Mike Kueber's Blog

October 25, 2013

Pell grants and means testing revisited

Filed under: Education,Issues,Politics — Mike Kueber @ 6:49 pm
Tags: , ,

I have previously written about government means testing in general and Pell grants in specific.

The essence of my post on college-related Pell grants was as follows:

  • According to an article provided by U.S. News – “Those with EFCs (expected family contributions) above $4,041 will be disqualified for Pell grants. Almost all Pell grants go to students whose families have incomes of less than $50,000 a year.”
  • Presumptive GOP presidential nominee Mitt Romney has suggested that the federal government seems to be concerned only about the rich (cared for by the GOP) and the poor (cared for by the Dems), whereas the middle class is neglected.
  • Although I think Romney is right, I am also willing to make an exception in this case because there are few things as important in this country as encouraging motivated poor kids to go to college.  And because the federal government doesn’t have unlimited amounts of money (in fact, it has no money), a cut-off for Pell Grants has to be somewhere, and perhaps $50k is the appropriate cut-off.  Personally, I think the cut-off is a bit low, and if I were in Congress, I would push for Pell Grants to kids with parents making up to $100k a year.

The essence of my post on means testing was as follows:

  • When digging deeper into the federal government’s calculation of expected family contribution (EFC), I learned that (1) the government considers “resources” to be not just income, but also assets; and (2) assets do not include home equity or retirement accounts.
  • Calculations that consider assets in addition to income unfairly penalize someone (like me) for being thrifty.
  • Calculations that exclude home equity from assets unfairly penalize someone (like me) who chooses to live in a rental.

Obtaining access to the precise formula used by the federal government in calculating financial aid is extremely difficult.  In fact, for several months the government website has been saying that the 2013-14 formula is “coming soon.  Based on the ObamaCare roll-out, I am not holding my breath.  But I have been able to find the formula that was used last year, and although it is extremely difficult to understand, I believe it provides the following:

  • Each year, parents are expected to contribute a percentage of their income over $17k.  The sliding-scale contribution amounts to an $8k contribution on the next $30k of income, and 47% of any income over that.  It’s easy to see why this government formula results in people with incomes over $50k “being on your own.”
  • Each year, parents are expected to contribute 12% of their non-home assets toward their child’s college education.  That means that almost half of your lifetime savings will be depleted even if your kid is able to graduate in four years.  The government allows you to not count your first $20k of assets.

Looks like I’m on my own unless I park my savings into some sort of home equity or retirement account.