Recently, I met with a father whose daughter was about to apply for financial aid. His daughter is a senior in high school and looking at both private and public colleges. He wanted to get help on how to maximize his financial aid.
Some of his words to me…
“I have a lot of cash in the bank from selling my house that I can use to pay for college.”
“I will pay the expected family contribution for my daughter and then she’ll have to take out loans for the rest.”
“I already attended the financial aid night at her high school so I know how the formula works.”
He was expecting a lot of financial aid since he lost his job in 2008 and his severance had run out.
Let’s take the last statement first. I unfortunately had to tell him that given the timing, he’s already too late to do much planning.
Why? The FAFSA form is due in January each year, but much of the information is from your latest tax return. In this case, his most recent return is from 2008 – when he was still employed and made a lot of money.
That was a wake up call for him.
His second statement was very interesting. Because he was out of work, he literally expected that his expected family contribution would be around $5k, so paying that for all four years his daughter would be a piece of cake.
Using a quick calculation with his income from 2008 and current assets, his expected family contribution (EFC) would be around $33k.
At this point, he nearly (literally) fell out of his chair.
Then thinking about some of the public schools his daughter is applying to, the cost of attendance at those schools isn’t even $30k. So for those schools, his family is not even eligible for any financial aid.
With that EFC, well…there’s goes that pile of cash.
So at the end of our meeting, he was rather dejected.
But he also has two younger children and initially didn’t want to do planning for them. I told him that I didn’t want to have the same conversation with him a couple years from now.
My point here is what he thought was true turned out not to be true. And what he thought was very simple turned out to be very complex. And it was clear that sitting in a high school classroom to hear about financial aid didn’t help at all.
It’s a case of pay now or pay later. He indicated that all along, he didn’t need any help before and chose to handle his finances himself.
Well, he saved a lot of money by not using advisors all those years. Now he and his daughter will pay.
Answer to last week’s trivia question: 94% (yes, that’s 94%) in 1944 and 1945. In the last 20 years, the top rate was 50% during the 1980s.
No trivia question this week. Hope you and your family have a great holiday season!
