Cash for house and college financial aid

15 years ago

It was suggested on another forum that I post this question here. I would appreciate any advice you can give me.

Since my DH and I both work for NC public schools (which has one of the lowest teacher salaries nationwide,) we clearly qualify for the highest level of financial aid for our daughter who will be entering college in a year and a half. However...when we sell our house we will have a considerable amount of cash on hand which will of course need to go to the new build or to the purchase of a replacement resident. We are actually taking a loss on the sale, but we had lived in the old house long enough that it was mostly paid off. Has anyone had experience or have an idea of how this cash on hand is going to affect our financial aid? Not selling is not an option as we now work and live three hours away in a different county. Unfortunately our crystal ball did not foresee that it would take us three years to sell our house, and we did not expect to be in this situation during her senior year.

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Comments (4)

londondi
15 years ago
I am not sure how that would be handled. I would go to College Confidential. There is a wealth of information on that board in all areas of college search, applications, financial aid, etc. Either the Parent's Forum or the Financial Aid forum would give you great information. It really is an addictive site. Good Luck.
annkathryn
15 years ago
Federal financial aid is based on the FAFSA formula, which is fairly easy to understand. FAFSA will compute an expected family contribution (EFC) based on income and assets. Income weighs most heavily for FAFSA, but assets count as well.

Cash on hand is defined as an asset for FAFSA; equity in a primary home is not a reportable asset. Parent assets count at the rate of 5.6%. You will have an asset protection allowance that's based on the age of the older parent.

So for example, you sell your house and you net $350,000 which is now sitting in a bank or brokerage account. Assume the older parent is 51, which means the asset protection allowance is around $50,000. Your expected family contribution will then include (300,000 x 5.6%)= $16,800. So the net "cost" of selling your house would be the added EFC. If you hadn't sold the house, this $350,000 would have been a "protected" asset and would not have figured into the EFC calculation.

If you spend this cash on a new house prior to filing FAFSA next year, then it won't be a reportable asset any more.

Since your daughter is a junior this year, you have until next January before you have to file FAFSA.

Here is a link that might be useful: FAFSA formula
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mdmtnwmn
15 years ago
What about profile schools? Some cap home equity by family situation...but if you sell and rebuild in the same year, would they still honor that cap as long as there was no profit? House value either way is median for community. Like the op, we been on market way long...child already in school... income down, getting old, need to move closer to civilization, not let prop bought years ago just sit there costing us $$. But, will kid lose aid?
annkathryn
15 years ago
Profile schools are those that use the CSS Profile form, which is an online form that captures parents' and student's financial information in more detail than does FAFSA. There are about 300 Profile schools. Profile asks for home equity. Each Profile school has its own formula and deals with home equity in different ways. Some will cap home equity at 110% of adjusted gross income; others ask you to enter it and then don't use it, while others will consider that some percent of equity is available for borrowing against in order to help pay for college.

What matters is the value of the equity at the time you fill out the Profile form; it's a snapshot. If you've sold and immediately invested the proceeds into a new house prior to filling out the Profile, then whatever the equity is in your new house is what you'd entered. If you sell and that cash is sitting in an account waiting to be spent on a new house, then you have to declare the cash, but you don't have any equity in a house at that point so it somewhat balances out.

There's a way to enter information regarding special circumstances on the Profile form, so cash from the sale of a house can be described as a temporary windfall that's going to be spent soon. Colleges are free to use this information how they want.

The important thing is to be aware of how financial aid works, and plan your discretionary financial moves accordingly. The base year for financial aid is the year prior to the application for it. So if you have a high school junior in 2011 who will be applying for college in the fall of 2011, it's the 2011 tax and asset numbers that will be reported on FAFSA and Profile in January 2012. Most Profile schools will want an estimate of your financial information the October before for incoming freshmen.

Cash for house and college financial aid

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londondi

annkathryn

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mdmtnwmn

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