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As we wrap up the year with family, friends and food, it’s also the time of year families will start to hear about college acceptances if their son or daughter applied in the early application cycles. For me, it’s a time of year to look back at some of the more “interesting” situations in financial aid.
If you’ve ever attended any of my workshops, or seen any of my videos or media appearances, you would have heard me say that more often than not, families unintentionally ruin their chances for aid.
Here are 12 situations where the families cost themselves aid this year. Some situations below are clients. Others are not, but couldn’t help because of their circumstances.
- Deadlines – students and families often focus on the application deadline(s) but forget about the financial aid deadline(s). One student Googled the deadline for a top choice school and saw a February date, but didn’t see the small print underneath that it was for the Regular Decision cycle. Her application was Early Action, and the financial aid deadline passed the month prior.
- FSA IDs – the Federal Student Aid ID is the student’s and pa TV rent’s electronic signature to complete the FAFSA and apply for Federal loans. Once created, it is not available for use until the student or parent’s Social Security numbers are matched to Social Security records. That process can take up to 3 business days. Again, in a few instances, parents who were otherwise ready to fill out the FAFSA at the deadline were unable to do so because the IDs weren’t ready.
- Capital gains – when selling assets – stock, your home – and generating capital gains counts as income for financial aid purposes. A family sold their home for a $100k gain and used the money as the down payment on their new home. For financial aid purposes, that $100k non-taxable gain counted as income, and likely cost them around $20k-$25k in aid eligibility.
- Not enough time for a mortgage – client approached me at the last minute but would have benefited from getting a mortgage or home equity line to pay off credit card debt. That new mortgage would have reduced the value of their house (counts on the CSS Profile) to increase their aid chances. Because they approached me mere days before their deadline, there wasn’t enough time to take advantage of this strategy.
- Too much time for a mortgage – family refinanced their mortgage to take out enough cash to pay for all 4 years of college (FAFSA only) for their son. They paid the first year and put the other 3 years’ worth of cash in the bank. This took money out of an asset that didn’t count (the house) to increase an asset that did count (the bank account), costing themselves over $10,000 in aid eligibility.
- Helping elderly parents – spoke with multiple families where the grandparents put their home or other assets into the name of adult child (the parents of high school students) for estate planning purposes. An otherwise reasonable gesture, the student’s parents now have additional assets to report. Grandparents in one family owned a $500k home mortgage free put the parent on as 50% joint owner. The FAFSA then had to reflect an additional $250k asset and killing their chances for need-based aid.
- MA Health/Medicaid – the ex spouse in a number of divorced couples utilize Mass Health for their own insurance coverage. MA Health is a “version” of Medicaid, which triggers special treatment on the financial aid forms. These ex spouses failed to indicate Medicaid coverage, which would have either omitted their assets or automatically qualified them for an automatic zero EFC. By not checking the box, their EFCs were far higher than they needed to be, and will get far less aid than they would have otherwise.
- College payments from Grandma – Grandma, Grandpa, or any other relative/person for that matter, who makes a tuition payment to the college (out of love of course!) counts as untaxed student income. As such, that payment reduces aid eligibility by 50 percent payment. For example, a $10,000 tuition payment can reduce aid eligibility by up to 50 percent, or $5,000. This happens pretty often, but unfortunately not for my kids. And take the ugly sweater instead of the check while in college.
- Capital gains – when selling assets – stock, your home – and generating capital gains counts as income for financial aid purposes. A family sold their home for a $100k gain and used the money as the down payment on their new home. For financial aid purposes, that $100k non-taxable gain counted as income, and likely cost them around $20k-$25k in aid eligibility.
- Not enough time for a mortgage – client approached me at the last minute but would have benefited from getting a mortgage or home equity line to pay off credit card debt. That new mortgage would have reduced the value of their house (on the CSS Profile) to increase their aid chances. Because they approached me mere days before their deadline, there wasn’t enough time to take advantage of this strategy.
- Too much time for a mortgage – family refinanced their mortgage to take out enough cash to pay for all 4 years of college (FAFSA only) for their son. They paid the first year and put the other 3 years’ worth of cash in the bank. This took money out of an asset that didn’t count (the house) to increase an asset that did count (the bank account), costing themselves over $10,000 in aid eligibility.
- Helping elderly parents – spoke with multiple families where the grandparents put their home or other assets into the name of adult child (the parents of high school students) for estate planning purposes. An otherwise reasonable gesture, the student’s parents now have additional assets to report. Grandparents in one family owned a $500k home mortgage free put the parent on as 50% joint owner. The FAFSA then had to reflect an additional $250k asset and killing their chances for need-based aid.
As you can see, the rules of financial aid are very complicated. And these examples show how otherwise reasonable financial decisions can ruin a family’s chance for financial aid.
As you can see, the rules of financial aid are very complicated. And these examples show how otherwise reasonable financial decisions can ruin a family’s chance for financial aid.
Jack Wang is CEO/Financial Wealth Strategist of Longhorn Financial LLC. His practice focuses primarily on helping regular families with college financial aid planning as well as retirement income planning, with a particular focus on helping business owners/self-employed. He, along with his wife and children, live in Westford. You can follow him on Facebook at www.facebook.com/longhornfin or on LinkedIn at https://www.linkedin.com/in/
