When it comes to college, just one child can cost a family nearly $200,000 at average college tuition rates. Yes, you read that right.
This may not matter if you happen to be in a true upper income bracket. Perhaps you can handle it out of pocket. But even at a combined household income of $200,000 — average for 2-income U. S. families now — this is really still middle class income, particularly true as family size grows.
We at A. B. Nicholas haver created a beautiful new solution using our market-leading LeverageLine stock loan program that can put more college grant money in your pocket and your budget, and do so both ethically and legally.
Here’s how it works: All financial aid applications must go through a special form called the Free Application for Federal Student Aid (FAFSA). This form captures the family of the students’ eligible assets for purposes of assessing an Estimated Family Contribution (EFC). dollar figure. That number is then used to decide the students’ eligibility for federal-related grants, scholarships, and loans.
A high EFC number means the family is likely to get little or no financial assistance at all. That’s because state and independent financial sources also use the exact same FAFSA to determine aid eligibility. Certainly the FAFSA application is the key to tens of thousands in aid that might make or break a child’s opportunity to get a college education.
Perhaps getting that one child through college won’t break your bank this time. But what if you have two in college at the same time, as is very common with two or more children? Or 3-4 in a row, one after another?
With our A. B. Nicholas college aid and eligibility formula, those with stock portfolios of $85K-$20M can dramatically reduce the value of their securities portfolio assets by as much as 95% depending on the types of securities the client owns. Our LeverageLine will be counted against the stock portfolio for EFC purposes, thereby taking some of the burden off the family finances.
Example: For someone with a $200,000 portfolio of non-IRA/401k stocks, for example, their income + portfolio figure would virtually eliminate them from any federal financial aid, all things being equal.
But if they obtained an ABN LeverageLine against those very same securities in that very same portfolio, now with the value of that portfolio having dropped thanks to the loan against it, for FAFSA purposes the family’s assets are much less now. A 75% loan ($150,000) at 5% annual interest from ABN through one of our partner firms (one of 3 major public household name US institutions), would reduce that portfolio from $200,000 to only $50,000 in terms of FAFSA financial aid eligibility. That would, on average, yield that family a financial aid package of about $12,876 — a 100% gain over the zero dollars the family would have received if it had simply reported the full stock portfolio.
There are two elements to this. First, know that the value of any reportable asset will be reduced by any loans against it. This means that if you were to obtain a personal (but no credit required, asset-based) LeverageLine loan against your stock portfolio, you can shield the value of the loan against that asset. It is perfectly legal and compliant with all regulations to do so. The regulations say only that you maintain proper documentation.
So you must take your loan cash and place it into a non-reportable asset before you fill out your FAFSA. Thus under this scenario you might choose as we recommend, paying down all of your credit card debt, helping your credit score, and releasing that spending power in those cards for future unanticipated college financing needs, all without needing to sell a single share of stock to obtain those funds, potentially helping you avoid capital gains taxes if you would owe if you were to sell high after buying lower. Outright selling also means that you are no longer in the investment market for those stocks you sell, which might be a factor if you liked those stocks and believed they would be going up.
Not enough from for all the cash from your LeverageLine loan?
You of course have other assets you can place your money into without it counting towards your FAFSA: You could then obtain more cards, or higher credit limits, and buy more large purchases on the cards. This might be laborious — but with a little planning, it can work wonders. Here are a few other non-reportable asset categories for FAFSA purposes:
Non-Reportable Asset List for the FAFSA
(You are not required to list these on your FAFSA):
- The net worth of your family’s principal place of residence (the family home).
- The net worth of a family farm (if it is the family’s principal place of residence and you and/or your parents materially participate in the farming operation).
- Any small businesses owned and controlled by your family (if it has less than 100 full-time or full-time equivalent employees).
- Qualified retirement plans such as 401(k) plans, 403(b) plans, pension plans, annuities, traditional IRAs, Roth IRAs, Keogh, SEP and SIMPLE plans.
- Life insurance policies, including cash value and whole life insurance policies.
- Credit cards (e.g., non-debit-only credit cards)
- Personal possessions, such as clothing, furniture, books, cars, boats, computer equipment and software, television and stereo equipment, music collections, jewelry, coin, stamp, art, and wine collections.
As you can see from this list credit cards are not the only area where you might invest your LeverageLine loan cash to reduce your asset assessments for EFC purposes.
Put some into paying down your credit cards so you can have some supplemental cash for your child’s college expenses. Then pay down your mortgage to zero, freeing all of that 100% equity up for a future low-rate home equity line that can also now be used for college expenses, in addition to the new full credit card spending that you’d have available. Or put some of the loan proceeds into your small business, if you believe it will help increase profits and make more money available for college expenses tooo. Or buy that high-end computer system but give it to your son or daughter for school if you don’t need it yourself, again contributing to paying down overall college costs.
Please remember: we are not talking about taxes here; we are talking about financial aid eligibility and how to reduce the asset figures you report, within regulations, to obtain maximum financial aid and reduce stress on the family budget. Of course, many of these things may very well be reportable to the IRS for tax purposes, but this is a conversation you should have with your licensed CPA.
Want to check your preapproval status with our interactive checklist? See Qualify for a LeverageLine Stock Loan
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