 pm: Edit

I definitely wouldn't advise moving assets offshore. Lying on your FAFSA is a crime (not that many people seem to go to jail for it), and you might also have to lie on your federal income tax return (a serious matter). I seem to recall a box on a 1040 form that you have to check if you own a foreign bank account. If you answer truthfully, the college may well catch the omission of assets. If you lie on your tax return, you could create some serious problems for yourself. The assets have to get there, too - if you do a wire transfer or something a tax auditor (or aid officer) might well ask where a particular group of assets went.

By Roger (Roger) on Monday, December 31, 2001 - 10:52 am: Edit

Sounds pretty dicey to me, Curious. Be honest, you may pay a bit more but you'll sleep better!

By burningman on Wednesday, January 02, 2002 - 11:50 am: Edit

Whoooaaa there, Curious! I'm all for minimizing your EFC using all means possible, but I'd draw the line at anything that would get your kid kicked out of school or that would violate federal laws. Depending on the sums involved, you'd be better off gifting the amounts to family members not considered in your EFC or some other strategy that wouldn't set you up for an IRS audit.

By Dadster on Wednesday, January 02, 2002 - 12:02 pm: Edit

Curious, here's a link about how "secret" accounts are routinely discovered by the IRS: Offshore bank accounts are not secret to IRS. The article specifically mentions the Cayman Islands as one offshore banking haven that isn't as secure as it looks.

It would appear that if you lie to the IRS, you can get caught and prosecuted. If you tell the IRS the truth, you are more likely to get caught by the college or FAFSA checking process. Either way, it looks too risky.

By jenifer johnson (Deesw8) on Wednesday, May 15, 2002 - 02:56 pm: Edit

hi
i have a questions about the fafsa verification thing
see my family's income has generally stayed the same, but we currently has paied off all of our mortage, so do you think that's going to make a difference? do you know as a general rule, do colleges actually revise your award if they find minor differences ?

By burningman on Thursday, May 16, 2002 - 06:27 pm: Edit

As far as I know, the FAFSA ignores your home equity anyway. If cash was taken out of the bank to pay off the mortgage, you could see a lower EFC (and more aid) - in essence, you are decreasing an asset that the FAFSA looks at, and increasing one it ignores.

By burningman on Friday, May 17, 2002 - 09:36 pm: Edit

To add to the last thought, it's a good idea in general to pay down debt, or make any needed cash purchases - credit card debt, for example, doesn't reduce your EFC, but cash in the bank does INCREASE it. Plus, with today's low returns, almost any debt is going to have a much higher interest rate than you are earning on your savings.

By Dadster on Monday, May 20, 2002 - 08:11 pm: Edit

One creative thought that is probably on its way out: use of an offshore credit card to pay tuition. There are ads all over the internet for cards that look like a standard Visa/Mastercard, but operate, in effect, like a debit card on a foreign bank account. These cards are designed for people who have cash they would just as soon not keep in a U.S. bank account (use your imagination!). If you can get your cash offshore, these cards provide a way to spend it. The bad news is that the IRS has finally taken notice of this scam (which is usually keeping the IRS from its share of the original cash, not to mention any interest), so it may be a lot riskier from now on. The US is forcing various tax haven banks to open their books, exposing US individuals with money on deposit.

If you were trying to repatriate your hidden loot via your "credit card", a five-figure tuition payment would be one way to move quite a few dollars. It seems unlikely that the college (who, like the IRS, would also like to know about that account in the Caymans!) would pick up on the fact that the credit card was an offshore deal, although I suppose they could check some kind of registry of bank prefixes.

By Belinda on Wednesday, September 04, 2002 - 12:56 pm: Edit

How would an inheritance from my deceased parent be figured into the EFC for my child? Is there any way to minimize the impact?

By burningman on Wednesday, September 04, 2002 - 09:54 pm: Edit

A couple of quick suggestions - consult a qualified financial advisor for best info for your situation:

1) The inheritance is an asset. If it stays in the form of cash or securities, it will count against aid awards. Calculate your EFC using your best guesses at income, etc., and you will be able to judge the impact.

2) If possible, keep the inheritance in your name, not the student's name. Money in the student's name gets drained far more quickly.

3) You generally get no aid benefit for debt, so pay down any debt with your cash - credit cards, auto loans, even your mortgage.

4) Contribute the maximum possible to IRAs, 401Ks, etc. These don't figure in your EFC at most colleges.

5) Make any major purchases well before you'll be applying for financial aid - cars, etc.

Note that most of this advice (paying down credit card or other high interest debt excepted) is the opposite of what a prudent financial advisor would recommend. A good planner would usually like to see a healthy amount of liquid assets to protect against job loss woes, etc. Unfortunately, liquid assets are what colleges like to feast on. Before you start restructuring your finances, run some calculations to see if you will be eligible for aid.

Also note that when you apply, you will be supplying info for the previous year. Some colleges even ask for back tax returns. Therefore, it behooves you to do any restructuring well before college time. While the FAFSA is a fairly mechanical process, individual aid departments often take a deeper look and might raise questions about a big drop in reported assets.

By suncleer on Friday, September 20, 2002 - 07:35 pm: Edit

Wow. I thought that the FAFSA looked at your home equity and took that into account in determining your EFC. And that they didn't look at your checking account! Just savings, stocks, property other than your residence, etc. Is there somewhere online I can see a FAFSA (without going to the gov site and filling it out?)? Am I totally confused?

By Dadster on Friday, September 20, 2002 - 10:12 pm: Edit

Here you go, Suncleer. Check http://ifap.ed.gov/fafsa/attachments/0203FAFSAfinal.pdf

By suncleer on Saturday, September 21, 2002 - 04:34 am: Edit

Thanks, Dadster!

By singleparentblues on Saturday, January 04, 2003 - 10:54 pm: Edit

Here's a scenario for you: I make 6 figures,BUT - 1) noncustodial parent will not give a cent for college (he has a PhD - you would think(?)....but no, he's the grasshopper in the fable 'the grasshopper and the ant') 2) lost big bucks in retirement account with market crash (and son's UTMA college plan down $25K), 3) paid off debt from legal bills via HE line after ex dragged me to court to lower child support via HE line, etc., etc. - big bummer!

Summary - my financial picture is far from rosy. If I want to trust to luck for retirement, I could take on the burden of expensive college. Otherwise, I really can't - my kid will need merit aid. I submit to the board - my situation is a clear case of Murphy's law. I don't think I would get a penny from any of the colleges in financial aid.

Other than grind your teeth, shake your fist,and wish you had stayed out of tech stocks, what would you do in my shoes?

By Calmom (Calmom) on Sunday, January 05, 2003 - 02:31 am: Edit

Er, I am a single parent putting my son through college and I don't have much put away for retirement. My son gets some financial aid, I pay what I can, take a PLUS loan for the rest. I have a daughter to put through college beginning the year after my son graduates, and she's thinking about med school.

If you earn six figures you are doing a lot better than I am. It's up to you - there is no right or wrong - but the way those of us who have less do it is that we prioritize the college education above all else. My retirement "plan" is that I will have two adult kids with excellent educations who I hope will lend a hand if my luck someday runs out. I'd rather put my faith in my children than in the market, anyway.

In any case, a highly motivated kid can get an excellent education at a public university - you don't HAVE to pay for a private education.

If you know your kid will need merit aid, then look for colleges that are likely to give it.