Wisdom/ethics of liquidating assets to increase financial aid?

lol, what's unethical about buying that lexus... wink wink
Lucky for me I'll have no money anyway after paying off part of my loans (the part that won't defer interest during med school conveniently). And yes my lucky is sarcasm.

 

Perfectly ethical to spend money or shelter it in assets not counted for financial aid, but it is unethical to "transfer" money to a parent or sibling for them to hold on to it for a while. One exception to this - just as your parents or others can gift up to $12k per year to you tax free, likewise you can "gift" money to your parents or anyone else, but it has to be without strings attached...

 

I think there is some confusion here. If your cash is just sitting in the bank, then it is already "liquid". What I think that you really mean is to ask about tying up your money in assets or investments that are not counted toward financial aid. One such investment may be a primary residence. The equity in your home is not counted in calculating your EFC, and it also is a very good investment. I recommend that wherever you go to school, perhaps buy in stead of rent so that your money will be tied up instead of sitting in your account. If you want the availability of emergency money, you could simply take out a line of credit in a variety of ways (including a home-equity line). Just as an example.

Now as far as liquidating your assetts, I do not understand this. This would only increase the cash you have available, and not reduce it, so the money is still there to count against you for financial aid purposes. Let's consider the possibility that you alread own a rental property or properties, for instance, which do count against you. In such a case, there is not much you can do except tie it up in a primary residence instead, or in retirement accounts. But dude, if you have enough money to be having rental properties and such, then you must realize that you are not in the same need situation as most other med students, who are typically broke and have few or no assetts. I mean, let's keep it real right?

 

how exactly do schools find out about your assets? from what i saw, it's mainly a self-reported thing - do they actually go and do some kind of check on your cash/investment accounts? is that even possible? hell, if all your money is sitting in cash, just withdraw it into actual cash - no way to trace that. or, buy some gold or something. i wonder if it's possible to find out about stocks held in certificate form?

 

Med schools base your need based assistance on your parents income, which will be based on their taxes. Financial aid is otherwise loans and I don't think it matters what money you have in the bank as to whether you get the loans or not (other than they will lessen the amount of subsidized loans you get, which they will probably do that based on parental income anyway).

I've never really understood why people think doing what you've suggested is wise.
There is nothing unethical about it though, so do what you want.

 

If you are like me and already thinking about saving for retirement, you can drop it in an IRA, which I am pretty sure isn't taken into consideration when calculating your expected contribution. You should take a look online at one of those IRA calculators and you'll be surprised at how much your money will grow from now until you retire. Also, it is tax free. This is a much smarter alternative than just buying a car so the school won't take your money.

 

in order to put it in an IRA it has to be earned income. So basically in order to put in the max contribution (5k atm?) you need to have earned 5k in that calendar year. If you have more than 5k you want to shelter then obviously you would need to start early

 

dantt, your income needs to be pretty high in order to have an EFC that amounts to a third of your student budget. You said that you only have enough money to buy a nice car, and not a house. So chances are that the money you have saved up is not the major factor for your high EFC. It must be your income. And really, all you need is a down payment to buy a house or apartment in most cases, which is less then paying in full for a really nice car. Even in California. So I am not sure I understand your situation here? Unless you have your heart set on someplace really nice.

Are you making over 100k/year and do have net assets in the range of 6 digits? If not, then what exactly is the school asking you to pay? And if so, then it doesn't sound like you are really in financial need compared to most others. But there are always extenuating circumstances I guess. Just trying to understand, that's all.

 

I don't really get this. No matter how much you or your parents have the medschools don't expect you to contribute anything, they expect everyone to take out loans. The only thing your EFC effects is need based aid. You'll be eligible for loans just like the poorest of the poor, no need to dump your money into a car that loses so much value so rapidly. If you really want a new car then thats cool, but I don't think its a good plan to save on your medschool education.

 

Agreed. Except that EFC is a consideration for obtaining low-interest need-based loans and for grants and need-based scholarships. If an EFC is particularly high, then one could potentially not get the full amount (or none at all) of subsidized or low interest loans (instead getting all un-sub and private loans).

I think in this situation, the OP is giving me the impression of being pretty well off (due to what is apprently a high EFC), and yet still wants to obtain all of the low-income incentives and assistance.

 

I found these tips in the course of filling out fin aid forms.

http://www.finaid.org/fafsa/maximize.phtml

These are legit things you can do to increase your financial aid. Buying a car is legit and helpful, however, only if you do it before filling out your FAFSA so that the schools know you have no cash. Or else can explain to the Fin Aid department that your savings account that once had $20k in it is now empty.

 

etf, while the schools themselves don't have that kind of power, the federal government does have that kind of power. Do you plan on not filling out the FAFSA?

But no, holding it in cash would make it hard to find, except you'd be lying to the government (since they ask how much money you have in your bank accounts and cash). And if for some reason they actually checked and noticed say, a $95,000 withdrawal into cash a week before you file your FAFSA, it'd be kinda hard to explain. Not to mention I don't think I'd ever sleep safe if I had 95G's in cash just sitting around...where are you gonna put it, in the mattress?

 

If you are looking to "solidify" your now-liquid assets, buying a car is about the worst move you could make. Cars don't appreciate - they depreciate. Putting that money towards a house or an IRA (if you have earned money this tax year) is a much smarter move.

 

They really don't expect you to contribute anything, the only thing a very high EFC would do would be to change the ratio of sub/unsub stafford and change your eligibility for need based scholarships at a school. My EFC was 17 K (1/2 my schools budget) for first year since both my husband and I were working and I still got max sub stafford. Everyone gets loans, you can chose to decline them and pay out of pocket, but everyone gets loans.

 

dantt- given that you don't quite have a handle on what liquidity is or how need is assessed, I'd strongly suggest not doing anything to your savings right now.

Your expected contribution to your medical school education is determined by your FAFSA, which does not look at family income. Schools may look at family income for their own grants/scholarships, but it will only matter if you're pretty poor. Middle-class family or above and you're looking at loans. You can take out enough loans to pay for most medical schools regardless of your expected contribution.

Do what I did: fill out your FAFSA and play around with the numbers to see what it does to you expected contribution. I was worried about money I had in savings, so I did calculations looking at how it would affect my expected contribution. Whether I had $30K in savings or $0 in savings, it did not affect my expected contribution.

Now, my expected contribution was fairly high (about $17K) due to my salary, so your numbers may vary, but play around with it yourself to see. Savings is not a 1:1 for your expected contribution.

Lastly, buying toys to bring down your expected contribution is a bad idea. You can't flip whatever you buy, because it will show up on your next year's FAFSA. And most toys (including cars) will lose their value over four years, to the point where you'd've been much better off with that money in a bond, 401K or other form of savings, where at least it earns interest.

 

It could be that he inherited, or it could be that he worked and saved money before going to med school. (OK, rich relations are more likely, but it could happen!)

If a non-trad goes to a school that gives grant money away, they take your hard-earned savings (and your spouses' hard-earned income), that you'd earmarked for your own children's college education, and put it into the need-based grant package for the 22-year-old sitting next to you (assuming that he doesn't have any rich relatives.) Yeah, there go those years of your life. Right down the drain. And the guy they gave the money to? He still has those years in front of him -- to make a physician's salary. Good thing they're meeting his need!

Ironically, this is only really an issue at schools that do have grant money given away each year. At most schools, the previous posters are right: it doesn't matter because you'll be borrowing in one form or another anyway.

To the OP: if grant money is hanging in the balance, you can buy a house before you fill out your FAFSA! You have to weigh pros/cons, risks, how much grant money would you really get anyway... but it's something to look into. If your parents' EFC would be huge anyway, there's nothing you can do. If we're talking little enough money that you could buy a reasonable pre-med car with it, don't bother. And for goodness sake don't buy an expensive car. That's just nuts.

Edit: nondeadyet's post is dead on, and it brought up something to clarify: need-based grants are done through the school's aid system, and they will almost always involve parental info. Loans based only on FAFSA are different. Make sure you know what aid money is in play, from what source, before you go and do anything.

 

I think there is some misinformation here. I have never heard of such a thing as a requirement that you expend 1/3 of your assets each year. That doesn't make any sense. Did one of the schools tell you this???

The other posters here are correct. You do not actually have to contribute anything since stafford loans (unsubsidized at least) are available to everyone, regardless of your assets. You can borrow the full amount of tuition + fees (up to the standard set limit, sometimes even including living expenses and such as well) and then take out additional private loans for the rest (if needed). Now, you may be penalized by not getting as much subsidized loans as part of your package, and perhaps you will not get need-based aid (which has reduced or no interest, or perhaps it may even include grants and scholarships), but there is nothing that says you have to give a portion of your assets to the school. Just take out loans for everything (but don't get silly with it, gotta pay them back at some point right?).

 

I am not sure that I understand. Do you mean that they require the non-trad to simply pay the regular tuition, and its just that some of that tuition money goes towards grants for some other students? Otherwise I am confused. You aren't suggesting that older students with savings accounts are required to turn over those accounts to the school so that they can pay for other students are you? Maybe I am just tired and am mis-reading everything, but I kinda feel like I am either grossly misinformed or am floating in some kind of twilight zone.

In any case, any savings that is designated for educational purposes in an education Flex savings account can be ear-marked for a specific individual (such as a child) and is not considered an asset for EFC calculations from what I understand. Who knows though. I know that I have savings accounts and no one has asked me to turn over 1/3 of it.

 

Oh ok. This is seems to be an extension of how EFC is calculated/applied. However, regardless of EFC, you can still take out loans to cover any tuition or fees that are reflected in the student budget. EFC does not mean that you and/or your parents actually have to cut a check for that amount. Actually, unless EFC is obscenely high, you will likely qualify for full federal loan amounts, including subsidized. Now securing a loan for beyond the school's estimated student budget is a little more tricky, but can still be done through private loans (just at a higher interest rate).

Edit: also keep in mind that the site you posted a link for was for maximizing your eligibility for need-based aid. (which is the reduced/deferred interest stuff, and grants). It doesn't hurt you for regular loans.

 

Could be the confusion is the "college fund" aspect of this information - one of those tax deferred savings plans for college - as opposed to someone having $20k in a regular savings vehicle...I think the OP may be comparing apples and oranges...

 

Good point.

 

You could buy ME a Lexus.

 

If you have the money why not just use it to pay for part of tuition? I would much rather be in your shoes than have to take out so many loans (and yikes intrest, etc). If I had the money, I would pay what I could to avoid taking out any more loans. If you mean financial aid as far as grants go, I would say forget it bc you have to be REALLY poor financially to get financially based grants. Good luck, let us know how it goes.

 

I'm a non-trad and my EFC was 99,999 (I guess that is the max ). My school said I can still take out the whole $38,500 max federal loans (Stafford and Gradplus) but it will all be unsubsidized. The only difference between having an EFC of 0 and one of 99,999 is the amount of subsidized federal loans you can get. Everyone can get the $38,500 but if you have an EFC of 0 you can get $8,500 of that as a subsidized loan. I'm sure the EFC affects the amount of grants/scholarships but even if you have millions in the bank you can take the max amount of federal loans without using any of your assets for med school. This is what my financial aid office said so please correct me if I'm wrong.

 

No I agree with you, that was my understanding as well. I have an EFC of 0, and have to take out all loans (just like UG and grad) and my family income was only 27,000 last year for a family of 3. That's why when I see people trying to get alll this great aid that people get bc their family makes less than them, it is really silly. I mean who WANTS to take out more loans? Not me, I would love to trade places with someone with some bank
Ps wow EFC of 99,999, how did they get that if you don't mind me asking? I didn't even know it could go that high haha.

 

Yeah, I was curious as well. My annual income was over $100K when I left to do my postbac and my EFC was still below $20K. You must be much better at saving than I was.

 

They add 1/3 of what's in your savings to your EFC each year.

As people have pointed out THIS DOESN'T MATTER at most schools. You still have the option of taking out loans and everything sucks for everybody more or less equally in the long term. Everybody pays $$$$ eventually, through the magic of loans.

Need = Cost - EFC
So every dollar they add to your EFC is one they take from your need.
Once again, at most schools, this doesn't matter.

But some schools (including one I interviewed at) take your need, make a mandatory loan package out of the first lets say $25,000, and then meet the next $20,000 with grant, and then everything after that is more loans.

Folks, don't get excited, I just made up those numbers.

So basically, everybody with a low EFC is $20,000/year better off than everybody with a high EFC. And that's not $20,000 that you pay eventually, with loans, one way or the other. That's $20,000 that you pay and the person sitting next to you NEVER HAS TO PAY EVER, no loans, nothing. They didn't literally take $10,000 from you and apply it to his tuition bill, but they might as well have.

Of course, the odds are that the OP isn't going to one of these schools, so all this doesn't matter for him. And I'm going to my state school, so it doesn't matter for me, either.

 

I still made about $70K last year and had a bunch of savings. But hey, I'm in my mid-30's!

 

if i'm lying, i'd much rather lie to the government than to a school. government doesn't have as much incentive to try to figure out if your hiding stuff, except for maybe for tax purposes.

another question, with regards to my situation - i've got a little bit of savings, all of it tied up into stocks in a brokerage account. i've never earned any income, nor do i plan to anytime soon (although i wish i could...). does efc take into account actual savings, or is it income only?

 

Thanks, I have had my coffee this morning and this makes more sense now.

 

That's incorrect. People really need to actually *look* at the official FAFSA worksheet. There are a few basic concepts in there...
http://studentaid.ed.gov/students/attachments/siteresources/0708EFCFormulaGuide.pdf

Zero EFC:
Dependent and your household has someone on Federal aid?
Independent and you, your spouse, or your dependents were on Federal aid *and* you have a dependent other than your spouse?

Dependent and your parents have AGI < $20K and they filed 1040EZ/1040A?
Independent, you and your spouse have AGI < $20K, *and* you have a dependent other than your spouse?

"Simplified" EFC (ie, complete asset protection)
Dependent and your parents have AGI < $50K and they filed 1040EZ/1040A?
Independent, you and your spouse have AGI < $50K, *and* you have a dependent other than your spouse, *and* you filed 1040EZ/1040A?

For AGIs above this, the government takes a vig from both assets *and* income. There is an allowance, similar to a tax allowance, to protect a certain amount of both assets and income. The asset protection runs on a sliding scale, based on the ages of parents (for dependent students), and the student themselves (for independents).

Above the allowances for both income and assets, there is a multiplier, which is the percentage of assets taken as vig. Until last year, for dependent and independent students, this was 33%. This year it's dropped to 20%.

Parents of dependent students get their assets stripped at 12%. Dependent and independent students get their previous year's AGI stripped at 50% (!). That's why helpful grandparents (or parents) giving the student "money for college" is a bad idea. By all means do so, but only after the student has graduated.

There's no real magic to this, it's a simple spreadsheet. Don't use the black box approach on the onlnie FAFSA or the websites, just crank up Excel or Google spreadsheet and plug in the numbers yourself. It takes like 10 minutes to set up. If you can learn the damn Krebs Cycle you can do this.

E&OE

 

My EFC, while not as high as yours, was high (like $60k, counting parents' assets), but I was still able to get the $8500 subsidized/$30000 unsubsidized Stafford at all the schools that have given me financial aid packages so far. Does anyone know what the cutoff is for being able to get the unsubsidized Stafford? I just know it's definitely not 0 EFC.

 

Well, the "good" news -- or what passes for good news in the world of medical school financing -- is that it won't actually matter at most schools.

But yes, when I got my financial aid briefing at the one school where it would have mattered, I was sitting there thinking "wow, I should have gone on more ski trips, and more dinners out... oh boy, more clothes shopping! wouldn't have taken very much of that to get me off of Robin Hood's list of victims..."

 

Dude. I understand your point. But come on, financial aid in the form of subsidized interest and grants is intended for those who are less able or unable to pay for medical school otherwise. There is only so much funding available from the government, so it makes sense that this funding is preferentially directed at those with the most need. That is why EFC is calculated in the first place. If you are able to save 2k a month, then do you really consider yourself as having the same need as someone who can barely even sustain their fundamental needs like food and shelter? If you ask me, I think that it is completely fair that those with greatest need are the one's to which the most help should go. Otherwise, there would potentially be a differential accesibility to medical education based on socio-economic status. It is worth noting that one's position in the socio-economic hierarchy is not determined soley by the effort and planning that one puts forth in working managing one's own affairs.

You have worked hard and managed your finances wisely, be proud of that. But you should not really be complaining but so much because even without the maiximum in extra aid you will be coming out ahead compared to some other people. You are not being penalized. Just because someone else is getting more help doesn't mean that you are automatically being penalized by not getting the same thing. I am just glad that there is any assistance available to anyone, at all. Medical school costs what it costs. Would you rather that we all paid the full price without any assistance or subsidies available, or should at least some people be able to get a little help based on need in order to ensure people that would not otherwise be able to make it still have that opportunity?

I have tried to be sympathetic to your concerns, but I just do not agree that you are being penalized. It is almost like you are saying that the government owes you something, just for you being you. You will get the same education and can get loans to pay for it just as anyone else can. If I had 10 million dollars sitting in the bank because I worked hard, was frugal, and invested wisely, do you think I should get the same government need-based grants and subsidies as some single-Mom with two kids raised in poverty and without enough income to even pay for an apartment and food? Am I being penalized because our society has set up assistance for the less fortunate?

I think you have some misunderstanding about what exactly is being expected of you or how exactly EFC is used in determining the types of loans that you are eligible for. No one is going to rob your piggy bank. Just get loans like everyone else does and there will be no problem. Then, when you are finished, you at least have the option of using your piggy bank (and the growth that it has experienced through investments and such) to pay off high-interest loans and save yourself a whole ton of money in re-payments if you so choose, an option that many others will not have. This is where your hard work and wise saving pays off.

 

i might be wrong about this, but probably not - there isn't a limited amount of money. most student loans are packaged into blocks and sold off as bonds by sallie mae, and there will always be a market for these bonds. the government is willing to subsidize farmers, the auto industry, you name it - so it only makes sense that they are willing to invest in the human capital it will take to keep the economy going.

if you have $10M sitting in the bank, you shouldn't ge the same grants as the single mom - you should get much, much more. the amount you've contributed to these programs in the way of taxes, etc, should count for something. this is why not everyone gets the same amt on their social security checks - those who have earned more throughout their career, and thus contributed more to social security, generally get more money back. the financial aid process, the med school application process, and life in general isn't fair.

 

Well, this argument is flawed no matter how you feel about welfare etc., because the government doesn't give grants; the school does. Where that money comes from, I have no idea.

Haemulon's right that the big idea is to equalize opportunity. You're right that a side effect is to penalize responsible non-trads. The short story is that any large program is going to have some unfairnesses to it. I don't know whether this arrangement minimizes those or not. You can't account for every particular situation with bureaucratic rules -- so somebody's going to get screwed.

But mostly, the big point is, at most schools it doesn't matter. Without substantial grant money in play, everybody's going into debt one way or the other.

 

...what about Pell grants? They are government funded...

 

i thought we were talking about subsidized loans or something, but i guess in a way it still makes sense in terms of school based grants. schools give full-ride scholarships to people who may not necessarily need them to get them to come to their school all the time. but yeah, in the end, not too many schools have the endowment to offer aid to everybody, and i think i head somewhere (probably here on sdn) that the tuition most schools charge isn't nearly as much as it costs to educate you, so in a way it's all subsidized.

 

Your right, I think this is the real take home message here.

 

I did not know this. It seems counterintuitive that there is in essence a limitless fund of subsidy, but I am definitely no economist, so you may be right.

Ok. I understand this argument. I still fundamentally disagree with it. But I do respect the logic. However, if you follow this logic, then it really does defeat the whole purpose of aid in so much as it is intended to provide for more equal opportunity. Now of course some people disagree with the idea of trying to level the playing field, but that's the reason for these programs nonetheless. I just don't think falling back on the "who said life was fair" argument is a really productive way of approaching management issues concerning need-based aid. After all, I do not think any one would reasonably argue that the wealthy are entitled to go to school for free (maximum subsidy in essence) and the poor should be required to pay full price of the tuition and expenses (just because they have not paid as much in taxes and such). See how this turns the whole thing into an absurdity?

 

OP: Do NOT convert investments or cash you have earning interest (which should at least be in a mutual fund, money market, CD, or even at HSBC...but that's a different story) to depreciating assets! That's a TERRIBLE idea. I'm not sure what kind of money we're talking about here, but even if it's a fair amount, it probably will make little difference in your overall aid package--and definitely not enough of a difference to justify losing all of that potential investment income.

Keep your money and invest it wisely and conservatively.

 

It's good that you're attending a school with a large endowment. That means more opportunity for grants. Don't worry about having a lot of assets on FAFSA. I played around with one of those EFC one time, and the level of student's assets didn't seem to make THAT big of a difference in it. I think parental income is probably the largest determinant of grant money given.


Kudos for having an HSBC account. I tell EVERYONE about them. Too few people take advantage of it and let their money sit in either an interest-less checking account or a savings account at a bricks and mortar bank earning 0.5% interest.

 

i used to be all about hsbc too, until i found out about ford interest advantage:
http://www.fordcredit.com/interestadvantage
minimum 5.75% apy, sounds good to me; however:

this account is NOT FDIC INSURED. it isn't a bank account, or even a money market mutual fund. you are basically making a loan to ford motor company - like a bond - except you have the daily liquidity of a savings/checking account. realize that if ford goes bankrupt, you lose all of your money.