Do I Make Too Much To Qualify For Financial Aid?
If you have children that are college-bound at some point you will begin the painful process of calculating how much college will cost for both you and them. However, you might be less worried about the financial aspects of your child going to college after viewing some of the Bloomsburg student apartments for rent on the market at the moment.
If you have children that are college-bound at some point you will begin the painful process of calculating how much college will cost for both you and them. However, you might be less worried about the financial aspects of your child going to college after viewing some of the Bloomsburg student apartments for rent on the market at the moment. Anyway, I have heard the statement, "well they will just have to take loans" but what parents don't realize is loans are a form of financial aid. Loans are not a given. Whether your children plan to attend a public college or private college, both have formulas to determine how much a family is expected to pay out of pocket before you even reach any "financial aid" which includes loans.
College Costs Are Increasing By 6.5% Per Year
The rise in the cost of college has outpaced the inflation rate of most other household costs over the past three decades.
college costs
To put this in perspective, if you have a 3 year old child and the cost of tuition / room & board for a state school is currently $25,000 by the time that child turns 17, the cost for one year of tuition / room & board will be $60,372. Multiply that by 4 years for a bachelor's degree: $241,488. Ouch!!! Which leads you to the next question, how much of that $60,372 per year will I have to pay out of pocket?
FAFSA vs CSS Profile Form
Public schools and private school have a different calculation for how much “aid” you qualify for. Public or state schools go by the FAFSA standards. Private schools use the “CSS Profile” form. The FAFSA form is fairly straight forward and is applied universally for state colleges. However, private schools are not required to follow the FAFSA financial aid guidelines which is why they have the separate CSS Profile form. By comparison the CSS profile form requests more financial information.
For example, for couples that are divorced, the FAFSA form only takes into consideration the income and assets of the parent that the child lives with for more than six months out of the year. This excludes the income and assets of the parent that the child does not live with for the majority of the year which could have a positive impact on the financial aid calculation. However, the CSS profile form, for children with divorced parents, requests and takes into consideration the income and assets of both parents regardless of their marital status.
Expected Family Contribution
Both the FAFSA and CSS Profile form result in an "Expected Family Contribution" (EFC). That is the amount the family is expected to pay out of pocket for their child's college expense before the financial aid package begins. Below is a EFC award chart based on the following criteria:
FAFSA Criteria
2 Parent Household
1 Child Attending College
1 Child At Home
State of Residence: NY
Oldest Parent: 49 year old
income versus financial aid
As you can see in the chart, income has the largest impact on the amount of financial aid. If a married couple has $150,000 in AGI but has no assets, their EFC is already $29,265. For example, if tuition / room and board is $25,000 for SUNY Albany that means they would receive no financial aid.
Student Loans Are A Form Of Financial Aid
Most parents don't realize the federal student loans are considered "financial aid". While "grant" money is truly "free money" from the government to pay for college, federal loans make up about 32% of the financial aid packages for the 2016 – 2017 school year. See the chart below:
grants and student loans
Start Planning Now
The cost of college is increasing and the amount of financial aid is declining. According to The College Board, between 2010 – 2016, federal financial aid declined by 25% while tuition and fees increased by 13% at four-year public colleges and 12% at private colleges. This unfortunate trend now requires parents to start running estimated EFC calculation when their children are still in elementary school so there is a plan for paying for the college costs not covered by financial aid.
About Michael.........
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
NY Free Tuition - Facts and Myths
On April 9th New York State became the first state to adopt a free tuition program for public schools. The program was named the “Excelsior Scholarship” and it will take effect the 2017 – 2018 school year. It has left people with a lot of unanswered questions
On April 9th New York State became the first state to adopt a free tuition program for public schools. The program was named the “Excelsior Scholarship” and it will take effect the 2017 – 2018 school year. It has left people with a lot of unanswered questions
Do I qualify?
How much does it cover?
What’s the catch?
Can I move my finances around to qualify for the program?
This article was written to help people better understand some of the facts and myths surrounding the NY Free Tuition Program.
Who qualifies for free tuition?
It’s based on the student’s household income and it phases in over a three year period:
2017: $100,000
2018: $110,000
2019: $125,000
MYTH #1: “If I reduce my household income in 2017 to get under the $100,000 threshold, it will help my child qualify for the free tuition program for the 2017 – 2018 school year.” WRONG. The income “determination year” is the same determination year that is used for FASFA filing. FASFA changed the rules in 2016 to look back two years instead of one for purposes of qualifying for financial aid. Those same rules will apply to the NY Free Tuition Program. So for the 2017 – 2018 school year, the $100,000 free tuition threshold will apply to your income in 2015.
MYTH #2: “If I make contributions to my retirement plan it will help reduce my household income to qualify for the free tuition program.” WRONG. Again, the free tuition program will use the same income calculation that is used in the FASFA process so it is not as simple as just looking at the bottom line of your tax return. For FASFA, any contributions that are made to retirement plans are ADDED back into your income for purposes of determining your income for that “determination year”. So making big contributions to a retirement plan will not help you qualify for free tuition.
What does it cover?
MYTH #3: “As long as my income is below the income threshold my kids (or I) will go to college for free.” DEFINE “FREE”. The Excelsior Scholarship covers JUST tuition. It does not cover books, room and board, transportation, or other costs associated with going to college. Annual tuition at a four-year SUNY college is currently $6,470. Here are the total fees obtained directly from the SUNY.edu website:
Tuition: $6,470 Covered
Student Fee: $1,640 Not Covered
Room & Board: $12,590 Not Covered
Books & Supplies: $1,340 Not Covered
Personal Expenses: $1,560 Not Covered
Transportation: $1,080 Not Covered
Total Costs $24,680
When you do the math for a student living on campus, the “Free” tuition program only covers 26% of the total cost of attending college.
What’s the catch?
There are actually a few:
CATCH #1: After the student graduates from college they have to LIVE and WORK in NYS for at least the number of years that the free tuition was awarded to the student OTHERWISE the “free tuition” turns into a LOAN that will be required to be paid back. Example: A student receives the free tuition for four years, works in New York for two years, and then moves to Massachusetts for a new job. That student will have to pay back two years of the free tuition.
CATCH #2: The student must maintain a specified GPA or higher otherwise the “free tuition” turns into a LOAN. However, the GPA threshold has yet to be released.
CATCH #3: It’s only for FULL TIME students earning at least 30 credit hours every academic year. This could be a challenge for students that have to work in order to put themselves through college.
CATCH #4: This is a “Last Dollar Program” meaning that students have to go through the FASFA process and apply for all other types of financial aid and grants that are available before the Free Tuition Program kicks in.
CATCH #5: The free tuition program is only available for two and four year degrees obtained within that two or four year period of time. If it take the student five years to obtain their four year bachelor’s degree, only four of the five years is covered under the free tuition program.
Summary
There are many common misunderstandings associated with the NYS Free Tuition Program. In general, it’s our view that this new program is only going to make college “more affordable” for a small sliver of students were not previously covered under the traditional FASFA based financial aid. Given the rising cost of college and the complexity of the financial aid process it has never been more important than it is now for individuals to work with a professional that have an in depth knowledge of the financial aid process and college savings strategies to help better prepare your household for the expenses associated with paying for college.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Need to Know College Savings Strategies
Our newsletter this quarter is dedicated to helping families plan for what has become a life-altering cost of paying for college. But do not fear, there are simple things you can do to boost your children's college fund. It is not news to anyone that over the past 30 years, the cost of college tuition and room & board at all levels has spun out of control.
college savings strategies
Our newsletter this quarter is dedicated to helping families plan for what has become a life-altering cost of paying for college. But do not fear, there are simple things you can do to boost your children's college fund. It is not news to anyone that over the past 30 years, the cost of college tuition and room & board at all levels has spun out of control. The year over year increase in the cost of tuition and fees since 1978 to date has far outpaced any reasonable rate of inflation, and demands a new look at college savings strategies. In the chart below, you will see the increase in the price of college tuition and fee versus other comparable expenses over the past 30 years. Its mind blowing!!
The need for College Savings Strategies - US Inflation Image
Fund A 529 Account*
As far as college savings strategies go, there are very few options that beat 529 accounts as a savings vehicle for college. In these accounts you make after tax contribution to the account and when the amounts are withdrawn, as long as those withdrawals are attributed to a qualified college expenses, the earnings generated by the account are tax free. Depending on the state you live in you may be eligible to receive a state tax deduction for contribution up to specified dollar amount. In New York, single filers receive a NYS tax deduction up to $5,000 and married filing joint $10,000.
Also for financial aid purposes these account are looked at very favorably in the EFC (Expected Family Contribution) calculation. They are looked at by FASFA as an asset of the "parent" not the asset of the "child". There are many contribution and withdrawal strategies associated with these accounts that can produce big tax benefits for individuals accumulating savings for themselves or their children.
Roth IRAs Are Not Just For Retirement
When clients have the dual goal of saving for retirement and saving for college, the Roth IRA is often times a great option. Even if you make too much to contribute directly to a Roth, you can implement a "non-deductible IRA to Roth IRA conversion strategy" that will allow you to still get money into a Roth IRA.
Contributions to Roth IRAs are made with after tax dollars but unlike a traditional IRA if you hold a Roth IRA for at least 5 years and make withdrawals after age 59 1/2 you pay no tax on the earnings.
Here is one college savings strategy technique: You are allowed at any time and at any age to withdrawal the contribution portion of your account balance from a Roth IRA tax and penalty free. For example, if I contribute $5,000 to a Roth IRA and 5 years later it is worth $10,000, I can contact my IRA provider and request that they distribute just my basis ($5,000) and leave the earnings in the account to continue to accumulate tax free. You can then use that basis distribution to fund college expenses but the earnings in the Roth IRA continue to accumulate tax free.
Maximize Your Financial Aid
There are strategies that can be implemented leading up to the filing of the FASFA form that can increase that amount of financial aid that you receive. When you apply for financial aid, FASFA has a complex EFC calculation that takes a snapshot of your assets and income to determine how much financial aid you will qualify for. There are ways to shift assets and shelter income from this calculation that can save individuals and families thousands of dollars when it come to paying for college. Here are a few of the strategies that can help to improve a EFC calculation:
Save money in the parents or grandparents name, not the childs name
Pay off consumer debt, such as credit cards and auto loans
Spend down the students asset and income first
Accelerate necessary expenses (such as computer purchase) to reduce cash
Minimize capital gains
Maximize your contributions to a retirement plan
Do not withdrawal money from a retirement plan to pay for college
Ask grandparents to wait to give grandchildren money until after college
Trust funds are generally ineffective at sheltering money from EFC
Prepay your mortgage
Contribute to 529 plans owned by the parent or grandparent
Choose the date to submit the FASFA carefully
Michael Ruger
About Michael...
Hi, Im Michael Ruger. Im the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
