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Jamison Pack, founder of LEXOR Financial, was my Special Guest on Open house with Dena this past Saturday, and he shared valuable information about How Home Ownership affects your ability to Qualify for College Financial Aid.
Jamison explained that he specializes in the late-stage area of college funding for parents who are right on the edge of facing the high costs of sending their kids to college. So this is especially important for parents of high-schoolers. The reason he focuses on this particular stage is simple-there's a huge need for it. Because there really isn't anywhere for parents to turn in regards to how to minimize their costs when paying for college, and there are so many mistakes and costly assumptions parents make, year after year, because they simply are not well-educated on this process.
According to Jamison, it's pretty commonly known that, in general, parents do a terrible job of saving for their kids' college. Actually parents on average right now save only 1%-5% of their annual income, and that's not just for college, that's college, retirement, and any other financial goals they may have. And to make that worse, between public and private colleges, the average COA is rising around 6.5% per year. So not only do parents struggle in saving for college, but it's difficult to even keep up with the rising costs each year with the money that they are saving.
There are a lot of facts parents need to know before they make decisions. Lexor Financial Strategies offers free presentations, either at high schools, offices, churches or other similar locations. The title of the presentation is College & Retirement-You Can Do Both!
Another alearming statistic is that the percentage of parents who are borrowing from their retirement accounts to pay for their kids' college costs has actually doubled since last year. So obviously parents need help, and our presentations go over how parents can literally minimize their out-of-pocket costs, not jeopardize their retirement, and still achieve what they were wanting in helping their child pay for school.
One costly assumption parents sometimes make is that they don't believe they'll qualify for financial aid because there home is worth too much, or they have too much home equity. So it's important for people to know, first of all, if their assumption is correct, and two, how this might affect their aid eligibility. How Home Ownership affects qualification all depends on the type of school your child is applying for, because there are differences on how aid eligibility is determined depending on the type of school.
There are two types of methodologies that determine aid eligibility-the federal methodology, which most state schools use, and the institutional methodology, which most private schools use. Private schools are a bit more stringent on the financial information they want to know about the family, such as your home's worth and your equity, but the state and public schools that use the federal methodology do not even ask what your home is worth nor how much equity you have. However, just because private schools ask more questions and may have a higher sticker price, doesn't mean your family should only look at state schools, and here's why:
typically your average private school does a much better job in their financial award package than a state school, so it's important to know the school's financial award history before you apply. And we also share how to find out that information in our free presentations.
Jamison gave an example of an average, middle-income family, their financial situation, and explain to you how home ownership can actually improve their situation, not hinder, if done correctly. And it doesn't matter if they choose a public or private school. In this family you have the mother and father whom are both 49 years old, and make a combined income of $85k. They have one son who is a junior in high school. They also have money in savings, checking, CD's, and money market accounts, which totals $76k. The reason he grouped those together is because all those assets will be counted on both the federal and institutional methodologies, and may reduce aid eligibility. This family also has $250k in their 401k's, but qualified retirement accounts are not included in the assets line for either methodology.
Also important to consider is debt. Now as far as debt goes, this family has a mortgage balance of $50k, and their home is valued at around $150k, so they have $100k in equity. They also have $15k in consumer debt, being an auto loan and credit card balance. However parents are often surprised with the fact that consumer debt, generally, will not help them in aid eligibility. So no matter how much credit card debt, auto loans, boat loans, whatever, that's not going to help their situation in getting aid? At this family's present position, Jamison calculated what each methodology would determine the amount of money this family is expected to contribute each year their child is in college. This number is called the Expected Family Contribution, or EFC as it's commonly called. So for state schools, this family is looking at an EFC of around $18k per year. With private schools, about $26k per year.
However, there are some strategies that Jamisoncan show his clients to help reduce their EFC and increase their aid eligibility. He explained that every family is different, so what he might suggest to one family may be very different to the next.
In this particular example, Jamison would suggest repositioning some of the family'sassets which would lower this family's EFC for state schools from $18k/yr to $16,500, so that's $1,500/yr in potential savings, $6k over four years. For private schools it's an even bigger dip, from $26k/yr to $22k, a potential $4k/yr savings, $16k over four years. The important point is that by moving that money can drop how much they might have to pay each year.
As for home ownership, when it comes to consumer debt, Jamison might suggest debt consolidation, like a refinance or a Home Equity Line of Credit, or HELOC as it's commonly called. If this family simply pays off all its consumer debt from a HELOC, they increase available monthly cashflow by around $600! Because they were paying $450/mo to their auto loan and $200/mo on their credit card. The monthly cost of the HELOC is around $76/mo if they pay it back with principal. Now they probably would want to do if they choose a state school because home equity doesn't hurt them. However, they may just want to pay the interest only and keep that balance on the home equity if their child attends a private school, which is only a monthly payment of $53!
And remember, interest that you pay on your home loans is tax deductible, so you would normally factor those savings as well. But right there this family now has an extra $574 to $597/mo. to go towards college, retirement, or whatever is needed.
Now here's where it gets even better. If the family chooses a private school, they may put that HELOC to even more use, because right now they still have about $85k in equity that's reducing their aid eligibility. For many parents, borrowing is going to be a substantial part of the equation, and a properly-structured HELOC can be a good place to borrow from. Understand they only want to borrow what they need because any amounts they borrow that they're just going to stick into a savings account won't help their situation at all.
But let's say this family needs to borrow $25k from somewhere to pay that first year's total cost. Well if we add that to the balance of the HELOC, this drops this family's EFC from $22k/yr to $19k. So simply by repositioning some assets, debt consolidation and knowing where to borrow, this family is saving a potential $7k/yr, while increasing their monthly spendable cashflow to close to $600.
Lexor Financial Strategies has another offer: Because they are licensed with a national company called SAGE Scholars, each family attending their presentations receives a free scholarship valued at $500 to participating schools, and any of the children whom are sophomores in high school or younger are eligible. Free scholarship. So really, what more could you ask for?
The next upcoming presentations are Tuesday Oct. 5, and the next Tues. Oct. 12th, both beginning at 6:45pm at the Lexor Financial Strategies office here in Morristown. Seating is limited to 12 people per night so be sure and reserve your seats for you and your spouse! To reserve seating and to find out our office address, you can either go to our website at www.lexorcollegefunding.com, or call, and the number is 423-289-7472. If you're a parent of a high-schooler, from anywhere in the Lakeway area, you do not want to wait and miss this valuable information, because remember there are deadlines coming up very soon, so you don't want to miss something that may save you thousands of dollars!
Dena Helms Real Estate Broker Re/Max Real Estate Ten 525 West Morris Blvd. Morristown TN 37813 423-581-8881 423-312-1247
This work is an ongoing dialogue concerning the Real Estate Market and Community Events in Morristown Tennessee from the perspective of Broker and Radio Show Host, Dena Helms of Re/Max Real Estate Ten.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.