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#43155 - 04/23/08 04:57 PM taking the money out of the 529
BOBBY-B Offline
Visitor

Registered: 04/23/08
Posts: 5
I am non custodustial parent. son going to college in NYC (freshman) in a couple of months. Total cost approx $55,000.00/annum. he has 45% of tuition covered with grants. the other 55% the college is offering loans (Perkins - $2,400.00, Stafford - $3,500.00) to my son and (PLUS LOAN - $21,000.00) to his mom.
I have just about enough in the 529 to pay for what is not covered by grants but would like to try and stretch this out because I have a feeling the kid is going to want to go to Grad School and I would like the money to remain in the 529 account as long as possible earning interest so that something might be left for that if/when it happens.

How do I work it out to accomplish the following:

1) I assume I would have my Ex wife refuse the PLUS loan of $21,000.00 as that seems to be one of these loans you have to start paying back right away. I might as well just pay that money to the school from the 529. That seems logical. Correct?

2) I would want my son to take both the Perkins and the Stafford loans. I understand the clock does not start ticking until the stuent graduates after four years. I am assuming approx $25,000.00 for the 4 years. How do I arrange it so that I just pay off the $25,000.00 in one shot when my son graduates.

3) My son will need to buy a Mac that will cost in the $3,000.00 range. It is not stipulated in any manual or brochure from the University that he must buy this. But if he does not he will be the only student in the entire school that does not have one. Therefore it is a necessity. How do I cover this expense thru the 529? Is this a problem? They sell them at the School's bookstore. Does a receipt from the School bookstore help me?

4) My son will need approx $4,000.00/annum in extra expense money to survive in NYC. How do I get this money into my son's hands from the 529?

If anyone can help me pls reply. Thanks.

Best Rgds,
Bobby-B

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#43159 - 04/23/08 10:14 PM Re: taking the money out of the 529 [Re: BOBBY-B]
itstoomuch Offline
Member

Registered: 01/01/06
Posts: 969
Loc: salem, OR
Concepts:
1. Student Loans are based on Academic Year; Freshman, Sophomore, Jun, Sen. Senior-5th year.
2. 529 Expenses are based on Calendar Year.
3. Paying for college expenses using 529 can be done up to Mar 31 of the following year (Oregon)
4. Colleges do not necessarily recognize where the money is coming from, as long as the bill is paid. Likewise, Colleges cannot distinquish who's pocketif there is excess money in the student's account. The college will refund to the student, and the student only.
5. Some one (or everyone) in the family must contribute a small amount out-of-pocket beyond the loans, grants, scholarships. Doesn't need to be much.

I am going to let these concepts stew a bit so that everybody can digest them.


Edited by itstoomuch (04/23/08 10:15 PM)

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#43161 - 04/23/08 11:15 PM Re: taking the money out of the 529 [Re: itstoomuch]
Drew Offline
Member

Registered: 01/09/00
Posts: 2987
Loc: Easton, PA, USA
I do not know what your child support order says about college but I'd not rush to assume I'm better off to have Mom not take a loan. Further, in next years aid application, if Mom didn't take the Plus Loan if the aid types are even 1/2 smart they wonder about her source of funds and might decrease the grant portion of award--Its hard to divine just what flows thru minds of aid types---

Personally I'd worry about grad school later--both my kids sorted out how to have employers pick up about the full tabs for very expensive graduate programs and the tax code may have some wrinkles if its job related and one takes a job first.

You are underestimating the delay feature of Perkins and Stafford loans--the clock doesn't start ticking until they stop being a full time student---and my kids carried enough credits in graduate school to count as full time even though they worked full time---plus some career choices result in loan forgivness (which for some quirky reason is not imputed income either).

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#43177 - 04/25/08 09:19 AM Re: taking the money out of the 529 [Re: itstoomuch]
BOBBY-B Offline
Visitor

Registered: 04/23/08
Posts: 5
Itstoomuch/Drew:

Can I use the 529 to pay off the PLUS LOAN if my exwife takes it out? She will never be able to pay it back on her own. Not even close. Honestly I dont even know if she will even qualify to get it. But if she does get it can I pay it back for her using the 529? I am not expecting my ex wife to pay for anything, that is not what this is about. I guess if I worked in a financial aid office I would also look twice at a student who got grants and then did not need the PLUS LOAN.

Drew. Are you saying that I if we over-pay the school by a few thousand dollars then they will immediatley refund the difference to my son and then he can use that money toward incidentals expenses for the year?

Thanks for clarification on the Perkins and Stafford loans. Interesting.

Bobby-B

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#43178 - 04/25/08 11:44 AM Re: taking the money out of the 529 [Re: BOBBY-B]
bwilk Offline
Member

Registered: 05/14/01
Posts: 3345
Loc: AZ
Loans aren't qualified expenses for 529 distributions. The underlying expenses covered by the loan are. What this means is that you can't use the 529 qualified withdrawals to pay loan payments in future years, but you can take 529 distributions and pay off the loan if you have qualifying expenses during the same year. It really is a game of semantics to me, but for example if she takes out the $21000 PLUS loan this year to pay for tuition and you take out $21000 from a 529 and pay off the loan, then you are really saying that the tuition was the expense and not the loan. As someone else hear has said, loans are simply cash flow tools.

Many of those loans are also deferred for up to 3 more years if active military service follows college. I went to Officer Candidate School for the Navy after college and got this 3 year deferral. Loans I took out my freshman year were interest free for 7 years.


Edited by bwilk (04/25/08 11:46 AM)
Edit Reason: addl post

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#43180 - 04/25/08 01:50 PM Re: taking the money out of the 529 [Re: bwilk]
Drew Offline
Member

Registered: 01/09/00
Posts: 2987
Loc: Easton, PA, USA
If Mom supported her to apply to a very high cost NYC institution (Columbia?) ---most aid offers and acceptances take into account the parental ability to pay--in fact high end schools get quite protective about capture ratios--so it they wanted to keep capture ratios up they would not make offers which the applying parent could not afford.(OK, so Columbia doesn't use FAFSA but a private formula)

If Mom was offered Plus Loans as part of the package I don't know why you are quick to assume to jump into middle.

If student has selected a very high cost school from which very few graduates actually make a decent living--I'd not rush to support same beyond my legal obligations. EG some colleges for fashion, arts, or music

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#43181 - 04/25/08 01:58 PM Re: taking the money out of the 529 [Re: Drew]
Drew Offline
Member

Registered: 01/09/00
Posts: 2987
Loc: Easton, PA, USA
As a practical matter if you direct a distribution of 529 to the institution or student who pays her own qualified eduactional expenses and make sure the correct 1099Q is issued you need not get involved in what Mom does or does not do. With the possible exception of if you both pay her qualified expenses there could be some debate as to how to count same for any tax issues under 529s .

And if you are under some child support order which includes college or support to 21 (common in NY or NJ) then be sure to sort out making sure that the support to college you pay to college or to kid for college counts as CS--because ordinarily it does NOT count that way.

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#43183 - 04/25/08 05:01 PM Re: taking the money out of the 529 [Re: Drew]
BOBBY-B Offline
Visitor

Registered: 04/23/08
Posts: 5
Not Columbia (FAFSA only school)
There is no court order. I was actually awarded custody some years ago but my son prefered living with his mom so eventually that is what happened. I gladly support my kid even though there does not exist any official child support payments etc. For many years have just handed it over regularly. And the years go by... But none of that is an issue.

I dont know how the college decides how much to give or not give. I only know that My ex made almost nothing last year holding down two jobs and there is no way on earth she could ever take out $22,000.00 per year in loans for 4 years and ever pay that back. She lives pay check to pay check as it is now and just about makes the car payment. This year she will only work one job (NY social worker pays crappy)so will make even less.

Question. As non custodial parent can I be the one who takes out the PLUS LOAN?

I am just nervous that if we dont take any loans then next year the school wont give the grants. Is that really a chance?

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#43186 - 04/26/08 01:03 AM Re: taking the money out of the 529 [Re: BOBBY-B]
Drew Offline
Member

Registered: 01/09/00
Posts: 2987
Loc: Easton, PA, USA
I repeat--there seems to be something wrong --if Mom earns next to nothing and Mom is defacto with whom he lives as Mom's dependent and Mom properly filled out the FAFSA with her data then that methodology pretty much spits out a figure which is the parental (Moms) ability to pay --and most public sector schools which use FAFSA pretty much use that canned number as the golden rule. Places like Yale, Penn, Harvard have pretty much gone to a no loan approach for low and even manymoderate income parent situations--and that may mean up to 100K a year. If Mom didn't get the FAFSA and aid right I'd press her to get it refiled/amended before I jumped to take up the slack.

I have no way of divining if some clerk in aid office will pick up on mom not using Plus loans and wonder where the "hidden" money came from--folks may range. Then again even if they do--Mom may be able to explain it away.

Me, I'd be inclined to let the aid package stand for now and bring any of my support into play at a later date. If Mom has very limited ability to pay I remain unconvinced that Mom should not be reapplying to get it more inline with her actual ability to pay.

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#43187 - 04/26/08 01:09 AM Re: taking the money out of the 529 [Re: Drew]
Drew Offline
Member

Registered: 01/09/00
Posts: 2987
Loc: Easton, PA, USA
While you may have custody for legal purposes that is not a logical or required answer for FAFSA purposes: from one popular guide--"If your parents are separated or divorced, the custodial parent is responsible for filling out the Free Application for Federal Student Aid (FAFSA). The custodial parent is the parent with whom you lived the most during the past 12 months. Note that this is not necessarily the same as the parent who has legal custody."

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