Our son will be a Senior in high school this year so 2001 is the year that counts with FAFSA for his Freshman year in college. I currently have a UGMA account containing his college funds which will become his when he turns 18 in November. Since FAFSA uses a much higher percentage of the student's assets when computing EFC, is there anything illegal about him gifting money to his parents and/or grandparents in December to reduce his year-end assets? The gifts would not exceed $10,000 per person so as not to bring gift tax into play.Also, my understanding is that, after the asset protection allowance, 12% of the parents liquid assets go into EFC vs. 35% for the student. Are these the correct percentages? Somewhere I think I saw 5% of the parents assets was used but I assumed it was a mistake. Now, I'm getting close enough that the real numbers matter.
Once the money becomes his, he can do anything he wants. Gifting money will be legal. The parents percentage they use is 5.6%
Not that I doubt you, but do you have a source for the 5.6%? The calculator on www.finaid.org uses 12%.Thanks.
Gifting money will be legal. It is legal but if the money created any kind of a trail for this year's tax return, don't be surprised if someone asks where it went. Also, be careful that you're not playing games only to qualify for loans. Also, check your state for the age of majority - quite a few are 21.rad
Reallyalldone, thanks for the response. A couple of follow up points and questions:It is legal but if the money created any kind of a trail for this year's tax return, don't be surprised if someone asks where it went.The way the market has been lately, I'm not going to have a problem with showing year 2000 income from his account, while not having any year-end assets. Also, he will keep the individual gifts below $10,000 to avoid gift tax issues. If someone asks if he had more assets during the year than at the end of the year, I will, of course, tell them the truth. I'm sure lying crosses the threshold between illegal and simply structuring finances in the most favorable way possible.Also, be careful that you're not playing games only to qualify for loans.Why? This is exactly what I am doing. I'm just trying to determine if there is anything illegal in the strategy I am proposing.Also, check your state for the age of majority - quite a few are 21.I live in Texas and the answer is not obvious (at least to me). Texas switched from UGMA to UTMA in 1995. At that time the age switched from 18 to 21. Since his UGMA account pre-dates the switch, I'm not sure which age applies. The brokerage handling the account says that it is my option, but I'll consult with a pro before I do anything. If it has to be 21, then all bets are off.Thanks again.Gary
I agree with RAD in that funds gifted will be accounted in a question on the FASFA, which will inflate the income for that year. Gifting outside the family, grandparents etc who, in turn, pay the tuition directly to the school avoid further issues.In reality, FA folks would question a kid gifting $$ out when getting prepared for college.Jenn
Jenn, I did a "practice run" of filling out a FAFSA and didn't see any question relating to the student giving away money. It only asked for net worth as of the date the FAFSA was filled in. Also, how would a gift of less than $10,000 affect anyone's income?You are certainly correct that there would be raised eyebrows among the FA folks if they know the student gave money away. They will only know if I tell them. I'll only tell them if they ask. I didn't see anything in the FAFSA that would automatically cause them to ask. On the other hand, it may be a question they routinely ask.Thanks for your response.Gary
You are certainly correct that there would be raised eyebrows among the FA folks if they know the student gave money away. They will only know if I tell them. I know most of the financial aid directors in my state, although I am not one. You vastly underrate their intelligence and their ability to spot anomalies in financial aid applications. Pell grants are an entitlement program but pretty much outside of that, professional judgement may be used to award or not award aid as they see fit. Playing games, legal or not is often not well received.rad
rad, I don't doubt their intelligence or ability to spot anomalies. I'm just trying to understand what the anomaly would be on the FAFSA. I have no knowledge of university specific forms or the private school forms so that's a different ballgame. The FAFSA just seems real straight forward and I intend to answer every question on it with total honesty.As far as the professional judgment, I have no control over that. If a financial aid officer interprets a family legally structuring their finances to maximize financial aid rather than minimize financial aid as game playing, then so be it. I put it in the same category as doing what you can legally do to minimize income taxes or estate taxes. I guess the good news is financial aid can't go below zero.Gary
Gary,there is a question relating to "other income" which is where any gifts should be shown. Also, if your child gifts then it will trigger a change in assets because he will either give shares of a security or actual cash after selling a security/fund. The sale of course will be income and generate gains taxes for the child even when the proceeds are given to someone else.AS to your question of whether the account falls to UGMA or UTMA since the Texas rules changed, in general the manner in which it was opened is how it stays until either cashed out or age of majority. I am also in Texas and fall prey to that same issue, but since my child is 10 years away I have not worried about those implications. I am more concerned with accumulation of value in the account so that less will have to be borrowed for advanced education.I would call your local bank to see how they are handling the change in account style, to get a suggestion on what you can and cannot do in the way of attaining age of majority. In the bigger picture, if 4 years of college cost $50k and you have saved $30k in your child's account, the best strategy remains to pay cash for tuition etc until the account is depleted and then go after the student loans. There is no reason to accumulate debt on behalf of your child for which they are responsible for repaying upon graduation unless absolutely needed. The longer you can put off borrowing for education the better. I see more and more people worry about getting funding for education when there are ample funds to cover a year or two before the need to borrow. The free grant money is available for those students who have zero assets and their parents have very low income. The loans are for the middle class folks etc as a supplement to the funds that have been saved along the way, sometimes that amount is zero as well so the student in this case becomes burdened with a higher amount of debt quicker in life.good luck,Jenn
Jenn wrote:there is a question relating to "other income" which is where any gifts should be shown.Ah, found it. I blew by it the first time by looking at "other income" from an income tax standpoint, but this looks like something different. Also I'm not sure what you mean by "trigger a change in assets". I don't see where this would show up anywhere.You are certainly correct about using the assets before taking loans and that is our plan. The only exception would be in the case of subsidized loans that don't begin accruing interest until post graduation. In that case we would take the loans, let the assets earn interest, and pay off the loans at graduation.The whole thing may be more trouble than it is worth since we would likely qualify for little if any aid regardless of who's name the assets are in. Another option is to bite the bullet Freshman year and arrange finances for the later years to keep income under $50k and allow for the filing of a 1040A tax return. This would allow us, on subsequent FAFSA's, to qualify for the simplified needs test which ignores assets altogether when calculating expected family contribution. My only problem with this is that once you are in the university you have obviously lost most of your bargaining power with the financial aid office.Thanks for your reply.Gary
Gary,If the school thinks there is something smelly, they can ask for current year and previous year tax returns, as well as supporting documentation regarding assets.Jenn
My only problem with this is that once you are in the university you have obviously lost most of your bargaining power with the financial aid office.What "bargaining power" do you believe you have with the financial aid office? The FAFSA determines your eligibilty based on a Federal methodology. Financial aid officers are bound to uphold the financial aid laws. The way an EFC is calculated is not determined by the financial aid office at all.If your child "gifts" money to their grandparents, if the grandparents give the money back to your child to pay for their education, the money will have to be reported as "other income" to your child on the FAFSA. I believe $10,000 in "other income" will be treated much more harshly on the FAFSA than the same $10K in assets. Additionally, if your child "gifts" $10K to you, you will have to report the $10k as part of your assets on the FAFSA. Additionally, your idea is totally unethical. If this is your child's money, it should be reported as such. Your child will be eligible for federal loans regardless of the EFC. If you choose to spend the government's loan money while you already have sufficient money set aside for education, then you don't truly have "unmet need" and you should be paying interest on government loans. Financial aid is intended for people who can not afford education -- not for people who have money and are trying to hide it.The amount of financial aid available is not worth rearranging your finances in order to become eligible. You'd be much better off by maximizing your earnings so that you can truly afford to pay for college.NellieD
As a father of a 14 month old, I was curious if anyone regrets putting the money in your child's name. It seems to create a lot of financial aid problems that would be avoided by keeping the money in your own name. I realize this strategy negates the possibility of an Ed-IRA or a 529plan so there are certainly pros and cons to both.Any thoughts?thanks,marc
As a father of a 14 month old, I was curious if anyone regrets putting the money in your child's name. It seems to create a lot of financial aid problems that would be avoided by keeping the money in your own name. I realize this strategy negates the possibility of an Ed-IRA or a 529plan so there are certainly pros and cons to both.This may not be the answer you want to hear, but I hope I can give you a little perspective.I am an attorney. My education was both too long and too expensive. Fortunately, I was lucky to have parents who earned, invested and saved a lot of money to send me through college, paralegal school and then law school. It is not recommended that full time law students work a full time job, therefore my parents gave me an allowance to live on. It was an incredibly small allowance. I had a nearly impossible time making ends meet. I didn't live extravagantly. There just wasn't a lot of money.My friends encouraged me to get a student loan. I had never applied for one before and so was a novice. I barely had a credit card at this point. But they all said it was easy to get and, as I found out, it was. The first loan was for $4,000. I soon ran out of that money and the following year, I applied for a larger $20,000 loan. The only smart thing I did about that was to take $4,000 off the top of the second loan and use it to pay off the first loan. I figured it would be easy to repay once I was out of law school and had a high 5 figure salary.Ha!Rude Awakening #1: I graduated from law school in California in 1992. We had this little problem called a "recession". It was a depression as far as I was concerned. As a part time job to pay for a summer law program, I worked in Law Career Services my second year. During that year of law school, law firms cut back on their recruiting and only interviewed third years for summer associate positions. No job for me. My third year of law school, law firms cut back even more - nearly one-half of our on-campus interviews were cancelled. There were no jobs. Even long time partners were getting laid off at the big firms. One year after I graduated in 1992, 85% of my class still didn't have a job. Although I was in the lucky 15%, my job sucked, to put it mildly. I earned $12,000 my first year out of law school. I worked for a sole practitioner in family law, a field which doesn't typically pay. At least it was a job.Try living on $12,000/year in the Bay Area. It's impossible now. It was only difficult then. But there was no money left at the end of the month to pay those student loans. So I deferred them, which I was allowed to do, up to two years after graduation. Well, things weren't any better in 1994 than they were in 1992. It's exceedingly difficult to get a lateral position out of law school. Law firms don't hire the way the general marketplace does and I didn't understand that. I quit my job after the first year, and went into business for myself.Rude Awakening #2: I worked my butt off and although I pulled in nearly 4 times what I was being paid in wages, the overhead of running a law office ate 50% of my gross. I then paid another 15-20% in taxes, and lived off of what was left. Still no money to pay those student loans. I even went to Consumer Credit Counseling and they looked at my income and expenses and told me there wasn't much room to cut expenses. I had to earn more.At this point, I had my only two credit cards up, which probably didn't make any difference given that the credit grantors had closed them anyway. I was barely treading water and every time it seemed like I was getting ahead, something would happen and I'd be mired in ever more debt. My debt load was enormous. But no one had ever taught me how to manage it.The Solution: I quit being an attorney. I took a break. I know that sounds rather extreme, but I made more money as a top notch litigation secretary than I was making as a beginner attorney. I slowly began to pay the debt off. I began to earn more than I was spending. It took me five years to pay off all my debt. Little by little. Chunk by ignominious chunk. By the time I got married in 1998, I had payed off everything except $400 in bills, $1,500 for my car and my student loan.Back to The Student Loan: Oh yeah. That $20,000 student loan managed to multiply itself into a $26,000 student loan in just 8 years. I paid it off in full in 1999. How did I pay it off? My husband got a huge bonus which we used to pay it off. I'm now repaying us the $400/month I was sending to someone else. So I guess I'm still paying it off, but at least I'm paying us.The Lesson: NEVER teach your children to mortgage their future. That's exactly what they're doing when they take out a student loan. Having to repay a princely sum every month right after you graduate when you're not making a lot of money is simply asking for trouble. If I hadn't had to repay those loans, I might have been able to take some calculated risks with respect to my career that I couldn't because I was worried about repaying that damned student loan. If a student loan is the only way you can get an education that's one thing, but if you have the foresight to make a difference in the life of your child, all I can say is do it.You never know what the future will bring, so be financially prepared for it. And prepare your children. CCSand, Esq.POSTSCRIPT: I'm now working at a major law firm. I'm not a legal secretary any more, but I'm not yet practicing law again either. But I'm doing well, so I'm not in a big rush. I'm back in school for an advanced degree, and this time I'm paying the balance of what my tuition reimbursement program doesn't pay. I love what I'm doing. I'm not in debt. I love the people I work with. I learn something new every day. And I'm not looking back over my shoulder wondering when the debt collector is going to find me.
Marc,Absolutely no regrets of having money in my daughter's custodial accounts. First, it teaches her to be responsible with her savings as she gets to determine where the next chunk goes. Second, it starts her with a nest egg for future education or living choice when she becomes of age. Third, it is a great way to teach kids about personal finance and the choices that have to be made over time. Fourth, it guarantees that there is something there to start her adult life with.I am not concerned with how the financial aid percentages will be treating her assets because we do not know what will be the standard in 10 years. I am not concerned as to how she will choose to use the money once she becomes of age and can use it as she likes; I will have given her a solid basis of personal finance and she will have hopefully caught the kite string. (She already does this at the age of 9, she reads the financial statements and does math computations with a spreadsheet and calculator to see if improvements are being made.)I am concerned with asset accumulation in the event that she does want to attend college, so we try to pack away as much as possible each quarter. Even if she does not want to attend college right out of high school, she will have a nice egg to draw from when she does make that decision or she will have enough to begin life comfortably.Jenn
How does putting some money in your child's name in a custodial account negate the possibility of an Ed-IRA or 529? You can invest in more than one vehicle for your child's college. Save early, save often, and get your child started saving too.Money in a child's name does affect the need assessment, but I don't think it necessarily causes problems. It's probably a good idea for younger children -- it shelters their funds from being considered.
My children are too young (6 & 8 years old) to know if I will have any regrets but I currently have a EIRA and UTMA (they get control at age 21 in NY) for each of them.
I have another thought about this... When I was attending a STATE COLLEGE in NY, my parents moved out of state. The only way for me to continue to pay in-state tuition (verses the out-of-state tuition) was to pay for at least 50% of my own support AND live in NY for the whole year (NY allowed 1-2 weeks out-of-state for "vacations"). Anyway, my parents handed over control of my UTMA and said "GOOD LUCK" before leaving the state. With a full time job in the summer and part time job during the school year to supplement the account, I was about to get my B.S. degree and only have $10,000 in student loans. If the money was in my parents name, this strategy would not have worked and who knows what would have happened! WMOT
A few years ago I was involved with a survey of parents of college students and one of the questions asked was whether they saved in their child's name, and if so, did they regret. 7% of the respondents had regrets--so for those bound for college, it appears to be a minor, if occasionally real, problem. (By the way, we found a substantial portion of folks who were pleasantly surprised by the amount of grants and scholarships their children received--all of them in the family income of $35k or less.) I've personally stopped adding to my kids' UGMA accounts, but continue to max out their Ed IRAs--with the goal of the using the full $2k next year.
A few years ago I was involved with a survey of parents of college students and one of the questions asked was whether they saved in their child's name, and if so, did they regret. 7% of the respondents had regrets--so for those bound for college, it appears to be a minor, if occasionally real, problem. Yes, but I would expect parents of college students to say this. It's the parents who had saved in their children's names and the kids DIDN'T go to college I would be interested in asking. In my mind, that would be the group most likely to have the regrets since you can make a reasonable argument that if the child didn't go to college, then they used the money saved in their name for that purpose for something else. Now, it could be they chose to start a business, but it could also be the kid chose to go out and buy a sportscar, so it's this group whose opinion I'd be interested in. And I'd want to know what percentage that is relative to how many went to college so you'd have some idea of what percentage of the college-age kids were affected.As with most surveys, it's always interesting to find out exactly what question was asked to understand if it was the right question, and what underlying assumptions the question makes.
Gary11112, in my humble opinion, you'd be silly not to game the system in the manner you have proposed.My parents were entrepreneurs and owned their own business which in most years netted them in excess of $100,000 per year reportable income. Because they were a small business sole proprietorship, the IRS allwowed them to operate on cash-basis accounting. This meant that it was very easy to artificially induce large swings in income, for example by investing in a capital asset and writing it all off in a single year. (Note, there is nothing at all illegal about this.)So during my four years in college, they made a number of major investments, drastically added to inventory, accelerated payables and deferred receivables, and played other accounting games. (Still legal, mind you.) Their reportable income dropped precipitously, to the sub-poverty-level range, in fact. As for asset valuation, most of their assets were tied up in the business, which owned our house, cars, etc. Because the valuation of a sole proprietorship is more art than science, and luckily the US economy was in a mild recession at the time, they were then able to reasonably maintain that the business was worth far less than the some of its parts. A $50,000 cash investment in illiquid inventory which might take two years to move at retail prices was quickly revalued to $5,000 over a period of weeks.As a consequence, with both income and assets dramatically reduced, my entire education was financed by the US taxpayer. I qualified for pell grants for all four years, plus interest free loans, plus a number of other grants and need-based scholarships which were unique to my state and/or university. Never ONCE did any financial aid administrator raise any kind of eyebrow at any of this. The only problems I ever had with my financial aid were some minor matters pertaining to the reportability of my GI bill benefits.There was a negative side to all this manipulation, which is that income in subsequent years was higher once all the capital investment activity and inventory buildup began to pay off. On balance, though, we came out far, far ahead. And it was all legal. Ethical? Well, you be your own judge on that. As for me, I graduated from college debt-free and bought a porsche instead of paying off student loans.
As a consequence, with both income and assets dramatically reduced, my entire education was financed by the US taxpayer. I qualified for pell grants for all four years, plus interest free loans, plus a number of other grants and need-based scholarships which were unique to my state and/or university. You're welcome, elambeth. As one of the US taxpayers who financed your education, I must say I'm not as charmed by your story as you are. Enjoy your Porche. I'm sticking with my 11 year old station wagon so that I can keep saving for my kids' college bills.I hope you are driving that Porche to the local low-income area high school because 10 years teaching in the inner city is the only thing I can think of that might balance your karma. Yeah, sure you are.Ann
My parents were entrepreneurs and owned their own business which in most years netted them in excess of $100,000 per year reportable income. ...As a consequence, with both income and assets dramatically reduced, my entire education was financed by the US taxpayer. I qualified for pell grants for all four years, plus interest free loans, plus a number of other grants and need-based scholarships which were unique to my state and/or university. My parents also owned their own business which created dramatic swings in their income. Like most people, they have always done what is legal to reduce their taxes. During some of the years I was in college, their taxable income was very low. This was always done in a straight-forward manner to reduce taxes -- never manipulated specifically while I was in college in order to make me eligible for financial aid. Because of their low taxable income, I was able to obtain student loans for a couuple of years I was in college. Because they are self-employed and at times have little to no income for up to a month at a time, having this money made it a lot easier if tuition happened to be due in one of the down months. However, I would never have dreamed of applying for or accepting any need-based grants. That would have been literally taking money away from people who were much needier than I. I would not have been able to face my friends who were truly dependent on financial aid, knowing that I was receiving some of the limited funds that they really needed in order to go to college. I'm not sure that I believe your story anyway -- there are two major errors in it: 1) Most financial aid officers would raise an eyebrow at anyone who is so poor as to qualify for the maximum in grants, yet has no need for loans. 2) If you were receiving GI bill benefits, that would have made you a veteran and "Independent" for financial aid purposes, which means your parents income wouldn't have even been reported on your financial aid application.If any of your story is true, what you did was not ethical. And if your parents really got stuck with big tax bills after you graduated because of their manipulations to get you financial aid, maybe you should have helped them out with their taxes instead of buying yourself a porsche.And I bet you're one of those people who thinks that taxes are too high and the government should stop giving so many handouts to the needy. Guess what? If the non-needy like you wouldn't milk the system, we'd all be paying less in taxes.NellieD
Actually, I did take out all the loans I could. (Well, the subsidized ones, anyway. I had no interest in paying interest.) Then we invested the funds in interest bearing accounts under the business name until repayment time came, at which time I paid everything back and kept the interest differential. As for the GI bill, you're only an independent veteran if you come from active duty. Reservists are dependents yet still GI-bill eligible.
Then we invested the funds in interest bearing accounts under the business name until repayment time came, at which time I paid everything back and kept the interest differential. How lovely. More unethical and illegal use of the money. When you signed for those loans, you signed legal documents saying that the money was going to be used for education expenses. And then, your parents' business got stuck for the tax bill on the interest. But, I guess that's what they deserve for teaching you such a bad lesson in the first place.You went to college and learned how to be a common criminal. I hope you're really proud of yourself. NellieD
How lovely. More unethical and illegal use of the money. When you signed for those loans, you signed legal documents saying that the money was going to be used for education expenses.I usually don't bother arguing with people in newsgroups because it's a no-win situation. I blew off the first couple references to "unethical" tactics because I had gotten the information I needed. When you start accusing someone of criminal activity with absolutely nothing to back it up, then that's a bit much. From his post (and his previous posts) it looks like he had the money to pay for college and he also qualified for interest-free loans. He took the loans to pay for college, kept his money in the bank earning interest, and paid off the loan when he got out of college. There is absolutely nothing in his posts to indicate any crime whatsoever. If he lied on forms or borrowed more than the educational expenses, you could argue a crime has been committed. But based on his post alone, you couldn't convict anybody of anything.As for your often cited ethics violations, I would ask if you could direct me to the location of this code of ethics that financial aid applicants must adhere to above and beyond all applicable laws and government requirements. Since I will be starting on this process I intend to fully comply with any recognized ethical code of conduct in these matters, but I've never heard of the existence of one before. If you could tell me how to access it, I would greatly appreciate it. If not, I'll have to conclude that your protests of ethics violations would better be described as the whining of someone who doesn't like the fact that current laws and processes allow some people to qualify for aid who don't meet your approval and that you are trying to create the illusion of validity by using a term like "unethical" rather than simply saying that you don't think it's right. You are obviously more than welcome to your opinion, but lets not pretend that it is anything more than that.I'm sure this is no shock, but there are many books on how to legally maximize financial aid eligibility. Consultants make a living helping people legally maximize financial aid eligibility. Even www.finaid.org devotes a section on strategies to legally maximize financial aid eligibility. Included in that section is how to shield both the student's and parent's assets from the process by staying below an income threshold and filing the correct tax forms. I can't address the books or consultants, but the FinAid site says, "We have not included any strategies that we consider unethical, dishonest, or illegal." I guess they didn't clear it through you.We all are given the same set of rules to follow in the game. I fully intend to follow them. I also FULLY intend to play to win. There may be some people who feel I somehow have an obligation to play with one hand tied behind my back, but it ain't gonna happen.Have a nice day and good luck to everyone trying to get a kid through college.
And I bet you're one of those people who thinks that taxes are too high and the government should stop giving so many handouts to the needy. Guess what? If the non-needy like you wouldn't milk the system, we'd all be paying less in taxes.Poor delusional Nellie. As long as liberals rail on with their Marxist diatribes promoiting class envy and class warfare, there will always be high taxes. Justice Learned Hand stated the there are 2 types of tax systems in this country; one for the knowledgable and another for everyone else. The only people milking the system are the liberal parasite politicians and their supporters hiding out in academia. Financial aid has specific rules; if you follow them to your advantage, that is life.However, I would never have dreamed of applying for or accepting any need-based grants. That would have been literally taking money away from people who were much needier than I. I would not have been able to face my friends who were truly dependent on financial aid, knowing that I was receiving some of the limited funds that they really needed in order to go to college. I had money forcably taken away from me and my fellow white students to pay for a minority scholarship fund which totalled over $500,000 per year. None of my friends or I could get any benefit from this since we were white. Don't spout your liberal lies about the limited pool of money and how your taking aid would hurt someone else. Save that crap for the next Democratic party lovein for someone stupid enough to believe your marxist drivel.
When you start accusing someone of criminal activity with absolutely nothing to back it up, then that's a bit much. From his post (and his previous posts) it looks like he had the money to pay for college and he also qualified for interest-free loans. He took the loans to pay for college, kept his money in the bank earning interest, and paid off the loan when he got out of college. There is absolutely nothing in his posts to indicate any crime whatsoever. If he lied on forms or borrowed more than the educational expenses, you could argue a crime has been committed. When you sign your FAFSA, you sign, "Under penalty of perjury, the information I have provided is true". I'm not a CPA and I'm not going to analyze the entire scheme they cooked up, but manipulating your inventory numbers to make it look like your business has no assets is probably falling into the "not-so-true" category.The poster specifically said:Actually, I did take out all the loans I could. (Well, the subsidized ones, anyway. I had no interest in paying interest.) Then we invested the funds in interest bearing accounts under the business name until repayment time came, at which time I paid everything back and kept the interest differentialHe or she did borrow money that was not used for educational expenses and then transferred it to a business. Does that sound legal to you? Did the business declare this money as income? What do you think?I am all for using the rules to your advantage, but if you are wealthy and obtaining need-based grants, you should know that you are taking money from people that are more needy than you. That very well may be legal. It is not ethical. You can also go and get food stamps and other public aid when you are a child of wealthy parents who has very little income of their own. Again, probably legal. Definitely unethical and definitely going against what the programs are intended for.People complain that they are taxed too much and there's not enough money in the programs they want money from. The source of the problem and the solution lies with each and every one of us. I am comfortable with my choices.NellieD
Come on, people, play nice. I didn't mean to incite a nasty argument or invite personal attacks. The original poster simply asked a question about trying to qualify for aid, and I noticed that most of the replies he was receiving were slanted in a direction that would lead him not maximize his financial aid because of the so-called ethics of the people who were offering him guidance. My experience and opinion differs, so I shared it; He is free to follow it or reject it as he sees fit.It's really easy to be smug about your ethics when it's not draining your own wallet; this guy is trying to pay for college expenses and your sense of whether or not he really "needs" financial aid has no place in this conversation. If you want the max amount of financial aid, some amount of "gaming the system" must be practiced. If you aren't comfortable doing that, fine, but recognize that not everyone shares your world view.I reiterate that I did not break any laws, so really, we are just talking about certain people's subjective opinions of whether my actions were just. Jeez, I hold all my stocks for over a year so I pay long term capital gains taxes instead of the higher short-term rate... next thing I know, NellieD will be lambasting me for that "unethical" tax strategy because it shortchages Uncle Sam too.
I just re-read this thread. Actually, NellieD makes a good point which I had forgotten: Your child will likely be eligible for food stamps if they live both off-campus and out of your home. There may be some other requirements (these things vary state to state, I believe... my memory is rusty, as it was years ago that I was in college.) It's kind of distasteful to go apply, as you have to sit in line with a bunch of smelly repugnant trashy type people, and it's a government bureaucracy so you're there for an hour or more, but it's free money. I qualified for $100 a month, which has probably been increased some in the yeaers since. This amount hich covered a decent size chunk of the food bill. There was a little humiliation in spending food stamps for groceries, but I went to a grocery store away from campus and reminded myself that that was $100 more in my pocket. Sadly, I didn't manage the extra money well, and most of the amount I saved wound up going for beer, but I digress.If you do this (and it is distasteful to set up, so if your child is a daughter or is squeamish, make sure someone accompanies them to the aid office,) make sure you know the rules ahead of time, there are a lot of little things to trip you up. For example, make sure your child applies in the summer. That way, when they ask if he/she is enrolled as a full time student, they can say "no." (Full time students are ineligible for food stamps.) I eventually got tripped up by this one and lost my eligibility midway through my junior year. (I can see the compassion for this tragedy forming on NellieD's face already.)
One last comment... (my apologies for three repeats in a row. I keep thinking of more things to add.)There has been some discussion about kharmic retribution and other, ahem, interesting ethical theories. I would just like to point out that in my years of employment since graduating college, I have paid the US government far, far, far more than I ever received in aid. So if you believe in the kharmic thing, then the world owes me, big time. The small investment that the government made in sponsoring my education has reaped tremendous dividends via the income taxation system.
There has been some discussion about kharmic retribution and other, ahem, interesting ethical theories. I would just like to point out that in my years of employment since graduating college, I have paid the US government far, far, far more than I ever received in aid....So if you believe in the kharmic thing, then the world owes me, big time. Everyone pays taxes. And if everyone were ripping off the system as you do, taxes would be a lot higher.I don't know where you got your ideas that the world owes you anything, but you are so completely wrong it is truly sad.I can't believe you actually took Food Stamps. Before, I thought you were just unethical, now I think you are the lowest of low. What's next? Welfare fraud? I do believe in kharmic retribution, and I am confident that you will get yours.NellieD
NellieD<<I do believe in kharmic retribution, and I am confident that you will get yours.>>Alas, we will ALL get what's coming to us.......fortunately for most of us, it is not up to you to decide what THAT is.Catherine
Alas, we will ALL get what's coming to us.......fortunately for most of us, it is not up to you to decide what THAT is.And when did I ever say it was up to me to decide? Never. I have no delusions of being God. I do however believe that lying, cheating scums should be taken to task for their actions. I will not stand by and pretend that this behavior is okay. It is not. And if no one else in the world is going to say so, then I am happy to be the one to say it.And for all of you who are wondering why there isn't enough financial aid for you, the answer is simple: the elambeth's of the world already took it all.NellieD
Gee, I wish I was perfect, too.
Catherine wrote:Gee, I wish I was perfect, too.Gee, I wish I could distinguish some middle ground between "perfect" and "signing a form saying I am using the loan for educational expenses then investing it because I didn't really need the loan".You don't see how someone could have a problem with the latter while not claiming to be the former?-- Mark
Mark - My problem is with the "holier-than-thou" attitude espoused, not so much with the person. Anyone is free to live their life anyway they see fit and to pay any ridiculous amount to send their child to school if they want to. However, why is my child any less deserving of financial aid (or subsidized loans), because my husband and I go to work every day,and saved money to send our son to a decent school, than the kid whose parents are junkies or just idiots who never saved any money?? I am sick-to-death of the liberal, hippie-dippie crap that gets spouted anytime anybody tries to legally get what they're entitled to. I pay plenty of taxes, and if I can get any financial aid for my kid, I'm going to take it.Catherine
Catherine wrote:However, why is my child any less deserving of financial aid (or subsidized loans), because my husband and I go to work every day,and saved money to send our son to a decent school, than the kid whose parents are junkies or just idiots who never saved any money??Means testing certainly sets up an odd incentive structure. I'm not entirely certain about the logic of a system that comes up with an "Expected Family Contribution" when the "Family" may have absolutely no desire to contribute a dime. There are some very hard questions involved. My family is going to do without a lot of things for the next 18 years so that, hopefully, we can pay our daughters' way through college no matter what. The likely result? No financial aid whatsoever, not even subsidized loans. What if we spent that money instead on new cars, and vacations, and a bigger house, and on and on? We have a higher standard of living than before and have a much better shot at subsidized loans, if not more aid. Is that really the way things should work?I am sick-to-death of the liberal, hippie-dippie crap that gets spouted anytime anybody tries to legally get what they're entitled to. I pay plenty of taxes, and if I can get any financial aid for my kid, I'm going to take it.Believe me, you're preaching to the choir when it comes to being sick to death of liberal, hippie-dippie crap. And there does seem to be a bit of an undercurrent to many posts on this board that some families "aren't the type" meant to be helped by financial aid even if those families' 100% truthful applications indicate that they are eligible for the aid or subsidized loans. However, I do think there is a distinction bewteen gaming the system in a legal way -- which I don't have a problem with; it only makes sense to have the application paint the most favorable picture possible -- and outright lying about what the money is for and how it will be used.Maybe the original poster and his/her family really did do all those things. However, it is also a classic troll technique to tweak all the right issues (Porsche, food stamps, etc.) then step back and let others argue. I think the extra post to throw in the bit about the food stamps gives it away that that series of posts was just to push peoples' buttons.-- Mark
...However, I do think there is a distinction bewteen gaming the system in a legal way -- which I don't have a problem with; it only makes sense to have the application paint the most favorable picture possible -- and outright lying about what the money is for and how it will be used.Maybe the original poster and his/her family really did do all those things. However, it is also a classic troll technique to tweak all the right issues (Porsche, food stamps, etc.) then step back and let others argue. I think the extra post to throw in the bit about the food stamps gives it away that that series of posts was just to push peoples' buttons.One minor correction. I was the original poster and the question dealt with totally legal strategies to maximize financial aid for our son going to college in 2002. I was only "totally unethical". I guess I should be grateful. The "common criminal", "lying scum", Porche and food stamps posts came later. Given that each of us were given the same set of rules regardless of whether we concur with the logic or not, I agree that the only sensible thing is to have the application truthfully paint the most favorable picture possible.Gary
And there does seem to be a bit of an undercurrent to many posts on this board that some families "aren't the type" meant to be helped by financial aid even if those families' 100% truthful applications indicate that they are eligible for the aid or subsidized loans. However, I do think there is a distinction bewteen gaming the system in a legal way -- which I don't have a problem with; it only makes sense to have the application paint the most favorable picture possible -- and outright lying about what the money is for and how it will be used.A big part of the problem is that people have a misconception about what financial aid is.Student loans are the primary source of financial aid. They are "meant" for everyone. Posters often say "I'm not eliglbe for any financial aid" and it just isn't true. Virtually everyone everyone is eligible for some sort of financial aid -- it's just not always the type they want. Make no mistake about it, giving you loans with absolutely no collateral is a real benefit. If you went to a bank, you would either have to put your home up as collateral, or you would pay much higher interest. This IS financial aid.Federal grants are "meant" for people with very low incomes. I make no judgment about why people have low incomes -- they could have lost their job, could be disabled, could be uneducated themselves and unable to earn a lot of money. That is what need-based aid is meant for -- to give the less fortunate a chance at an education where they can lift themselves out of their unfortunate circumstance. If everyone cheats the system and makes themselves eligible need-based aid, where does that leave the truly needy? There are things parents can and should do to paint their financial picture in a favorable light. I always recommend that people max out their retirement plans before they save a dime for college. This is totally legitimate and completely ethical. As I have said many times: There are loans for college, no one will lend you money for your retirement. However I can never recommend or condone that people transfer money to relatives, or purposefully underreport assets to be eligible for aid they don't really need. These types of behaviors are unethical and illegal. People like to complain about "Welfare Cheats", but these activities are just as fraudulant and just as much of a burden on of us taxpayers. Where do you think this money comes from?Once upon a time, there was a lot more grant aid available (per capita), and it was a lot easier to be an "Independent" student. But people took advantage of the system so much that they had to change the rules, making the maximum Pell grant too little to do much good and making it virtually impossible for anyone under 24 to be considered "Independent". Many current students suffer because of this. And the only people to blame are the people who took advantage of the system in the past so badly that they had to change the rules.The rules will change again to prevent abuse. For people who have young children, the manipulation that people do today WILL affect the financial aid availability and rules when your children are college age. This is not a "holier than thou" attitude. This is reality. For every dollar that goes to a financial aid cheat today, that's less dollars available for you tomorrow.When it comes down to it, there are three ways you can legitimately pay for education. 1) You can save a whole bunch of money, and have enough to afford it without financial aid. 2) You can not save at all and hope that the financial aid rules remain the same when your child is in college, then borrow a lot of money and make ends meet. 3) You can be very poor, receive a bunch of grants and still have to borrow a bunch of money. To me, being poor isn't a good option. And, personally, I think you should worry about your family's standard of living as much if not more than your child's college fund. Everyone has to choose their priorities. If the security of the college fund makes you sleep better at night, then that may be the best choice for you. But once you've made that choice, be happy that your child will taken care of and don't gripe about the fact that you aren't getting the aid you think you "deserve" (this is not directed at "you" Mark -- that's the "general" you).NellieD
Gary11112 wrote:"One minor correction. I was the original poster..."Ooops. I didn't mean to refer to you, of course. Sorry.-- Mark
I am sick-to-death of the liberal, hippie-dippie crap that gets spouted anytime anybody tries to legally get what they're entitled to. I pay plenty of taxes, and if I can get any financial aid for my kid, I'm going to take it.Catherine >>>>>>>>>>>>>Can you say AMEN sister? All this bullshit about people not paying enough taxes is straight out of Marx/the democratic party/National Extortion Association. Congress passes the laws and rules so if some of us read the rules carefully and follow the rules to our advantage, that is life. If others(like nellie) aren't smart enough to learn the rules, tough luck. If some of us are smart enough to pick our schools from those colleges that have superior grant/aid packages for our kids,so our kids graduate with little or no loans, then it is tough luck again for those poor misguided wretches who chose not to get good advice, because they were too cheap to pay for any advice. Most people on this board never made any real money, because if they did, they would relize that paying for college is in after tax dollars, hence many high income earners must make nearly $2 pretax to pay for each $1 in college expenses.
NellieD wrote:Federal grants are "meant" for people with very low incomes. I make no judgment about why people have low incomes -- they could have lost their job, could be disabled, could be uneducated themselves and unable to earn a lot of money.Ah, but you are making a judgment about why my income was low. It was low because my parents and I had the foresight to accelerate our expenditures and defer our receivables during the years I was in college. Make no mistake, my/our income was quite low while I was in college. That's the crux of our disagreement -- you're saying that it's okay to qualify for aid for a limited subset of reasons you've defined as "ethical," while those of us who can quite legally qualify but don't meet your personal definition of "needy" are, in your own words, "lying, law-breaking, cheating scum." You should be aware, then, that practically every financial planner in America is a lying cheating scum, because they're all out there recommending that people plan their finances so as to best maximize aid. There was an article recently in Money magazine, for example, cautioning against investing in Education IRAs and UTMA accounts because it can reduce the student's eligibility for aid. By the criteria you're using, that technique is also morally objectionable; by your standard, we who can afford it have a moral obligation not to consider the drawbacks of this type of investment. To plan our finances with an eye to maximizing aid would be ethically wrong, according to you. What rubbish! My case may be more dramatic than most because my parents were self employed and thus their income was more malleable from year to year, but the principle is no different.There are many straightforward ways to play the game the government wants and still qualify for aid. Some are easy, others are probably not worth it. For example, a married student is certifiably independent and their parent's income is not reportable. It would be quite within the law to have your child get married at age 17 to another college-bound 17 year old. Then, with zero income, they would both qualify for full aid for 4 years. Then they could get a friendly divorce upon graduation. In my state, the total paperwork for a marriage and divorce combined would cost about $50 and an afternoon of your time, assuming of course a friendly distribution of assets. It would net you anywhere from $10,000-$50,000 in cold, hard cash, per each student. Is this something I'd recommend? Well, no, I certainly didn't do that. But it was an individual decision; if someone else wishes to use that route, I wish them luck.This is the message I am trying to impart to the original poster: The financial aid system is *quite* manpulatable within the legal parameters specified by the government. And that, after all, was the gist of his original question.If you don't like the results that the system induces, write your congressman and change the system; don't take issue with those of us who simply ask for what we are entitled under the rules as they stand.
Reading back through this entire thread, I realize that we have become somewhat sidetracked and no one has really given an honest and direct answer to Gary11112's original question, which was this: Since FAFSA uses a much higher percentage of the student's assets when computing EFC, is there anything illegal about him gifting money to his parents and/or grandparents in December to reduce his year-end assets? And the answer, Gary, is that no, there is absolutely nothing illegal about this whatsoever. It will significantly increase both your chance of receiving aid, and the quantity of aid granted if any is forthcoming. Of course, if you do that, you may have to put up with the sneering derision of NellieD and her moral majority cohorts, who don't think you deserve any help. (But I have found that receiving large sums of money tends to ameliorate the hurt feelings caused by the words of others, don't you agree?)As an aside, transferring to the grandparents is probably a better idea for aid purposes, since their assets are not reportable at all, while a portion of yours still are, albeit at a rate preferable to the assets of your child. On the other hand, financial aid is not the sole consideration. How much do you trust the grandparents to pay it back when asked? Also, if they have a large estate and expire while holding the cash, it may be taxable to you as inheritance... or, heavens, they might even leave it to someone else! Sorry, there's no nice way to say this, but the decision of transferring it to the grandparents hinges on A) How much you trust them and B) Whether or not you think they'll expire while your child is in college.
If others(like nellie) aren't smart enough to learn the rules, tough luckNot smart enough? Nice try. As a former financial aid officer I could tell you a thousand ways to cheat, lie or fudge numbers to gain financial aid dollars. But I won't. Smart people don't have to cheat the system. They know that they will accommplish their goals legitimately. You think prisons are filled with smart people? They are filled with stupid people who think that they are clever enough to "get away" with something. So, you won't go to jail for cheating financial aid, but it still proves that you're not smart enough to make it in this world the honest and right way.Since you dislike me so much, kindly remove me from your Favortie Fools. NellieD
That's the crux of our disagreement -- you're saying that it's okay to qualify for aid for a limited subset of reasons you've defined as "ethical," while those of us who can quite legally qualify but don't meet your personal definition of "needy" are, in your own words, "lying, law-breaking, cheating scum." No. I think you're a lying, law-breaking, cheating scum for manipulating financial aid rules AND taking Food Stamps. The Food Stamps is what earned you they "lying scum" title.You lied at the Welfare office telling them that you weren't going to school when you were intending to (and probably had already enrolled). Just cause it's summer doesn't mean you're not a full time student. Or did your parents drop you from their health insurance every summer? Because you know they can only continue to cover dependent children if they are full time students. And you have the audacity to call the other people applying for Food Stamps as "bunch of smelly repugnant trashy type". Look in the mirror. You don't have to be poor to be repugnant and trashy.And I have no problem with people doing things to maximize aid. Put all your money in retirement plans, pay down your debts, don't save for college if you don't want to. All of those are fine. But transferring money to relatives, under-reporting assets and using financial aid dollars for things other than college is unethical and illegal.NellieD
Nothing I did was illegal. Everything else you accuse me of is semantics.
Nothing I did was illegal. Everything else you accuse me of is semantics. You can keep telling yourself that, but when you signed your Financial Adi Application, you signed a statement that said:99. Student and parent signatures. You must sign the FAFSA. If unsigned, it will be returned unprocessed. If you provided parent information in Step Four, one parent whose information is provided must also sign. You (and anyone else who signs the form) certify that all information on the form is correct and that everyone is willing to provide documents to prove that the information is correct. You also certify that you will use federal and/or state student financial aid only to pay the cost of attending an institution of higher education; NellieD
Oh, for heaven's sake Nellie, give me some credit. It's very easy to stay within the strictures the law imposes. I assumed folks could figure the details out for themselves. What will I have to explain next, the fact that you must place your signature on the back of the aid check to cash it?*sigh* Here's what you do: Let's say your college student has an income of $1000 a month from a part time job. Of this salary, $500 a month typically goes for rent, and $500 a month for other living expenses. All of a sudden, our hypothetical student gets a $1000 grant or loan, to be used, of course, only for allowable educational expenses.So our intrepid student takes the $1000 loan and pays this and next month's rent with it. (Rent is, after all, an allowable expense for financial aid, but you could just as easily put it toward books or tuition if that would further ease your conscience.) Then, guess what? Our student no longer has to take $500 a month out of his check to pay for rent! He takes that money and instead invests it in a mutual fund or gives it to his parents, a small token of his esteem. Or does whatever else he pleases with it; it's his hard-earned money from his job, about which there are no special rules.This example is hypothetical, but fairly representative of my experience. So please, rest assured that I used my loans in a manner wholly acceptable to uncle sam. I assume that you will now be gracious enough to retract your assertions that I am a criminal?As for food stamps, I can't honestly believe you're as shocked as you purport. A sizeable percentage of my fellow students did the same thing, and it was quite a nice supplement to have while in school. In my fraternity of about 50 guys, I personally knew at least a half a dozen who received this type of aid. Now, I'll concede that this was a public university and thus a few of my brothers were from an economically diverse background. But none of us would have starved, or even dropped out of school without them; it was a nice augmentation to our budget. In fact, before you get on your high horse about the poor and underpriveleged again, allow me to speculate that the food stamps in fact allowed us to spend more money on something no different from what the majority of food stamp recipients spend their money on: alcohol. (As an aside, when I called these people repugnant, I only meant that their physical apperance in my firsthand experience was repelling to me, primarily due to odor or lack of personal hygiene. I in no way meant to cast aspersions on their character; I am sure that welfare recipients in general are all the most wonderful people if only I had had the opportunity to get to know them.)But anyway, on my campus, this practice (getting food stamps) was pretty widespread. And I'll tell you something else: A lot of the students who got stamps didn't tell their parents about it... so if you have students in college, you might want to think twice about casting stones from your glass house. Of course, in the intervening years, many states have enacted "welfare reform", so this practice may not be as prevalent as it once was. But it was legal for us to obtain. The questionnaire read something like "Are you currently enrolled (taking more than 12 credit hours) at an institution of higher education." As it was summer, and I was not enrolled in classes, I answered honestly to the best of my ability, and the obvious answer to that question was "no". If the intended question had been "will you be enrolled as a full time student in the future, next semester?" then that is the question they should have asked; they should not have expected me (a needy food-stamp recipient, after all,) to second-guess the government and divine an unstated intent. Now that that's all cleared up, can we please stop the unending barrage of nasty personal insults and get back to a civil discussion of the original topic? I've always been of the opinion that hurling invective reveals more about the chracter of the speaker than that of the intended target, but it's reached the point that it's drowning out all consideration of the actual topic of qualifying for financial aid.
elambeth wrote:As for food stamps, I can't honestly believe you're as shocked as you purport. A sizeable percentage of my fellow students did the same thing, and it was quite a nice supplement to have while in school. In my fraternity of about 50 guys, I personally knew at least a half a dozen who received this type of aid. In my county, food stamps and general assistance was not a handout. It was required to be reimbursed at a later date when you were earning more. I considered applying for that and general assistance several years ago when I was going through some financially difficult times. I needed more debt like I needed a hole in my head, so I didn't bother and made it through without. I found out government assistance was really no assistance at all. I needed to be out of debt; not deepen the hole.Was this the same for you and, if so, why would you want to get stuck with yet another loan?But anyway, on my campus, this practice (getting food stamps) was pretty widespread. And I'll tell you something else: A lot of the students who got stamps didn't tell their parents about it... And they probably didn't tell their parents because their parents would have been mortified. I know mine would have. CCSand
Gary,One final comment as this thread grows: your child must be of legal age in your state in order to gift money to anyone.Jenn
japper wrote:One final comment as this thread grows: your child must be of legal age in your state in order to gift money to anyone.So my daughter could give Grandma a Christmas present paid for with her own money (I presume this is still legal), but she couldn't just give Grandma the money? How about if she gave Grandma $10,000 worth of CD's (the music kind) but Grandma returned the gifts and pocketed the cash and decided to use it for her granddaughter's education?-- Mark
So my daughter could give Grandma a Christmas present paid for with her own money (I presume this is still legal), but she couldn't just give Grandma the money? The child wouldn't have access to the money in a UGMA account until he/she reaches majority. They can do what they want with other money of their own prior to majority.rad
...your child must be of legal age in your state in order to gift money to anyone.Thanks. I would assume that the age at which a UGMA account transfers to the child in a state is the same as legal age in the state, but I'll check before he does anything rash.Gary
Of course, in the intervening years, many states have enacted "welfare reform", so this practice may not be as prevalent as it once was. Yes it has. Because people like you and your fraternity brothers abused the system and ruined it for others. This is exactly why this behavior is so intolerable and you don't recognize that people like you are exactly the problem that these measures were devised to stop. Now there are people who legitimately need the Food Stamps and they get kicked off the program in a few months.When I was in college, no one I knew took Food Stamps, even the truly needy. They got jobs working at the dining halls, where they could get free food. The fact that Food Stamps freed up your money so you could buy alcohol is really not something to be proud of. And then you try to justify it bacause you've decided that "most food stamp recipients" spend their money this way, which probably isn't true, but even if it is, do you think those are the sort of people you should be emulating? And then you lied to your parents while they were getting stuck with tax bills in order to maximize your financial aid. Gosh, you learned so many good lessons in college.Fraternities are also well known for assisting their members in cheating on tests and committing plargiarism. It sounds like your fraternity is a steller example of what is wrong with the Greek system at most colleges. Just because "everyone else" is doing something, doesn't make it right. NellieD
The child wouldn't have access to the money in a UGMA account until he/she reaches majority. They can do what they want with other money of their own prior to majority.Any gift above $10K in a year may be subject to gift tax by the person giving the money away. You should check the IRS regulations before gifting any large sums of money. The rules are currently changing as this is connected to the Estate tax.NellieD
Any gift above $10K in a year may be subject to gift tax by the person giving the money away. You should check the IRS regulations before gifting any large sums of money. The rules are currently changing as this is connected to the Estate tax.Glad you mentioned it - I almost put it in my original post but since I was referring to money other than UGMA money, I doubted a minor would have access to that much money outside of a UGMA account. With some searching on google.com(the best search engine, IMHO), I found this table of majority ages by state:http://www.eainvest.com/plan/articles/tu/ugma.jspI am not endorsing anything on this site(because I haven't looked at anything except the table) but thought the table might be useful to some here. I suspect readers will be surprised by the number of states that use 21 - particularly with all the theoretical horror stories concerning 18 year olds squandering UGMA money.rad
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