Click here to go to the NEW College Discussion Forum

OK, I'm going to keep this as brief as possible. Can the colleges be this stupid?

Basically, I'm applying to a private college that costs around $40,000 a year that only awards need-based aid. Here's my financial aid picture:

-My family gross income this year: $40,000 (bad year, usually around $50,000 - both self-employed so income is variable)
-My personal savings account for college: $45,000 (they've been saving since I was born)
-My brother's personal savings account for college: $30,000 (they tap this?? WHY??)
-My parents own 2 properties which they rent out - it's their personal pension plan (as they don't work for a company and would thus need a way to have income in their senior years). They are soon to be senior citizens and cannot afford to borrow against this (attached a personal letter to the financial aid office).

Now, I have some college advisors who seem to be fairly reliable by the advice they've given me so far. They estimate that the college will expect me to pay $35,000 a year, which is only $5,000 less than my parent's TOTAL income for the year. This is based off of them withdrawing 35% per year from my savings (25% would make a whole lot more sense, but apparently colleges calculate it that way...), 6% of my brother's savings (this one doesn't make any sense to me at all) and expect a further $20,000 from borrowing against the property and my parents personal income/savings (which they really need at their age).

My advisors have suggested that I move my savings and my brother's savings into something called an annuity that would not be countable for financial aid purposes on a CSS profile or FAFSA form. The problem with that is it effectively strips my brother of future gains which it's currently earning in the bull market on Wall Street these days. My brother doesn't have enough money to go to school in his account yet and thus it would be unfair to him to do this just so I could get a better financial aid deal. If we don't move it, there's absolutely no way we can come up with $35,000 a year as that's absolutely unreasonable for our income. And I have to make a decision about what to do with the savings money soon so all the proper actions can be taken.

So I have two questions. Are my college advisors accurate in estimating that we'll be stuck with a $35,000 a year bill if my money stays the way it is right now? If so, what should I do with my own savings money to shield it from their (apparently) greedy eyes?

I can't believe my parents have spent my entire lifetime saving for me and my brother to go to college and they screw us by not only just adding money to the parental contribution but also taking out 35% out of my account per year to drain in less than 4 years. Do these colleges have it out for the self-employed middle class?

Help

By Northstarmom (Northstarmom) on Monday, October 27, 2003 - 11:21 pm: Edit

I don't understand why if you've got $ in the bank you wouldn't think it appropriate to use it for your own college education.

After all, if you wanted to buy a car, you wouldn't expect the car dealership to give you $. They might lend you money, but you wouldn't expect them to literally give you a free ride.

Why wouldn't you expect to pay your $40 k for the education that you want?

And if you don't want to pay that much, then select a cheaper college.

By Evil_Robot (Evil_Robot) on Monday, October 27, 2003 - 11:50 pm: Edit

-deleted-

By Vladimirlem (Vladimirlem) on Monday, October 27, 2003 - 11:51 pm: Edit

No, I'm saying it's absolutely fine to spend that money. The thing is, $45,000 / 4 = $11,250 that can be spent per year. That leaves $23,750 per year left to be paid, or about 60% of my family's ANNUAL INCOME going straight to college. THAT is what is ridiculous. It's quite simply an impossible situation financially to be in, what with my parents retiring soon and a younger brother about to enter college. At least if my financial advisors are right.

By Emeraldkity4 (Emeraldkity4) on Tuesday, October 28, 2003 - 12:11 am: Edit

I don't reccomend hiring college counselors, unless they are actually in charge of the colleges financial aid monies, they can't say what kind of offer you will get.
I have found that for our family the free calculator at finaid.org gives a pretty good approximation of EFC, however this does not take into account merit aid that may be offered, or what your aid package will look like.
Age of parents is taken into consideration and retirement accounts are not tapped. Income however from work and from properties would be considered available.
IF your famiies total income including rental income is $40,000, I find it hard to beleive that the colleges will expect your family to live on $15,000.
If your college account is in your name, then a large part of it will be tapped, however that is what it was intended for correct?
Apply to a range of colleges, both public and private including instate. Many families do find that instate is the best deal, as the state subsidized their expenses, when they don't qualify for aid.

By Evil_Robot (Evil_Robot) on Tuesday, October 28, 2003 - 12:58 am: Edit

Yes, that is what the money is intended for, and it is meant to be spent. I'm just curious as to why the EFC calculator drains 35% of it the first year instead of a more logical 25%, 33%, 50%, the rest...

And I'll probably end up going to a state school - it's just that I like this particular school and would like to see if it is financially possible to go there.

Edit: It's $40,000 BEFORE taxes.

By Northstarmom (Northstarmom) on Tuesday, October 28, 2003 - 02:12 pm: Edit

They probably drain 35% of it the first year because they know that as students become older, it's easier for them to earn $ during the school year and during the summer.

For instance, when students are on need-based scholarships, if all other factors are the same, the student will be expected to earn more each year to pay for their education. The closer students get to graduation, also the more likely they are to be willing to take out loans in order to stay in school. That's because they have a better idea of what their earning power will be at graduation.

By Emeraldkity4 (Emeraldkity4) on Tuesday, October 28, 2003 - 02:25 pm: Edit

one reason why it can work out better to have money in parents names instead of students, particulary if parents are counting on outside income from renters or businesses, instead of a ROTH Ira to furnish their retirement.
You can use your education account for anything connect with your education, like books, a computer etc, the way I understand it, so it would be to your advantage to spend some of the money, to knock it down a bit before you have to report the amount to schools
Schools will also take into account that you have a sibling attending college, and lower your EFC that way.
However, you should be looking at a range of schools so that you have a choice, instead of counting on that your first choice is going to offer a package you can live with.

By Evil_Robot (Evil_Robot) on Tuesday, October 28, 2003 - 07:07 pm: Edit

-deleted-

By Vladimirlem (Vladimirlem) on Tuesday, October 28, 2003 - 07:09 pm: Edit

I am applying to a range of schools (10 in fact). I'd just like to be able to go to my first choice; and it doesn't seem that it'll be financially possible if this is the way they award financial aid.

By Emeraldkity4 (Emeraldkity4) on Tuesday, October 28, 2003 - 08:06 pm: Edit

some schools have more money for aid than others ( http://www.usnews.com/usnews/edu/college/articles/brief/03need_brief.php) and it can be subjective when it is a private school, even if they are need based only.

My daughter had great packages from teh schools she applied to, but she was able to weed down her choices to 5( saved on app fees too).

You really can't say what is going to happen but I found Bruce Hammonds book on colleges and what they tend to give to be v ery helpful.

By Easydoesitmom (Easydoesitmom) on Wednesday, October 29, 2003 - 12:41 am: Edit

Re: Brother's savings . My S is a great saver from his jobs too but not college-bound yet . His college bound sister does not make enough per year on her job so we are not worried about her . However , my son will need his "savings " when college comes and he doesn't want to tie it up in a ROTH ( as was suggested to us ) .

With college application time around for my S in 3 years , is it better to keep his few thousands in his parents' savings account ( with his name as the only beneficiary if something should happen to us ) until he needs the loose change at college time ??

Also his money is still in a YOUTH account with my name & SSI attached to it so wouldn't it still be considered "parental" savings " this year when applying for my older daughter's financial aid ???? ( It moves into his own account when he is 16 , I think ) .

By Dt123 (Dt123) on Wednesday, October 29, 2003 - 06:29 am: Edit

Another reason the colleges also take more than 25% each year is that not everyone who starts college finishes. Many go only 1, 2 or 3 years and drop out. Some go 5 years or more. If you have spent all your money by the fourth year, the college in theory will increase its aid to make up the difference so it should be of no concern to you what the percentage is.

By Fishmom (Fishmom) on Wednesday, October 29, 2003 - 03:03 pm: Edit

hello Easydoesitmom,

Good questions.

As I understand it, the FAFSA does not ask what assets are in the sibling's name, but the PROFILE does. If the sibling does have assets, I would think they would assess it at the same rate as the parents (?). If your son's account is under your name and ss#, then it would be considered your savings.

Regarding the Roth IRA for your son. It appears that the FAFSA does not assess IRAs held by either the parent or the student. The PROFILE does. Roth IRAs are good cause you can withdraw your contributions (not the earnings) before age 59.5 without penalty.

By Massdad (Massdad) on Thursday, October 30, 2003 - 04:24 pm: Edit

To all:

Be VERY wary of advisors recommending financial products, especially products like annuities, as solutions to certain kinds of problems, like above. Financial products are unbelievable in their complexity, and many pay substantial commissions, sometimes buried, to various sales agents, which could be the advisor recommending it. And, there is no effective disclosure requirement.

Vlad, no school is bound by the federal formula for institutional funds, so stay optimistic. I suspect these advisors may be trying to sell you something.

Try your numbers out on the calculator on the Princeton U. web site. That should give you a better idea.

By Jamimom (Jamimom) on Wednesday, November 12, 2003 - 11:39 am: Edit

Vlad, the 35% rule for the student's savings has been around for a while. The income property is a sticky issue. I know many people stuck the same way. Unless assets are specifically put in a qualified pension plan, they are definitely targeted as accessible for college tuition. The schools do not differentiate between having $100,000 in the bank earning interest (ha, ha these days) and having it in real estate earning income. Unless it is a qualified pension asset, they are identical.
Now as the previous poster explained, no college is bound by the federal formula, and I have found that the only way you are going to find out what the schools assess you is by going through the whole process. I would write a letter explaining special circumstances and there a places on the form for that as well. If it comes down to judgement day, you may have to go to the school with your parents and plead your case personally. In general, schools do not raid siblings' funds. They want to know what is in there in case families are playing games--for instance, if you have no money put away because a few years ago you diverted it all to a younger sibling. People used to do that. But in your case the distribution is equitable given your ages and I doubt they will expect your brother 's fund to contribute to yours. If the dollar amounts were reversed, however, you can see why they would expect some diversion of funds. All of the money is considered at some level to be family funds. Good luck.

By Massdad (Massdad) on Thursday, November 13, 2003 - 12:56 pm: Edit

Vlad,

Let's get this straight"

- an asset is either in the name of a student, in which case it us used at the 35% rate, or it is a family rate, subject to a lower rate. If you and your bro have the same kind of accounts, they will be treated as one or the other. For example, if you both have accounts in your name, then you get drained at the 35% rate, and your bro keeps all of his until he applies.

Regarding property, last week I attended an interesting session at my D's school on fin aid, with a speaker from MIT fin aid office.

An audience member said he was laid off in the dot bomb three years ago. The family has a million dollar paid for house, courtesy the dot com boom, but family income of about 30,000 through his spouse. They don't even have enough income to get a mortgage to borrow against the house, they said.

MIT anser: "Sell the house".

It finally dawned on me then why one aspect of fin aid seems so unfair and why it is not. We live in a very expensive part of the country, but little allowance is made for this in fin aid calculations. Why? Essentially, we chose to live here. Yes, we can argue that we must live here for jobs etc., but the fact is, all of this is our choice. So, the fin aid offices, with limited resources, try to avoid giving weight or advantage to things under our control.

How does this affect you? Your family chose to use illiquid real estate as an investment vehicle. No one required you to do so. To a fin aid office, an asset is an asset, no matter liquid or not.

There are many injustices in this process. For example, I noticed, in playing around with Princeton's fin aid calculator, that those of us without defined benefit retirement plans get shafted. How? For retirement, I must participate in a salary deferral program (a 401K equivalent). Deferred income is considered regular income for fin aid purposes. If my salary were lower by the same amount, and my employer invested it in a regular retirement account, it would not count.

Go figure.