Two financial aid related questions from a parent

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mddad
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Two financial aid related questions from a parent

Postby mddad » Sun Apr 04, 2010 1:36 pm

Hi all,

My son is applying to law schools next year. He has the credentials to get into a top 5 law school.

I'm doing my taxes next weekend. Is there any advantage to my NOT claiming him as an exemption for tax year 2009 from the financial aid perspective? That is, will his odds of getting more financial aid next year go up if he doesn't show as an exemption on my return for tax year 2009?

He's currently overseas on a fellowship so he's been independent for six months of this tax year. He's 23 so all previous years he was claimed as an exemption.

Also, my son's income was very minimal since he was an undergrad for 6 months of 2009. Is there any reason he should file a tax return for 2009 to improve his chances of financial aid in 2010? I believe under IRS rules he's not required to do so since the income was so low.

Thanks for any advice.

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Na_Swatch
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Re: Two financial aid related questions from a parent

Postby Na_Swatch » Sun Apr 04, 2010 1:41 pm

There will be no difference, so go ahead and claim him as an exemption. For Financial Aid at top law schools they will take parental assets into account for anybody below 25 to 26 years of age. As he's still 23, there's nothing you can do to change this, so save what money on taxes you can. If your assets/ income aren't extremely high or if you have other children in college you might still receive financial aid.

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swc65
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Re: Two financial aid related questions from a parent

Postby swc65 » Sun Apr 04, 2010 1:42 pm

Most law schools look at the strength of the entire family to pay for school. They will consider the student's income, the student's spouse, and the student's parent(s). All of the top law schools do this.

IMHO do whatever is best for your situation right now, i.e. makes you pay the least or gets you the most money back.

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swc65
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Re: Two financial aid related questions from a parent

Postby swc65 » Sun Apr 04, 2010 1:44 pm

Na_Swatch wrote:There will be no difference, so go ahead and claim him as an exemption. For Financial Aid at top law schools they will take parental assets into account for anybody below 25 to 26 years of age. As he's still 23, there's nothing you can do to change this, so save what money on taxes you can. If your assets/ income aren't extremely high or if you have other children in college you might still receive financial aid.



Unfortunately, most of them do this regardless of age. As a 27 year old applying this year, I am fully aware of this!

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Na_Swatch
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Re: Two financial aid related questions from a parent

Postby Na_Swatch » Sun Apr 04, 2010 1:49 pm

swc65 wrote:
Na_Swatch wrote:There will be no difference, so go ahead and claim him as an exemption. For Financial Aid at top law schools they will take parental assets into account for anybody below 25 to 26 years of age. As he's still 23, there's nothing you can do to change this, so save what money on taxes you can. If your assets/ income aren't extremely high or if you have other children in college you might still receive financial aid.



Unfortunately, most of them do this regardless of age. As a 27 year old applying this year, I am fully aware of this!


Actually some of the very top law schools start discounting parental assets less and less right around your age. I think for Harvard its something like 75% of parental assets at 26, 50% at 27, 25% at 28, and you're an independent at 29. But yeah, still rough...

mddad
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Re: Two financial aid related questions from a parent

Postby mddad » Sun Apr 04, 2010 1:57 pm

Thanks all for your replies. They are very helpful (if a bit discouraging).

On my second question -- is there any reason for my son to file a tax return for 2009? He's not required to under IRS regulations since his income was so low, but I want to make sure we're not inadvertently worsening the financial aid situation in 2010 by not filing.

Any thoughts?

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vanwinkle
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Re: Two financial aid related questions from a parent

Postby vanwinkle » Sun Apr 04, 2010 2:00 pm

I would recommend him filing a tax return so that his low income is properly documented. It's not necessary, but it could make demonstrating income simpler.

I'm 29, and was 28 when I started law school. Many top law schools required my parental information despite my age and the fact that I'd been independent of them for several years. This is just a fact of life, they don't base this on financial independence, simply on age. The cutoff was 29 at some schools (including Harvard and Virginia if I remember correctly), though a few (like Virginia) have lowered it this year to 26. Either way, regardless of his income, you're likely to have to provide parental information.

The thing to consider is that parental information is only used when considering need-based scholarships. Even if you're millionaires, he will still be eligible for merit scholarships and federal loans up to the full amount of tuition plus COA (cost of attendance, which each school calculates and projects as sufficient to cover living expenses).

The only thing that really affects loan eligibility is whether your son has delinquent debts. If he's more than 90 days late on any loan repayment that can bar him from student loan eligibility. Otherwise, financially, he should be eligible regardless of your or his income.

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Na_Swatch
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Re: Two financial aid related questions from a parent

Postby Na_Swatch » Sun Apr 04, 2010 2:00 pm

mddad wrote:Thanks all for your replies. They are very helpful (if a bit discouraging).

On my second question -- is there any reason for my son to file a tax return for 2009? He's not required to under IRS regulations since his income was so low, but I want to make sure we're not inadvertently worsening the financial aid situation in 2010 by not filing.

Any thoughts?


Nope, no reason for your son to file. When he fills out his financial aid forms he can just mark down that he had no need to file under IRS regs.

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swc65
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Re: Two financial aid related questions from a parent

Postby swc65 » Sun Apr 04, 2010 2:17 pm

vanwinkle wrote:I would recommend him filing a tax return so that his low income is properly documented. It's not necessary, but it could make demonstrating income simpler.



This. I think there are additional form(s) you have to fill out if you do not file. Plus you will still have to prove his income. Filing might make it easier to verify his income.

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ConMan345
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Re: Two financial aid related questions from a parent

Postby ConMan345 » Sun Apr 04, 2010 2:52 pm

Claiming your son as a dependent will make a difference at Harvard and Stanford.

For Stanford, if it's been 2 or fewer years since the student was claimed as a dependent, 100% of the parental contribution is assessed; however, three years after he was claimed (your son's first year of law school if he's applying to start in 2011 and you don't claim him for 2009), 75% of the contribution is assessed, and 50% his second year, and 25% his third. I'll be starting school in the fall and my parents didn't claim me as a dependent in 2009, so we'll be getting a break my second and third years because of it.

At Harvard, it's less generous. He has to be 26 by September 1st of whichever year of school he's about to start before he can receive any sort of discount from being independent. It's the same step-wise 25% discount.

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WrappedUpInBooks
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Re: Two financial aid related questions from a parent

Postby WrappedUpInBooks » Sun Apr 04, 2010 2:57 pm

swc65 wrote:
vanwinkle wrote:I would recommend him filing a tax return so that his low income is properly documented. It's not necessary, but it could make demonstrating income simpler.



This. I think there are additional form(s) you have to fill out if you do not file. Plus you will still have to prove his income. Filing might make it easier to verify his income.



I didn't file a tax return for 2008, and I'm starting law school in 2010. I haven't had to fill out any extra paperwork. I think that as long as he fills out a tax return for 2010 (I'm assuming he's looking to start law school in 2011), he'll be fine.

mddad
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Re: Two financial aid related questions from a parent

Postby mddad » Sun Apr 04, 2010 3:07 pm

ConMan345 wrote:Claiming your son as a dependent will make a difference at Harvard and Stanford.

For Stanford, if it's been 2 or fewer years since the student was claimed as a dependent, 100% of the parental contribution is assessed; however, three years after he was claimed (your son's first year of law school if he's applying to start in 2011 and you don't claim him for 2009), 75% of the contribution is assessed, and 50% his second year, and 25% his third. I'll be starting school in the fall and my parents didn't claim me as a dependent in 2009, so we'll be getting a break my second and third years because of it.

At Harvard, it's less generous. He has to be 26 by September 1st of whichever year of school he's about to start before he can receive any sort of discount from being independent. It's the same step-wise 25% discount.

===========

So, if he's accepted to and attends Stanford (which is on his top 2 list along with Yale), I don't want to claim him this this year. This seems to amount to a gamble of (marginal tax rate x exemption value) on the chance he attends Stanford since all the other top schools appear to have minimum age thresholds precluding any deprecation of family income.

Do I have that right? Not sure that gamble makes too much sense, although his 4.0 and 176 do make him a legitimate candidate.

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swc65
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Re: Two financial aid related questions from a parent

Postby swc65 » Sun Apr 04, 2010 3:12 pm

Nightrunner wrote:
mddad wrote:
ConMan345 wrote:Claiming your son as a dependent will make a difference at Harvard and Stanford.

For Stanford, if it's been 2 or fewer years since the student was claimed as a dependent, 100% of the parental contribution is assessed; however, three years after he was claimed (your son's first year of law school if he's applying to start in 2011 and you don't claim him for 2009), 75% of the contribution is assessed, and 50% his second year, and 25% his third. I'll be starting school in the fall and my parents didn't claim me as a dependent in 2009, so we'll be getting a break my second and third years because of it.

At Harvard, it's less generous. He has to be 26 by September 1st of whichever year of school he's about to start before he can receive any sort of discount from being independent. It's the same step-wise 25% discount.

===========

So, if he's accepted to and attends Stanford (which is on his top 2 list along with Yale), I don't want to claim him this this year. This seems to amount to a gamble of (marginal tax rate x exemption value) on the chance he attends Stanford since all the other top schools appear to have minimum age thresholds precluding any deprecation of family income.

Do I have that right? Not sure that gamble makes too much sense, although his 4.0 and 176 do make him a legitimate candidate.

4.0 / 176 is an excellently viable candidate. I would venture that he would have to write his essay in crayon to have serious trouble getting into Stanford.


This is blatantly false. Stanford Adcomms would likely attribute his crayoned PS to extreme creativity! :D

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ConMan345
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Re: Two financial aid related questions from a parent

Postby ConMan345 » Sun Apr 04, 2010 3:23 pm

mddad wrote:
ConMan345 wrote:Claiming your son as a dependent will make a difference at Harvard and Stanford.

For Stanford, if it's been 2 or fewer years since the student was claimed as a dependent, 100% of the parental contribution is assessed; however, three years after he was claimed (your son's first year of law school if he's applying to start in 2011 and you don't claim him for 2009), 75% of the contribution is assessed, and 50% his second year, and 25% his third. I'll be starting school in the fall and my parents didn't claim me as a dependent in 2009, so we'll be getting a break my second and third years because of it.

At Harvard, it's less generous. He has to be 26 by September 1st of whichever year of school he's about to start before he can receive any sort of discount from being independent. It's the same step-wise 25% discount.

===========

So, if he's accepted to and attends Stanford (which is on his top 2 list along with Yale), I don't want to claim him this this year. This seems to amount to a gamble of (marginal tax rate x exemption value) on the chance he attends Stanford since all the other top schools appear to have minimum age thresholds precluding any deprecation of family income.

Do I have that right? Not sure that gamble makes too much sense, although his 4.0 and 176 do make him a legitimate candidate.


Exactly, it is a gamble. Historically, a little more than half of applicants with those numbers get into Stanford/Yale. He'll be in at Harvard and everywhere else, barring something strange about his application. He'd have a decent shot a full tuition fellowship at Columbia.

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adrib
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Re: Two financial aid related questions from a parent

Postby adrib » Sun Apr 04, 2010 3:30 pm

The dad in this thread is giving me the warm and fuzzies. So thoughtful! :D

Oblomov
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Re: Two financial aid related questions from a parent

Postby Oblomov » Sun Apr 04, 2010 3:32 pm

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Last edited by Oblomov on Sat Apr 07, 2012 4:10 am, edited 1 time in total.

14yearplan
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Re: Two financial aid related questions from a parent

Postby 14yearplan » Sun Apr 04, 2010 4:01 pm

I am all for your son preparing his own tax return and sending it in if you do not claim him as a dependent. It teaches responsibility and will get him prepared for the inevitable reality of what he will have to do every year for the rest of his life. I never understood why someone would not file a tax return. I am not a tax professional but seems to me that there is no benefit to not file, even if it's not required by law . . . he might even get a refund from possible education/tax credits.

Another thing I was thinking: If your son is still under your health insurance, does he have to be a dependent on your tax return for him to remain on your policy? Or are there any other reasons, for that matter?

Just food for thought. But please, please, please contact your tax professional before asking this on these forums. ;-)

...And please post the results so that other parents/students can learn from your situation. :-)
Last edited by 14yearplan on Sun Apr 04, 2010 4:03 pm, edited 1 time in total.

littlebit
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Re: Two financial aid related questions from a parent

Postby littlebit » Sun Apr 04, 2010 4:04 pm

On the tax return issue. If he doesn't help you out at least $400 worth, don't claim him and let him file, he will probably qualify for the $400 tax work credit. At least do it both ways and see what is best.

Pearalegal
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Re: Two financial aid related questions from a parent

Postby Pearalegal » Sun Apr 04, 2010 4:15 pm

As a girl who had her parents baby her financially through college, I would encourage you to have your son research and figure this out on his own--sounds like his taxes will be a breeze, so have him file those online himself. You're great to be so involved, but have him figure it out.

I took two years off after UG, and learning how to do all this stuff on my own has been a HUGE help.

mddad
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Re: Two financial aid related questions from a parent

Postby mddad » Sun Apr 04, 2010 4:30 pm

Pearalegal wrote:As a girl who had her parents baby her financially through college, I would encourage you to have your son research and figure this out on his own--sounds like his taxes will be a breeze, so have him file those online himself. You're great to be so involved, but have him figure it out.

I took two years off after UG, and learning how to do all this stuff on my own has been a HUGE help.



Thanks all for your very good points and advice. And as an old-school kind of guy, I do agree on the responsibility angle several of you have touched on. In my son's defense, and without going into a whole lot of detail, he is spending the year in an extremely remote part of the world with limited Internet and other access. So, it's for that reason that I'm more involved than I should (or would like) to be in pre law school preparations.

Thanks again.

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Na_Swatch
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Re: Two financial aid related questions from a parent

Postby Na_Swatch » Mon Apr 05, 2010 2:56 pm

Nightrunner wrote:
swc65 wrote:
vanwinkle wrote:I would recommend him filing a tax return so that his low income is properly documented. It's not necessary, but it could make demonstrating income simpler.



This. I think there are additional form(s) you have to fill out if you do not file. Plus you will still have to prove his income. Filing might make it easier to verify his income.

Agreed; FAFSA and NeedAccess are trouble enough; there is no need to make completing them (and corroborating them) more difficult. I would file.


I don't think there is any need to file just to verify income. I did not file and recently completed the financial aid forms for HLS. All they wanted was FAFSA and NeedAccess, and with that information it was enough to verify my income even without an IRS file on my part.

Everything went complete pretty easily and I received decent aid so it seems as if the IRS filing is a non-issue




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