The problem with FAFSA calculations

[disneysteve]

As you know, we have a daughter who will enter college this fall. I'm in the process of filing out the FAFSA form and I attended a financial aid workshop at her college yesterday. In my eyes, there is one glaring issue with the way they do their calculations.

Parental assets held in qualified retirement accounts (401k, 403b, traditional and Roth IRA) do not count. That's very nice, and it shields a chunk of our assets from consideration. The problem is I have never had an employer sponsored plan in 20 years of practice. My wife was a SAHM for most of our married life. So much of our "retirement" savings is held in taxable accounts, our brokerage and our mutual funds. As far as FAFSA is concerned, that money is all fair game for funding college. That's great, unless we'd like to retire some day.

[humandraydel]

I knew what the problem was just from the title (and the fact that you posted). You are right, it is not really fair. That's one reason people actually recommend things like paying off the house because home equity doesn't count either. I'm not sure how to change the "formula" - maybe something like if 75% of your assets are taxable, only half of the taxable assets count? Is there an appeals process?

[moneybags]

I Is there an appeals process?

You can always meet with the financial aid office of the college to discuss unique situations. Unfortunately, in DS's case, I don't think this is all that unique, and there's probably a slim chance of arguing a case for it.

I also found the financial aid process disheartening. I felt we were penalized for being prepared and saving for college, while DD's friends (who we had seen living large for years) got financial aid. I am thankful that we were prepared and able to send her off to college debt free, but the system is annoying.

[Like2Plan]

I think the system is fundamentally flawed. It is based on the assumption that the parents should pay for college. I think that is wrong. There is no legal mandate to pay for your children's college (except in some cases of divorce). Some parents who make a lot of money don't pay for their children's education and the kids are penalized when trying to get financial aid.

I think the FAFSA form is a huge invasion of the parents' privacy.

Then, there is some governmental agency deciding how much your expenses should be. I read an article in Money magazine a few years back and the amount that was allowed towards expenses were absurdly low.

When your daughter goes off to college, she will get a form that permits the college to share her grades with you. She will get another form that permits you access to have access to her accounts at the college (presumably to pay for her expenses). That is because she is legally an adult.

It is a crazy system.

[sweetlady2k]

I agree with Like2Plan, my daughter is the same age as Disney Steve's and I have no intention of paying for her college. Yet they will still look at my financial info when she goes for financial aid. Makes no sense, they should look at her income not mine. All it will end up doing is causing her to get more student loans. She is going over additional scholarship info this week just to try to get any possible help. I think the fact that they are counting your retirement funds is ridiculous, Steve. That is the very reason I have been telling my daughter for years to do well in school because if I want to retire I won't be able to pay for college. She lives at home for free and only "has" to pay for gas for her car. I also told her she can stay with me after she finishes college and gets a job. To give her time to pay any student loans she gets.

[disneysteve]

You can always meet with the financial aid office of the college to discuss unique situations. Unfortunately, in DS's case, I don't think this is all that unique, and there's probably a slim chance of arguing a case for it.

I also found the financial aid process disheartening. I felt we were penalized for being prepared and saving for college, while DD's friends (who we had seen living large for years) got financial aid. I am thankful that we were prepared and able to send her off to college debt free, but the system is annoying.

I spoke to the financial aid officer on Saturday and they said I could write a letter but it probably won't do any good.

Yes, I could pay off our house but I'd be raiding my retirement funds to do so. I don't want to do that either.

I have no problem with being "penalized" (not really the right term) for saving for college. They absolutely should count the money in her 529. That's what it's for. But I have a serious problem with being penalized (a very appropriate word in this case) for saving for our retirement. Plus I'm being punished for something beyond my control. If I had a 401k at work, this wouldn't be a problem because most or all of that money would be in there instead of in exposed accounts and wouldn't count toward financial aid calculations.

[creditcardfree]

That is too bad Steve. I have done some calculations and based on our income it doesn't seem we qualify for much of anything in regards to financial aid. Have you looked to see if it would be different by counting the retirement as tax deferred? Not that you can really change it. I just wonder if the result would be the same. I'm not an expert, so I'm just asking.

[disneysteve]

That is too bad Steve. I have done some calculations and based on our income it doesn't seem we qualify for much of anything in regards to financial aid. Have you looked to see if it would be different by counting the retirement as tax deferred? Not that you can really change it. I just wonder if the result would be the same. I'm not an expert, so I'm just asking.

I haven't run any numbers. I figure we probably don't qualify either way due to my income. It just annoys me that the system is flawed the way it is. I could have a million dollars in a 401k and it wouldn't count but if I have the same million dollars in a non-retirement account it counts against me.

Only about 47% of the population has a 401k so they are getting a huge benefit in the financial aid calculation that the majority of American workers aren't getting.

[jIM_Ohio]

I haven't run any numbers. I figure we probably don't qualify either way due to my income. It just annoys me that the system is flawed the way it is. I could have a million dollars in a 401k and it wouldn't count but if I have the same million dollars in a non-retirement account it counts against me.

Only about 47% of the population has a 401k so they are getting a huge benefit in the financial aid calculation that the majority of American workers aren't getting.

Steve- you made an uninformed decision, don't blame the process- there are tools like life insurance, annuities and similar which could have "hid" the assets. You could have formed an LLC or a trust if you thought the cost of those would offset the aid received.

You weren't informed, and chose to not hire a planner, so this is what happens.
Don't mean to be harsh, but a little of advanced knowledge could have solved this... couple of thoughts- can she still get an on campus job? The only aid I ever received was working on campus for beer and pizza money.

[figuringmoneyout]

The FAFSA. *sigh* It really isn't fair sometimes, especially to parents who don't know about the loopholes and how to *hide* money.

[hamchan]

My parents couldn't/wouldn't give me their tax info, so my only option was private loans. I actually got married at 20 and part of the reason was so I could qualify for Federal aid on my own.

[moneybags]

I think the FAFSA form is a huge invasion of the parents' privacy.

You are not obligated to fill it out. There has to be some method of determining who gets aid.

I agree with Like2Plan, my daughter is the same age as Disney Steve's and I have no intention of paying for her college. Yet they will still look at my financial info when she goes for financial aid. Makes no sense, they should look at her income not mine.

Again, there has to be some method to determine who gets aid. If everyone filed FAFSA based on their child's income, there would be no need for it. Very few children that age have any income. Why would I file FAFSA with my income if I was willing to pay for my child's education, while you have your child fill it out and get more money?

Only about 47% of the population has a 401k so they are getting a huge benefit in the financial aid calculation that the majority of American workers aren't getting.

I don't know about a huge benefit. The average 401K only has $84,000 in it, and most people with 401K's are probably not filling out FAFSA forms. I would also guess (don't have facts on this) that many people with large 401k balances also have other large investment accounts that eliminate any financial aid.

[scfr]

You know, I would probably have to file your complaint away under the "you win some and you lose some but in the end it probably all evens out" category. Every one's situation is unique, and sometimes we come out "winners" and sometimes "losers" ... if you choose to look at in in a win/lose sort of way. One area you have been a winner and may not even realize it is that your daughter's public education thus far has been "subsidized" by the home owners in your school district who do not have children yet still pay property taxes. 61.5% of my property tax bill goes to the local school district. I do not have children. But paying for schools does NOT bother me. I believe in good public schools, I care about all the children in the community, I know having strong schools helps my property value, and at the very least school is a place for the kids to go that keeps them off the streets and not causing trouble in the neighborhood (kidding about that last one). I've actually voted in favor of bonds for the schools that resulted in my property taxes being raised. I could moan & groan about the fact that I'm paying for other people's kids, but I don't. I may come out a "loser" on property taxes, but I know I come out a "winner" in other areas. It's just LIFE.