Impact of money earned in year prior to school on fin aid

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rogerlodge
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Impact of money earned in year prior to school on fin aid

Postby rogerlodge » Wed Dec 23, 2009 4:34 pm

I'm currently working full time making >50K and will not be working while I'm in school. Will this have any effect on my financial aid? Should I just ask schools directly (seems like the best thing to do, but thought someone might have input)?

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angiej
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Re: Impact of money earned in year prior to school on fin aid

Postby angiej » Wed Dec 23, 2009 4:37 pm

My understanding is that all money earned is reported on the FASFA which is used to calculate your estimated family contribution (ie your financial need). So if you made 50k a year the year before law school, you really won't look that "needy."

gmichaelbluth
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Re: Impact of money earned in year prior to school on fin aid

Postby gmichaelbluth » Wed Dec 23, 2009 4:50 pm

angiej wrote:My understanding is that all money earned is reported on the FASFA which is used to calculate your estimated family contribution (ie your financial need). So if you made 50k a year the year before law school, you really won't look that "needy."


Unfortunately, this is true. Kind of sucks for us working folk.

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Chromakey
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Re: Impact of money earned in year prior to school on fin aid

Postby Chromakey » Wed Dec 23, 2009 4:51 pm

I am glad someone posted this topic because I had the same question last night while reading through some financial aid info. I understand the concept behind taking the previous year's earnings as a base income level, but it seems really unfair to assume that I will be making that same level of income while I'm in school. I only make about 30k/year and the job I currently have would be impossible to keep during school even if I was planning to attend somewhere within a commutable distance. Can anyone shed some more light on how much of an impact prior earnings would have?

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angiej
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Re: Impact of money earned in year prior to school on fin aid

Postby angiej » Wed Dec 23, 2009 5:12 pm

gmichaelbluth wrote:
angiej wrote:My understanding is that all money earned is reported on the FASFA which is used to calculate your estimated family contribution (ie your financial need). So if you made 50k a year the year before law school, you really won't look that "needy."


Unfortunately, this is true. Kind of sucks for us working folk.


I did, however, contact my university financial aid office since I will also be applying to their law school, and they told me that if I was involuntarily laid off or fired, then the financial aid office could amend my FASFA based on the new/current loss of income.

rogerlodge
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Re: Impact of money earned in year prior to school on fin aid

Postby rogerlodge » Sun Dec 27, 2009 1:36 pm

I wonder if this has a less dramatic effect at a school like northwestern because most of the students have had a couple years work experience?

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MC Southstar
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Re: Impact of money earned in year prior to school on fin aid

Postby MC Southstar » Sun Dec 27, 2009 1:37 pm

Screwed like always. :D

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GeePee
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Re: Impact of money earned in year prior to school on fin aid

Postby GeePee » Sun Dec 27, 2009 1:48 pm

You're not totally screwed. For need-based aid at individual institutions, assets outweigh income heavily on the scale of contributions. Although your EFC might be slightly higher, most schools set their COA such that students have little problem getting loans. Additionally, outside of HYS, non-loan need aid (in the form of grants) is hard to come by anyway. If you own few assets, there is still a good chance that you will get aid if you deserve it.

Leeroy Jenkins
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Re: Impact of money earned in year prior to school on fin aid

Postby Leeroy Jenkins » Sun Dec 27, 2009 1:56 pm

You can still get the maximum subsidized loans. /story

whattodo2008
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Re: Impact of money earned in year prior to school on fin aid

Postby whattodo2008 » Tue Dec 29, 2009 5:02 pm

I'm in the same position too and have been wondering the same. Also, based on the income, does the EFC expect a certain amount of money saved up based on the income and various other factors? I think this was the case in college but I don't really recall. I remember my EFC being rather high, though my parents in no way could have covered that. (Maybe we were considered big spenders, and I'm sure I would be in the same situation right now)...Thanks.

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angiej
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Re: Impact of money earned in year prior to school on fin aid

Postby angiej » Tue Dec 29, 2009 5:16 pm

whattodo2008 wrote:I'm in the same position too and have been wondering the same. Also, based on the income, does the EFC expect a certain amount of money saved up based on the income and various other factors? I think this was the case in college but I don't really recall. I remember my EFC being rather high, though my parents in no way could have covered that. (Maybe we were considered big spenders, and I'm sure I would be in the same situation right now)...Thanks.


I really don't think you are ever required to have a certain amount of money "saved up" based on your income. The EFC simply states that is the amount you should be able to pay on your own (by month-to-month income even; not savings). Either way, you will get the same amount of stafford subsidized or unsubsidized (or both) loans.

I think there is some formula that takes your estimated family contribution, subtracts the school's cost of attendance, and then need-based aid may be used to fill the gap.

For instance, say my EFC is 10,000 and my COA is 20,000. I will get 20,000 in stafford loans regardless and would be eligible for other need-based aid to make up the difference up to the COA which would be 10,000.
Last edited by angiej on Tue Dec 29, 2009 5:18 pm, edited 1 time in total.

09042014
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Re: Impact of money earned in year prior to school on fin aid

Postby 09042014 » Tue Dec 29, 2009 5:17 pm

To schools actually give need aid in the form of grants? Pure need not based on merit? I don't see why since loans are available for everyone.

whattodo2008
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Re: Impact of money earned in year prior to school on fin aid

Postby whattodo2008 » Tue Dec 29, 2009 5:21 pm

whattodo2008 wrote:I'm in the same position too and have been wondering the same. Also, based on the income, does the EFC expect a certain amount of money saved up based on the income and various other factors? I think this was the case in college but I don't really recall. I remember my EFC being rather high, though my parents in no way could have covered that. (Maybe we were considered big spenders, and I'm sure I would be in the same situation right now)...Thanks.


To answer my own question, they have some helpful calculators here : http://www.finaid.org/calculators/

whattodo2008
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Re: Impact of money earned in year prior to school on fin aid

Postby whattodo2008 » Tue Dec 29, 2009 5:24 pm

angiej wrote:
whattodo2008 wrote:I'm in the same position too and have been wondering the same. Also, based on the income, does the EFC expect a certain amount of money saved up based on the income and various other factors? I think this was the case in college but I don't really recall. I remember my EFC being rather high, though my parents in no way could have covered that. (Maybe we were considered big spenders, and I'm sure I would be in the same situation right now)...Thanks.


I really don't think you are ever required to have a certain amount of money "saved up" based on your income. The EFC simply states that is the amount you should be able to pay on your own (by month-to-month income even; not savings). Either way, you will get the same amount of stafford subsidized or unsubsidized (or both) loans.

I think there is some formula that takes your estimated family contribution, subtracts the school's cost of attendance, and then need-based aid may be used to fill the gap.

For instance, say my EFC is 10,000 and my COA is 20,000. I will get 20,000 in stafford loans regardless and would be eligible for other need-based aid to make up the difference up to the COA which would be 10,000.


Thanks a lot. This is helpful. According to the calculator on the finaid.org, 20% of assets go towards the EFC.

UCInfo
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Re: Impact of money earned in year prior to school on fin aid

Postby UCInfo » Tue Dec 29, 2009 5:26 pm

Desert Fox wrote:To schools actually give need aid in the form of grants? Pure need not based on merit? I don't see why since loans are available for everyone.

Yes, schools give need aid. It makes less sense in law school where almost everyone is relying on loans, rich or poor. But there's a presumption that well-off students are able to rely on family to pay for tuition or living expenses, while poorer students cannot. That's why they still ask for parental income unless you've been out of school for several years.

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angiej
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Re: Impact of money earned in year prior to school on fin aid

Postby angiej » Tue Dec 29, 2009 5:27 pm

whattodo2008 wrote:
angiej wrote:
whattodo2008 wrote:I'm in the same position too and have been wondering the same. Also, based on the income, does the EFC expect a certain amount of money saved up based on the income and various other factors? I think this was the case in college but I don't really recall. I remember my EFC being rather high, though my parents in no way could have covered that. (Maybe we were considered big spenders, and I'm sure I would be in the same situation right now)...Thanks.


I really don't think you are ever required to have a certain amount of money "saved up" based on your income. The EFC simply states that is the amount you should be able to pay on your own (by month-to-month income even; not savings). Either way, you will get the same amount of stafford subsidized or unsubsidized (or both) loans.

I think there is some formula that takes your estimated family contribution, subtracts the school's cost of attendance, and then need-based aid may be used to fill the gap.

For instance, say my EFC is 10,000 and my COA is 20,000. I will get 20,000 in stafford loans regardless and would be eligible for other need-based aid to make up the difference up to the COA which would be 10,000.


Thanks a lot. This is helpful. According to the calculator on the finaid.org, 20% of assets go towards the EFC.


No prob I am happy to help. The finaid.org website is very helpful, except for calculating EFC - it asks for may parent's info and for me (I'm 25 and married) that is irrelevant.

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angiej
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Re: Impact of money earned in year prior to school on fin aid

Postby angiej » Tue Dec 29, 2009 5:28 pm

UCInfo wrote:
Desert Fox wrote:To schools actually give need aid in the form of grants? Pure need not based on merit? I don't see why since loans are available for everyone.

Yes, schools give need aid. It makes less sense in law school where almost everyone is relying on loans, rich or poor. But there's a presumption that well-off students are able to rely on family to pay for tuition or living expenses, while poorer students cannot. That's why they still ask for parental income unless you've been out of school for several years.


In my case, it would actually benefit me if I could use my parent's income INSTEAD of mine! :cry:

whattodo2008
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Re: Impact of money earned in year prior to school on fin aid

Postby whattodo2008 » Tue Dec 29, 2009 5:29 pm

angiej wrote:
whattodo2008 wrote:
angiej wrote:
whattodo2008 wrote:I'm in the same position too and have been wondering the same. Also, based on the income, does the EFC expect a certain amount of money saved up based on the income and various other factors? I think this was the case in college but I don't really recall. I remember my EFC being rather high, though my parents in no way could have covered that. (Maybe we were considered big spenders, and I'm sure I would be in the same situation right now)...Thanks.


I really don't think you are ever required to have a certain amount of money "saved up" based on your income. The EFC simply states that is the amount you should be able to pay on your own (by month-to-month income even; not savings). Either way, you will get the same amount of stafford subsidized or unsubsidized (or both) loans.

I think there is some formula that takes your estimated family contribution, subtracts the school's cost of attendance, and then need-based aid may be used to fill the gap.

For instance, say my EFC is 10,000 and my COA is 20,000. I will get 20,000 in stafford loans regardless and would be eligible for other need-based aid to make up the difference up to the COA which would be 10,000.


Thanks a lot. This is helpful. According to the calculator on the finaid.org, 20% of assets go towards the EFC.


No prob I am happy to help. The finaid.org website is very helpful, except for calculating EFC - it asks for may parent's info and for me (I'm 25 and married) that is irrelevant.


I played around with the numbers to see if my parent's contribution would change, and no matter what, it was always 0 because the calculator considers me independent.

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angiej
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Re: Impact of money earned in year prior to school on fin aid

Postby angiej » Tue Dec 29, 2009 5:38 pm

Ahh okay; then I should do it if it takes that into consideration. I could just throw in some bogus #'s for my parents.

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jcl2
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Re: Impact of money earned in year prior to school on fin aid

Postby jcl2 » Tue Dec 29, 2009 6:02 pm

I think money in savings hurts worse than income, because basically all of that savings counts in your EFC, which is ridicules. If I had a couple hundred thousand dollars in savings I would use it to pay for law school, but I only have enough for emergencies and hopefully to use as a down payment on a house in a few years, I can't really use it for tuition. My experience after going through the process last year was that people who have been working for a few years earning relatively small salaries but saving diligently get screwed when it comes to financial aid. At the school I will be attending (starting next fall after deferring a year) I would have received an 8k tuition waiver if I had been coming straight out of school with no savings and no income in the previous year, and even with just my income I would have received a 4k tuition waiver, but because I had been saving for the last couple years I got nothing.

UCInfo
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Re: Impact of money earned in year prior to school on fin aid

Postby UCInfo » Tue Dec 29, 2009 6:33 pm

I'm not a financial planner, so take this with a grain of salt, but I've thought a lot about this.

If you are worried about your savings counting against you, you may wish to place the money into a retirement account such as a Roth IRA. With a Roth, you can put $5K in for 2009 and $5K in for 2010. I believe FAFSA ignores retirement account money. Under Roth rules, you can remove original contributions without penalty, so you can then take out the $10K for tuition or living expenses as a student once you matriculate. You should be aware that this will have to be claimed on your next FAFSA as income, but since the likelihood is that you will have far less income in 2010, it shouldn't hurt you that badly.

If you meet income requirements, you could do the same with a traditional IRA and take the tax benefit now. You would then pay taxes on that money upon withdrawal, but again, since you will have less income as a student, the rate should be relatively low. Same thing with a 401(k) assuming you roll it over into an IRA upon leaving your job.

At the very least, you want to qualify for subsidized Staffords rather than unsubsidized. These are need-based from what I can tell. Subsidized Staffords are only 4.5 percent in 2010-11 vs. 6.8 percent for unsubsidized. PLUS loans are 7.9 percent.

bahama
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Re: Impact of money earned in year prior to school on fin aid

Postby bahama » Tue Dec 29, 2009 7:15 pm

If you are going to do something like this just make sure you know the rules inside and out so you don't get stuck with paying the early withdrawl penalties.

One other thing to keep in mind is that just because FAFSA considers retirement accounts off limits doesn't mean the school will look at it that way in their fin aid formula for grants.

UCInfo
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Re: Impact of money earned in year prior to school on fin aid

Postby UCInfo » Tue Dec 29, 2009 7:54 pm

There shouldn't be a 10 percent withdrawal penalty on traditional IRA money if used for educational expenses in the same year you withdraw it, but bahama is right that you will want to make certain what the rules are in your particular instance. There is no penalty on the withdrawal of Roth IRA contributions -- only the earnings -- because the Roth contributions have already been taxed.

A bigger downside might be that you would end up foregoing retirement money that you will not have a chance to replace. You'd have to weigh the downside of that against the cumulative costs of student loan debt long term.

Leeroy Jenkins
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Re: Impact of money earned in year prior to school on fin aid

Postby Leeroy Jenkins » Tue Dec 29, 2009 7:55 pm

LOLWUT Roth IRA contributions are tax-exempt unless you go overlimit

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GeePee
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Re: Impact of money earned in year prior to school on fin aid

Postby GeePee » Tue Dec 29, 2009 7:58 pm

UCInfo wrote:There shouldn't be a 10 percent withdrawal penalty on traditional IRA money if used for educational expenses in the same year you withdraw it, but bahama is right that you will want to make certain what the rules are in your particular instance. There is no penalty on the withdrawal of Roth IRA contributions -- only the earnings -- because the Roth contributions have already been taxed.

A bigger downside might be that you would end up foregoing retirement money that you will not have a chance to replace. You'd have to weigh the downside of that against the cumulative costs of student loan debt long term.

Huh? I'm pretty sure 90% of this is exactly the opposite of what's actually true...




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