Rental Property on the FAFSA has always been an area of contention in my mind.  The manner these assets are listed on the FAFSA can mean the difference of thousands of dollars in financial aid.   For the government to tell you what is and is not a business enterprise that is making money kind of frosts me.  The 2009-10 FAFSA Application and Verification Guide states the following…

At times a student or parent will claim rental property as a business.  Generally, it must be reported as real estate instead. A rental property would have to be part of a formally recognized business to be reported as such, and it usually would provide additional services like regular cleaning, linen, or maid service.

If at all possible, you want to claim real estate as a small business, and therefore qualify for the small business exemption on the FAFSA form.  Here are a few guidelines to follow which make claiming real estate as a business much easier.

1.  Organize under a separate legal entity – Don’t hold rental properties directly in your name and expect them to fly with a financial aid officer.  They should always be organized under a C-corp, S-corp, LLC, or similar entity.  This is by far the most important qualification to be considered a business asset.

2.  The more activity the better – If you just have one piece of property that you rent out, or if you have a vacation cottage on a lake that maybe you rent once or twice during a season; don’t expect that to be considered a business asset.  The more activity you have in real estate the better.  You need to be able to demonstrate substantial levels of material participation and activity.  If you have multiple properties and active participation in managing them, it will strengthen your case.  This is one area where going big and acquiring more assets will help you.

3.  Show associated activity – The following activities showing in your corporation may also indicate more business activity, rather than just rentals:

• Develops or redevelops
• Constructs or reconstructs
• Acquires
• Converts
• Operates or Manages
• Brokers
• Other business activity associated with the property

4.  Other activities – There are other signs or activities which will add weight to listing real estate as a business operation:

• Registering for appropriate state and local permits
• An employer identification number (EIN)
• Fictitious name registration or DBA for the business
• Separate business checking account

These four guidelines will definitely strengthen your hand in getting that small business exclusion on the FAFSA form.  But it is not a black and white standard.  Some schools will let you keep the exclusion, others will not.  My recommendation is when in doubt, list the property as a business.  Make the school take the initiative to prove it otherwise.

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The fall is a great time to visit colleges.  Classes are back in session.  The culture of the campus is very evident.  There’s a lot of activity, energy, and you really get a chance to see what the college is like.  Now is the time to pack up the car or get your tickets and head to the colleges.

There are a few things you always want to make sure you get done on a campus visit:

Take a campus tour.  Although campus tours are typically heavily orchestrated by the admissions department, there is no better way to get a quick overview and feel for the college.

Sit in on a class.  Or two would be even better.  See if you might be able to get in on a lecture in a field that you might be studying while you’re there.  Pay attention to the lecture size and attendance by the students.  Then try to get in on a discussion class to see what the other side of the class structure is like.  If you’re visiting a relatively smaller campus, they probably won’t have the classes segmented into lecture and discussion; so you can go spend more time elsewhere.

Check out the dorms.  You’ll be living there, so you better know what you’re in for.

Take a drive around town.  Get a feel for the surrounding area.  Are there things to do while you’re not studying?

Imagine what the campus will be like year round.  Will there be lots of snow to deal with?  Are the summers scorchers?

Below is a college visit checklist.  Click on the picture to download a copy of it.  Use the “to-do” list to cover your bases.  Find a student, not on the tour, to ask questions of.  Rate your experience so you have solid information to compare this campus against the other colleges you will visit.  This information will be invaluable when it comes time to decide where you will attend or apply to.

You may not be able to get to all of the schools you want to visit.  That’s ok.  In fact, you may want to visit some close by colleges you might not be seriously considering just so you can get a better feel for college in general.  The more colleges you visit, the better decisions you are likely to make.

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It’s the beginning of July.  All the graduation parties are over, and the summer is in full swing.  Now is a time when a lot of soon to be high school seniors and their parents begin thinking about what colleges to look at.  In conversation… on the web forums… I hear over and over again:

• “Is this school prestigious?”
• “Does this school rank high?”
• “What does the US News report say about this school?”
• “How does this school compare to Harvard… Yale… Georgetown… etc?”
• “What’s the toughest school I can get into?”

The genesis of these questions is the perception that a degree from a select group of schools is somehow going to make your life easier.  You’ll earn more money.  You’ll know the right people.  You’ll get a better job upon graduation.  It’s as if there is an ivy fairy who is going to sprinkle gold dust on a graduating student and their whole life is going to change.

Come on… every one knows that if you make it into Harvard, you are far more likely to earn more money.  Right?

I’m going to let you in on a little secret.  Now be careful who you tell this to, because it could start a fight at numerous block parties and soccer games.  It’s not true.  Yep.  It’s not true.  It’s a lie.  It’s that common sense that if far too common, but makes no sense.

The truth was documented several years ago in a study conducted by Alan Krueger, an economist at Princeton, and Stacy Berg Dale, a researcher at the Andrew W. Mellon Foundation.  They published a study in 1999 that proved incredibly controversial, and has been generating heated debates ever since.  So what did they find?  They found out that where a student goes to school does not impact their future success in life.

They studied 1976 students from 34 colleges across the country.  They did find that some students who went to an Ivy League school were more successful in life than those who didn’t.  But the real shocker was they found that students who were accepted to Ivy League schools but chose to go to a less “prestigious” school did just as well if not better than their Ivy League counterparts.  Their conclusion was that it is the student, not the school that dictates the opportunities for success.

This goes right to the heart of a very big problem.  Many students are basing their self-worth on whether or not they get into the right school.  After all the adjustments of adolescence, along comes the college search process.  Grades evaluate them.  Sports evaluates them.  How they do in the talent contest evaluates them.  The acceptance or decline of one particular college has become the referendum on the sum total of the first 18 years of their life.  This is wrong.

We have to get away from this unholy authority that a single college’s decision has upon the value of a student’s life.  Students must understand there is no such thing as the “best” college.  There is only the best colleges for them.  Colleges… plural.  The college search and selection process needs to be fluid and encompassing.  The student should not be expected to make a rifle shot in the bulls-eye at 600 yards.  This is much more like trying to get the right shotgun pattern at 20 yards.

The student’s goal in the college search process is to find one safety school where they are getting in no matter what.  They want four to six match schools where they have a good chance of coming into the school in the top 50% or top 25% of the incoming freshman class.  Then they may want two to three stretch schools; these are the schools where they are not sure they could get in.

The students also need to be comfortable with the idea of going to any of the six to ten schools that they will be applying to.  If they are able to take this kind of an approach to the college search process, then they will be under far less pressure and have much better opportunities for the monies than are available at the colleges to which they apply.  This selection strategy is not just about finding the colleges that feel right, but it is also about positioning your student to minimize their college costs.  Follow this strategy, and you will do far better than most.

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Westwood College has published a great explanation of the typical student’s budget.  If you have ever wanted to know where a student’s money goes, you can check it out here…

Source:  Westwood College

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There were some significant changes in the FAFSA with regards to dependent/independent status of students. This is very important considering independent students are often eligible for much more financial aid than dependent students.

Previously, the FAFSA had a very hard 7 question test to determine whether or not the student was a dependent or independent student.

• Is the student older than 23?
• Is the student working on a graduate level degree?
• Is the student married?
• Does the student have children that they support more than 50%?
• Does the student have other dependents living with them?
• Are the student’s parents deceased, or is the student a ward of the court?
• And finally, is the student a veteran?

The questions were virtually impossible to get around. Although the student may have been a position of recieving no support from their parents, they could not be an independent student unless they could answer “yes” to one of the above questions.

Now let’s look at the new set of qualifying questions FAFSA is using for 2009…

1. Are you older than 23?
2. Are you married?
3. Are you working on a graduate level degree?
4. Are you currently serving in the US Armed Forces other than training?
5. Are you a veteran?
6. Do you have children you support more than 50%?
7. Do you have other dependents you support more than 50%?
8. At any time since you were 13 regardless of present condition… are your parents deceased, or in foster care, or a ward of the court?
9. Are you or were you an emancipated minor as determined by a court?
10. Are you or were you in legal guardianship as determined by a court?
11. At any time on or after July 1, 2008, did your high school or district determine you to be an unaccompanied youth who was homeless?
12. At any time on or after July 1, 2008, did the director of an emergency shelter or federally funded transitional housing program determine you were a unaccompanied, homeless youth?
13. At any time on or after July 1,2008, did the director of a runaway or homeless youth center you to be an unaccompanied youth who was homeless or were self-supporting at risk of being homeless?

If the student can now answer “yes” to any of the above questions, they are considered independent and typically eligible for much more financial aid.

The question that is likely to get a lot of attention from many parents is #9 — Are you an emancipated minor as determined by a court. Over the years, I have had a number of people ask me if it would make any difference if their student was declared emancipated. Previously, the FAFSA had no means of indicating emancipation. Obviously, that has changed. This could mean the potential of thousands of students seeking emancipation.

My concern is what are the hidden ramifications of emancipating a minor. I asked Attorney Elizabeth Cervantes for an opinion. Here is a summary or her comments…

Emancipation in some states is not a cut and dry process. Some states have a defined process, others are vague.

Courts most often will require the minor to show they can support themselves.

Courts typically want to keep the family intact.

Eligibility for additional financial aid may not be a sufficient reason for the court to grant emancipation.

If you are going to investigate emancipation, I highly encourage you to seek professional, legal advice early in the process. You can contact Elizabeth Cervantes at the law firm of Katz, Huntoon & Fieweger in Moline, Illinois at the following email address — ecervantes@katzlawfirm.com

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President Obama in his recently proposed budget is asking for substantial increases to college financial aid. This is not a surprise. There has been a lot of news coverage over the past several months about how student loans are harder to come by, how many loan companies have locked their doors, and how colleges endowments have taken a hit.

While the news coverage painted a picture of fund availability that was far more gloomy than reality; an increase in federal funds was virtually inevitable. Only social security is probably a greater hot button issue than helping students pay for college. So how will these changes affect students on the way to college and those already there? The answer is two-fold…

There will be a substantial increase in funds available to college students. The Perkins loan program has been one of the least expensive methods for student’s to borrow money for years. Many in our industry regard Perkins as perhaps the best type of loan that students can get their hands on. The only problem with the Perkins is its rarity. Hold on to your hat, because the Obama administration wants to increase the Perkins program 6-fold. They have proposed an increase in funding from $1 billion to over $6 billion. The President also wants to increase the number of schools participating in the program from 1,800 to over 4,000. The Perkins loan program just got an incredible shot in the arm.

The President has also asked for a substantial increase to the Pell Grant program. Although numbers are sketchy at this time, expect that increases in Pell resources for the coming year will be some of the largest in the program’s history.

I wouldn’t expect to see these changes for the 2009-10 academic year, but more likely for the 2010-11 academic year. In the short run, these changes will be very welcome help to many students around the country. There is however a downside to this helping hand.

Mark Kantrowitz, publisher of FinAid.org said in a recent interview… “It puts pressure on colleges to start controlling their costs, because if they know the Pell Grants are only going to go up by so much, then it means that they’ll either have to control their costs or find other sources of funding to help the students if the college costs go up even faster.” With all do respect, I have to disagree with my colleague.

Pouring more money into the college funding system does not put downward pressure on controlling college costs. It has the exact opposite effect. Although these increases in available financial aid will help many students’ immediate needs, it will also have a continued inflationary impact on overall college costs. It’s simple economics. If you inject more money into a system to pay for a limited resource (such as college education), you will increase the price of that limited resource.

This, however, is not a new problem in college financing; it’s just exacerbating the same old problem we’ve been dealing with for years. How do we make college costs manageable in a market that rises two to three times faster than the average inflationary rate. You can expect to see another spike in cost of attendance figures in the next 2 – 3 years, and I and CFS will continue to find ways to mitigate those increases.

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Unfortunately, our economy is necessitating more and more people appeal their students financial awards in the middle of the year. Being laid off or having a cut in your pay is an all too real problem which is making paying for college even more difficult.

CNBC and Christopher Penn of FinancialAidPodcast.com provide some excellent information for families in just such a situation. Check out this video…

Kathy Klavon brought up an excellent question on our Real College Savings discussion group on Facebook…

“I am looking for objective opinions on the importance of sending kids to university for thier prereqs vs. Jr College — finances vs away from home college experience”

Here is our response…

“Kathy brings up a topic that I am asked about very often. Does it make sense to send a child to a less expensive Jr. College for the first two years, and then send them on to the 4 yr college or university?

First off, you need to have a strategic approach to the schools that your students will apply to. I always recommend that students apply to at least 6 – 10 different colleges or universities. One of those schools should always be a safety school. The community colleges are always great safety schools. So CC’s should be part of the mix your student applies to.

When you receive the financial awards back from the colleges (which is typically in March or April of their Sr. year), then you can judge apples to apples and see if it makes economic sense to go the CC route, or head straight to the 4 yr college.

Don’t be afraid that the CC might be detrimental to their job prospects. No one cares what school you started at. They only see what school you graduated from.

A couple downsides are possible. Some colleges and universities will provide more money to freshman students over transfer students, but you can probably appeal this if you have a student the school wants. And sometimes it can be difficult to transfer CC credits to other schools. You’ll want to work with those schools your student wants to terminate at to ensure your picking the right classes.”

If you would like to join the discussion, join Facebook.com then join the Real College Savings discussion group here.

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In this edition…

• Explanation of the Stafford Loans
• Getting the All Powerful PIN
• Tips on selecting colleges

Stafford Loans

Stafford Loans are the most common form of college financial aid. If you complete the FAFSA (acts as the Stafford Loan application), your student is virtually guaranteed to receive one of the two types of Stafford Loans. Dependent students can borrow the following under the Stafford program…

• Freshmen: $5,500
• Sophomores: $6,500
• Juniors: $7,500
• Seniors: $7,500

Independent students can borrow the following under the Stafford program…

• Freshmen: $9,500
• Sophomores: $10,500
• Juniors: $11,500
• Seniors: $11,500

Stafford loans are divided into two types: subsidized and unsubsidized. The Department of Education determines which of these loans you will receive based upon the information on your FAFSA.

Subsidized Staffords are no interest and no payments while your student is in college. Interest rates on subsidized Staffords are based upon the year the money is disbursed as follows:

• July 1st 2008: 6.0%
• July 1st 2009: 5.6%
• July 1st 2010: 4.5%
• July 1st 2011: 3.4%

Unsubsidized Staffords are no payments while your student is in college, but interest accumulates. The current interest rate for the unsubsidized Stafford is 6.8%.

Both Stafford loans require repayment 6 months after graduation, after leaving school, or after dropping below half-time student status.

The All-Powerful PIN

Filing your FAFSA online is the only way we at CFS would recommend it be done. In order to sign your FAFSA electronically, both the student and one of the parent’s need to have a FAFSA PIN (personal identification number). Check out the video below for more information.

[youtube=http://www.youtube.com/watch?v=iy2sAtNaJ-g&hl=en&fs=1]

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The High School Senior Christmas shopping list

Your student doesn’t want to have money in their name in January when you file their financial aid forms. Students do not have an asset protection allowance. Every dollar they have in their name is going to increase their expected family contribution.

Therefore buy what they need for college in the fall for their Christmas presents, and use their money doing it.

Here is their Holiday shopping list.

The Gizmo’s and Gadget’s

The Computer (let’s start with the really fun one): if your student does not yet have a computer of their own, or the one they do have is outdated; you should certainly consider this as the “A” #1 gift. Consider a multimedia computer with a TV tuner card. You can kill a lot of birds with one stone here. Not only will a multimedia machine act as their computer, but it will also be their TV, their DVD player, their TV recorder, and their stereo. It is truly the Jack of all appliances. And it makes for a great entertainment system for the very few hours they will not spend studying.

A laptop is preferred. There isn’t much room in a dorm room, so you don’t want to take up precious space with a big desktop unit. Besides, they’ll want to be able to take the computer to the library, or class, or home.

If you don’t want to send your student out the door with one do it all machine like above, here are the minimum requirements for a student computer (considering Microsoft Vista is now standard): <
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v Processor: AMD Turion, Intel Core Duo (minimum 1ghz speed)

v Memory: at least 1GB (I would recommend 2GB or even 4GB; more memory is often the single most important factor to computer performance)

v Hard Drive: at least 100GB

v Disk Drive: DVD+RW

v Wireless and wired networking equipped

v Operating system: Windows Vista Home or Apple MAC OS X (ten)

v Software: Microsoft Office 2007 Home & Student edition

Standard computers would include:

v Dell Studio S1535 (I am on my second Dell laptop and love their customer service)

v HP dv4 (Two of our desktop machines are HP and we’ve had great success with them)

v Apple MacBook

More capable multimedia machines would include:

v Apple MacBook Pro

v Dell XPS

v Alienware Area 51m17x (the gold standard of super horsepower gaming machines)

v HP Pavillion dv7

v Acer Aspire 8920

I’d recommend checking out www.cnet.com for reviews and information on computer comparisons.

The Printer: although many schools and professors are now allowing students to submit papers in electronic format, this is far from being the norm. So, your student is going to need someway to print off that earth-shattering report on Machiavelli. Printers are dirt cheap today compared to what you got yesterday. You can often pick up a good printer/scanner/copier for less than $150 or even $100

Surge protector: protect the investment you just made.

Phone: I grew up in a telephone family — literally. My family has been in the telephone business since before there was copper wire; so what I am about to say would have been heresy at my family’s Thanksgiving dinner a few years ago. Go get your student a prepaid wireless phone. Don’t bother with the hard wired phones anymore. Phones can double as MP3 players as well.

A digital voice recorder for class lectures: skip the old tape recorder — your student will likely download the recording to their computer anyway. If you bought a good phone, the phone may double for a voice recorder as well.

Digital camera: they’ll want to preserve the rest of their high school year and college. www.cnet.com has excellent reviews of digital cameras. You can get one heck of a good camera for little money these days.

Other a
ppliances:

If you didn’t go the multimedia computer route, then your student is going to want these as well —

· TV – small LCD TV’s are very reasonable now

· DVD player

· Portable Stereo or iPod dock

v Coffee Maker – they can’t be a Starbucks all the time

v Microwave – if you check out www.sears.com, you’ll find quite a few small microwaves for under $100

v Refrigerator – you can get several dorm-sized refrigerators for under $100 as well

v Art – Most college art isn’t much more than posters on the wall

For around the dorm room

v Kitchen type tools: bowl, cup, glasses, can/bottle opener, etc.

v Desk Lamp

v Alarm clock (one with a really loud and annoying alarm — they’ll need it)

v Bulletin board and dry-erase calendar board

v A small toolkit (I do not suggest the Craftsman, rolling tool chest; a small bag will do)

v Bed linens & Bedding

HAPPY SHOPPING!

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The Maximizing Money for College Workshop is upcoming in Rockford, and the Student Goals & Passions Workshop is upcoming in Davenport!

Our next Goals & Passions Workshop will be on Saturday, November 22nd in Davenport at the CFS Building at 3011 N Harrison Street. It will start at 10am and finish at 2:30pm. We’ll order in pizza for lunch. Please call our office to make reservations before noon on Friday, November 21st.

There is some great advice available for prospective college students available on the web. Here are two videos I thought were worth you and your student’s time. The first video is advice from students for students. The second is… well… umm… be careful what you ask a Ninja.

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