Too many parents find out after the fact that they could have qualified for financial aid but didn’t. Why? They didn’t know how to properly value their home and rental properties or investment assets.
When it comes to determining eligibility for financial aid, income counts for quite a bit, but your assets are a big part of the formula, too. Now is not the time to allow your ego for a big net worth to get in the way of getting financial aid that you may rightfully be entitled to receive.
Depending on your situation, you may not be able to do much about your income, but your assets can be valued in such a way as to create a new, and perhaps much lower, market value.
This is especially true of the value of your home and other real estate you own– like a rental property or time share. While not all colleges assess the value of your home, they will include the value of any other properties you own. There are formulas you can use to legally reduce the equity in your home and all of your other properties. The proper use of the Federal Housing Index Multiplier Table can make the difference in paying the colleges asking price versus getting a big tuition discount.
You can also refer to a real estate appraisal, tax assessment or a real estate broker’s opinion of value. The key is to consider the value of the property of you had to do a “quick” sale. And don’t forget to factor in the transaction costs and taxes you might be expected to pay to close on that “fire sale.”
This is especially true if you are “land rich/cash poor,” which was precisely the case of a client who came to see me earlier this year. He had a daughter graduating from high school and wanted to know how best to pay for her college. He owned multiple rental properties – some with mortgages and some without. But the bottom lone was that he had lots of equity and cash flow but very little extra cash for college.
His accountant simply told him that the equity was assessed at a certain rate by the financial aid formulas. While true, it was only part of the whole story. By going back and figuring out what the properties were worth compared to tax assessments and the value net of transaction costs in a “fire sale” or “quick sale” approach, he was able to show a lower total asset value which qualified him for more aid.
Don’t make the irrevocable mistake of overvaluing your properties or investment assets. Find out their true value before you fill out any financial aid forms.