Jack Wang [00:00:00]:
I know some schools that use the CSS formulas where they'll go depending on how badly they want the student. I've seen some schools will say, well, if we really want the student, we'll cap the equity one times income. But if we accept the student, but the student really isn't a priority, we'll go two times income. Right. I've seen stuff like that too. Again, I'm not going to tell you who does that, but I've actually heard it firsthand. Welcome to the Smart College Buyer podcast. My mission is to help high school families pay for college without taking on a truckload of debt episode.
Jack Wang [00:00:32]:
I'll share insights into college admissions, financial aid, payment strategies, and more often with expert guests. I'm Jack Wang, your host. I started helping families after struggling to navigate the process myself. For my son, if I needed help, I knew others did too. Let's dive in. Welcome back to this episode of the Smart College Buyer podcast. As always, I'm your host, Jack Wang. So this is the second part of a two parter series where I take a deep dive into the financial aid formula so you can better understand what colleges are looking at and how they make adjustments and calculate ultimately how much they think you can afford.
Jack Wang [00:01:12]:
So the first part of this episode I did a deep dive into the FAFSA formula. So we talked about what counts, what doesn't count, when does it count, and some of the nuances of the adjustments and deductions and things like that that the FAFSA formula makes. So today I'm going to talk about the CSS or the CSS profile formula and same type of things and really talk about the key differences between the CSS and the fafsa. Now for those of you who may not know, the CSS profile form is the second form that some schools around the country, colleges use to determine the amount of financial aid that your student may or may not receive. These schools tend to be the Ivy Leagues, the near Ivy Leagues. So these are the big national names that are quite considered Ivy Leagues. So this would be things like Northwestern, Stanford, MIT, Boston College, Duke. Right.
Jack Wang [00:02:07]:
Vanderbilt, things like that. Right. So names that pretty much everybody would know but you know, are largely viewed as, let's say just outside the Ivy League. But it's not just private schools. There are a couple of public Ivies that are included. University of Michigan, Ann Arbor, University of Virginia, Charlottesville, University of North Carolina, Chapel Hill, and most recently University of Wisconsin, Madison. Those are all public schools, but they also use the CSS profile form. Now at the Highest level, the CSS profile form conceptually looks at the same things.
Jack Wang [00:02:49]:
It looks at income and assets. The timeline is the same income from prior, prior year or two year. Look back assets, the day that you're filling out the form. Right. But underneath that very simple explanation, there are many, many, many differences that we're going to talk about. But again, I have to caution you, just like on the last episode, if you're watching this podcast expecting to hear like, the secret code or the secret sequence or how many jumping jacks you have to do in order to get a ton of aid so your kid can go to college for free, again, that is not how it works here. I mean, that would be awesome if it did, but that is not how it works here. If you want to know how college aid is really given out, then go to my episode on how college aid actually works.
Jack Wang [00:03:39]:
Again, that's not true of every school, but that's largely kind of how the system works. And you get a better idea of what colleges are actually looking for when they determine who gets what it kind of aid and how much. So let's get into the CSS and we'll start at income. All right, so again, at the most basic level, it starts out the same way. Adjusted gross income and adding in, you know, which includes like dividend income, interest income, you know, business or rental income, etc. Etc. Like pension rollovers, whatever. Largely the same way, but just from an income standpoint, there are some adjustments that CSS schools can make.
Jack Wang [00:04:17]:
And by the way, I should mention that there is a base CSS formula. Okay? So when schools use the fafsa, the FAFSA is very black and white. When you send your FAFSA information to all different schools, they all get the same SAI number, Student aid index number. Now, what they do with it might be different, right? That's up to each school, but they all start with the same basic number. In the CSS world, that's not so true, because in the CSS world, first thing is they calculate what's called the family contribution or fc. But that family contribution can be very different from school to school, depending on what the school does or doesn't do in the base formula. So I'm going to talk about the base formula and then talk about some of the adjustments that different schools can make. So that's why you might see send the CSS profile form with the same exact information to two different schools, but they come back with wildly different financial aid offers.
Jack Wang [00:05:18]:
It does happen. Sorry about that little detour. But let's kind of go back to income. So in the base formula, what schools can do is they can add back losses. Now what do I mean by that? Well, if you're self employed or if you, let's say have a business or you have like rental income and working with your tax person or cpa, you can take, you can deduct a lot of things or do or take like a bigger depreciation expense or something. So if you're familiar with an accounting term, you know what that is. If you're not familiar with accounting term, depreciation is really, it's a non cash expense. You don't pay money out for it.
Jack Wang [00:06:00]:
But it's a, it's an expense to help you lower income, to lower your taxes. But a lot of those things that you can do for tax reasons that aren't real losses in the CSS world, schools can add those back. So for tax purposes you might have a really low income and owe little to no tax or get a big refund. But for CSS purposes your income might be a lot higher. And schools have tremendous leeway to either add back all of those losses or expenses or add back only part of it. You know, and I've seen situations where depending on why you took those losses, if it was sort of connected to your main source of income income, then they would sort of allow those losses because you know, you needed that, let's say equipment or car or tractor or whatever to, to generate the income that you did right to have work. But any sort of investment losses like like depreciation tied to like, like rental real estate, those are generally get added back. Some schools again add all of it back.
Jack Wang [00:07:03]:
Some schools only add part of it back. So it can really vary. But your income for financial aid purposes might look very different than your income for tax purposes. Now that one doesn't affect everybody because I said largely it's like business owners, self employed people, you know, people who invest in like rental real estate or other types of investments that are designed to generate a lot of tax losses. But one thing that does impact a lot more people is retirement plan contributions through your work. So again in the FAFSA world I talked about in the last episode that if you contribute to your employer retirement plan like a 401k or 403 and you do it through your paycheck, right, the amount of your total 401k or 403 contribution shows up on your W2 but that contribution amount is not actually on your tax return. So the FAFSA doesn't pick that up because it's not on the tax return. Well, in the CSS world you have to report how much you contributed to those workplace retirement plans, right? 401k, 403b.
Jack Wang [00:08:12]:
But also any other pre tax contributions such as your flex savings account. So flex savings accounts are typically used for either like medical expenses or dependent care expenses or even contributions to a health savings account. The thinking there is that hey, you earned the money but you chose to put it over there, right? You can always undo that choice. You can say, well, I don't want to contribute to my retirement account, right? So then you would sort of get that money in your paycheck or I don't want to contribute to a flex savings account or something because I don't have any medical expenses or whatever. Okay, well then you get that money in the paycheck back, right? But the point is you still earn the money. It was still part of your pay, but you chose to put in those different places. So you have to manually report how much you put into those accounts each year and that is added back to your income for CSS purposes, even though you did not necessarily see it in your take home income or, or what ended up hitting your checking account after you got paid. So those are some of the major income adjustments, right? But now like the fafsa, there are also deductions, if you will, or what we call allowances.
Jack Wang [00:09:26]:
So in the FAFSA world there's what's called an income protection allowance based on the size, you know, the size of your family. There's also that in the CSS world actually works very, very similarly. Okay, the amounts aren't exactly the same, but they work very similarly. But there are also allowances for things like if you have a younger child that goes to private, private school, private K through 12 schools can, again, they don't have to, but they can deduct up to a certain amount of that private school tuition that you pay and deduct it from your wages, even medical expenses or dental expenses. There's an allowance for that. So each year you, they know that you're probably going to have to go to the doctor a couple times and get a prescription or go get a checkup at the dentist or something. It's probably going to cost you something. There's automatically sort of a built in allowance for those expenses, which by the way, the private school and the medical allowance are not in the FAFSA formula.
Jack Wang [00:10:26]:
You can ask for those via appeal, but they're not a base part of that formula. Other things. For example, there's what's called an education savings allowance. So if you have multiple children and you have one or more child children, child under 18, and you know, there's an allowance for you to be saving for their future college education, it's not a huge number, but, but that's like a small deduction. Okay. So there are these other deductions out of income that don't exist in the FAFSA world that can help you bring down income in the CSS world. Now, in the FAFSA world, and you may see this out on the Internet, but oftentimes people say, well, your income is assessed at anywhere between 22 and 47% for financial aid. The CSS world works similarly.
Jack Wang [00:11:23]:
It's the, the base range is between 19 and 51. Right. Depending on your, how high your income is after these adjustments. Okay. And again, as always, schools can choose to use all these adjustments, none of these adjustments or some of the adjustments, whatever. So that's why again, every school ends up doing something differently. Now I'm going to get to sort of what happens with multiple children a little bit later. But that's really the income thing.
Jack Wang [00:11:49]:
So there are these adjustments that schools can make. On the asset side now, there are many similarities. So bank accounts, non retirement investment accounts, you know, brokerage accounts, things like that, those all count. And like on the fafsa, the intent does not matter, the liquidity does not matter, things like that. So if you can't sell something right away because it's, you know, there's a vesting period or whatever it, you know, or you don't want to sell it because grandma lives in that second home that you own, all those same rules apply. But in the CSS world, now in the FAFSA world, the assets are assessed at anywhere between 0 and 5.64%. In the CSS world, it's 0, up to 5% for parents. And instead of 20% for students in the FAFSA, it is 25% for students in the CSS world.
Jack Wang [00:12:43]:
But in the CSS world, there is, there are some asset allowances. And so in the prior episode, I mentioned that there used to be something called the asset protection allowance, which is based on the age of the older parent. In the CSS world, there's something called an emergency reserve allowance, which is not based on the age of the parent, it's based on the family size. So, you know, it's not saying that this asset doesn't count, but a certain amount of value right so if you have like $100,000 in countable assets, you know, up to a certain dollar amount just flat out just doesn't count. Okay? So it's a little bit more generous in the CSS form because you have that allowance. And there's also something called a cumulative education savings allowance. So basically, if you have younger children, right, and you're saving for college for those younger children, then there's a certain amount of money that the base formula says, okay, you're allowed to have up to this amount saved for college. So we will not count in the asset formula.
Jack Wang [00:13:47]:
So that's another savings allowance, if you will. Again, some schools use it, some schools don't. Some schools use it part of the way, et cetera, et cetera. 529s. This is another adjustment on 529s. So in the FAFSA world, only the 529, where the student is the student on the FAFSA who is the beneficiary is the only 529 that you have to report, assuming it's owned by the student or the parent. In the CSS world, you have to report all of the owned 529s by the student or by the parent. So that means if you have three kids in all right, the oldest one is the one sort of on the form, and you have younger, two younger kids, and you have 529 for the benefit of those two younger kids, you have to report that as well.
Jack Wang [00:14:34]:
Okay? That's part of your assets. So that's a difference. As far as student assets go, one key difference is, again, on the fafsa, you're only looking at, you know, the bank account that's in the name of the student, or we talked about the whole, like, utma, UGMA situation. On the css, you are also required to report accounts that are in the names of the other children in the household. So again, if you have three kids, again, the oldest ones the subject of the form, and the younger two each have their own savings account with like $1,000 in it, you have to report those as well. Right? The CSS tries to take a look at the entire family overall. All right? So those are some of the major differences. Now, one of the key, key key areas of difference on the CSS versus the FAFSA is the value of the equity in your primary residence.
Jack Wang [00:15:37]:
So basically, how much your house is worth, the house that you live in, minus whatever the mortgage balance is. And so one of the things that is asked on the CSS profile form is. The form asks you, you know, assuming you own your own home is what year did you buy it and how much did you pay for it, right? What was the purchase price? What year did you buy? The reason for that is because schools have tremendous leeway in trying to figure out how much your house is worth today. Some schools will just take whatever value report, right? So if you report your Zillow value, right, like value off a 0, Zillow or Redfin or something like that, then you can do that. The base formula says that you cannot use your tax assessment value. But some schools actually know that do allow you to do that if that's there. But many other schools will impute a value. And what they do, they essentially project out of value.
Jack Wang [00:16:35]:
And what they do is they'll say, okay, well if you buy your house in the year 2000 for this amount of money, there's something called the, the federal home price index. And you can, and you can look up in your, like in your area since you know, the year 2000, home prices on average have increased by x percent from then till now. So they take that increase and they apply it to your purchase price and that's how much they think your home value worth, right? And then they recalculate the amount of equity you have in your house off of that projected value. Now that could mean that your house, you have way more equity in your house in the calculation than what you think you actually have. All right, so that does happen. Okay. But again, schools are free to do anything. So anyone, those methodologies.
Jack Wang [00:17:31]:
And then on top of that, schools sometimes will cap how much equity you have. That will count in the formula and they'll typically cap it at a multiple of your income. So common sort of multiples are 1.0 or 1 times income, 1.2, 2.0, 2.4. Those are the typical multipliers. But remember what I said earlier about the adjustments in income and adding back losses and adding back like 401k contributions and things like that. Well, that has an impact on these multipliers, right? So you might have a million dollars of equity in your house, right? And the school, you somehow find out from the school that they cap the amount of equity at one times your income, right. That they're going to use in the asset calculation. So you're thinking, well, if my, if my income is 100,000 dol and they cap it at 1 times income, then only $100,000 of my million dollars in equity is going to count for the css Purposes, you're thinking, okay, that's not too bad.
Jack Wang [00:18:37]:
All right, it's not great, but it's definitely not terrible. It's a lot better than counting the whole thing. But if your income's $100,000 because you had taken all these deductions or losses on your tax return and Your income's really $500,000, adding all these things back, or. Or it's really a lot higher because you contribute a lot of money to your 401k. So now your adjusted income is really $500,000. Right. Adding back those losses. And they're saying, okay, yeah, we're going to take one times your income.
Jack Wang [00:19:07]:
Now that means that they're going to take $500,000, your equity, when you thought that all along they were only going to use $100,000 a year equity. Right. So that's where there's a lot of interplay between these. And again, schools can use different things. And I've seen schools, again, I'm not going to out anybody, but I know some schools that use the CSS formulas where they'll go depending on how badly they want the student. I've seen some schools will say, well, if we really want the student, we'll cap the equity 1.1 times income. But if we accept the student, but the student really isn't a priority, we'll go two times income. Right.
Jack Wang [00:19:46]:
I've seen stuff like that, too. Again, I'm not going to tell you who does that, but I've actually heard it firsthand. So a lot of times, you know, people, you know, that's one. This is one of the major differences in the CSS formula versus the fafsa. People are like, yeah, your value of your house counts, but it's not always what people think. Or, you know, you might have just refinanced and borrowed out all the equity. And you might think, well, I have no equity in my house. But when they project out the value of your house using the home price index, you might have hundreds of thousands of dollars in equity that you don't think you actually have, but then get used in the CSS formula.
Jack Wang [00:20:21]:
So again, there's all these variations. The other thing that this base CSS formula does, and again this is up to each school, is unlike the fafsa, the base CSS formula will give you an adjustment based on the number of students you have in college simultaneously. Now, the FAFSA used to do this. Up until a couple years ago, the FAFSA used to take what was then called efc or expected family contribution, now called SAI Student aid index. They used to take whatever that number is calculated and if you had two kids in college simultaneously, they would take the then EFC and divide it by the number of kids in college. Right? So EFC divided by two for two kids in college and each individual student would be assigned that EFC for then the colleges that the students went to to then calculate aid off of that. Right? But that dividing thing now in the FAFSA formula isn't there anymore, but it still is in the base formula. But it's not a straight, like if you have two kids in college, it's not a straight take your family contribution, divide by two.
Jack Wang [00:21:32]:
When you have two kids in college, it's a 60, 60 split instead of divide by two which would be a 50, 50 split. So the CSS formula recognizes that if you have two kids for college, you are going to end up paying a little bit more, sort of in a practical sense. So it kind of reflects that if you have three in college, you know, so if you took something divide by three, it'd be right, 33, 33, 33 or a third, a third, a third in the CSS formula, it's really 45, 45, 45 and so on and so forth. So you do get, you know, people used to call this like a multi kid discount. It's really not a discount, but it did make your chances of getting aid a little bit higher. And that's what. And so that still exists in the CSS formula. So those are sort of the major, major differences between the CSS formula and the FAFSA formula.
Jack Wang [00:22:24]:
But the CSS form itself goes on. So it'll ask you questions like what do you project? You know, so what do you project your current income to be? Right, Your income in the current year, what do you project that to be? And so schools sometimes will use that income to calculate aid versus that prior prior year income. Again, schools can choose to do whatever they want. The form also asks like what does the student think they might earn? Like the summer in between graduating high school and going off to college? Or what the student might earn thinking about if they get a part time job while they're at the college, gifts or payments on behalf of the student by other outside family members, like grandparents paying for college or withdrawing out of a grandparent owned 529. That counts as income in the CSS world, even though it did not count as income in the FAFSA world. Okay, that's called an untaxed benefit, child support Again, in the FAFSA world is treated as an asset. In the CSS world, child support received is considered income. Remember, income, income weighs more heavily than assets, right? So that is a significant difference.
Jack Wang [00:23:41]:
But the one thing about the CSS form that does not exist on the FAFSA form is each school used in the CSS form can ask optional questions, right? And you don't know these until you get to the very end of the form. So optional, like I've seen optional questions like are the parents or the students the beneficiary of a trust, like an overseas trust that you haven't otherwise disclosed? The schools, I've seen schools ask, what kind of car do you drive? What year is it? What's the value and how'd you pay for it? Because one of the things, if you remember from the css, the, the prior video, personal property is not considered an asset. Okay? So you, you can own a Ferrari as long as you, you have the Ferrari for personal use. You know, the 3, 400. I don't know how much Ferraris go for these days, but however much money you put into that Ferrari, that's not considered an asset. But some schools have caught onto the fact that people, people say like, hey, I have a lot of money in my checking account right now, so in order to get it down, I'll go buy a car. And because cars aren't considered an asset and oh, by the way, it might have needed a new car anyway. So there are some schools, actually there are quite a few schools, I ask you, like, what kind of car do you drive? What year is it? How did you pay for it? Things like that.
Jack Wang [00:25:01]:
They will also ask you how much of your assets actually is in 529. Because on the forms you don't, you know, it just asks you about the assets, but doesn't ask you, like, is this like rental real estate or is this like a 529 or whatever? Like it just asks you like for the total amount of reportable assets. So some schools will separately ask you for how much are in 529s. Other slight differences. Other, different. Well, I don't know how slight there are, but other differences. For example, non qualified annuities, you know, so non qualified being not already in an IRA account, you know, those were not reportable for fafsa, but they are reportable for the css. The CSS also asks you about retirement account balances, whereas the FAFSA did not.
Jack Wang [00:25:51]:
Now keep in mind how much that's already in your IRAs or 401s and things like that in those retirement accounts is not part of the formula. They're not considered assets. But the CSS still asks you to report those. And the way that I've seen schools use it is, let's say you make a financial appeal because let's say your income dropped. And so you're saying, hey, my income dropped because something happened at work or whatever. So we're really poor now. But then if that college sees that, okay, yeah, you're saying that you're poor now, but you have $5 million sitting in your retirement account. They're going to say like, yeah, you know what? You're not so poor.
Jack Wang [00:26:30]:
So again, the retirement account balances don't count in the base formula, but I have seen them sort of being used as part of appeals. So those are sort of the major differences between the CSS formula and the FAFSA formula. Now, there is sort of this third sort of category. And what I mean by this is that schools can and do change between one formula and the other. So University of Vermont is a recent example of where they were FAFSA for a long time. They actually switched the CSS for a year and then switched back to fafsa. Why they did it is completely beyond me, but that's what happened. But there are some schools that made the switch.
Jack Wang [00:27:14]:
But. And, but they said, but, you know, we kind of like some of the information on the css, but we're just not going to make our families fill out the entire form. So I call these FAFSA plus schools. That's not the official name, but that's what I call them. So a lot of these schools were CSS in the past. They made the switch to FAFSA only, but then the school itself might have a supplemental form. So the school itself might ask you about the value of your house and your mortgage. Right.
Jack Wang [00:27:42]:
So they do the home equity calculation. They might ask you about other 529s. Right. So some of the things on a CSS form they would want, but not everything. So there are a number of schools out there that do that as well. So it's not a. You're either this or you're that. You can be somewhere between.
Jack Wang [00:28:03]:
But again, the hardest part about this is that schools that use the CSS have tremendous leeway in terms of what they count, what they don't count. You know, some schools will, like if you have another child in college already getting sort of, that's, you know, the 60, 60 break for multiple kids. But they might further Deduct how much you're paying for college out of pocket to the other college, you know, to send your other kid there. Other schools use like a standard figure. Like, hey, if your other kids at a four year public, instead of, you know, deducting the actual cost, they have like a standard figure for that that they deduct or they might not deduct anything at all. It really kind of varies by school, so there are little nuances like that. So while again, the FAFSA is very black and white, the CSS is very much shades of gray. So now, having gone through all this, what does this even mean? Right? Oh, and by the way, I totally, totally forgot, probably should put this beginning.
Jack Wang [00:29:03]:
But you know, how both formulas handle divorce situations is very different. So I have another episode on divorce and financial aid. So if you're, if you are divorcing or already divorced and you want to know sort of who files and who files what and the differences between how these two formulas look at it, go to that other episode about divorce and financial aid and talk about all the details there. But again, so we're getting back to like, all right, now you know more detail about the intricacies of the CSS and the fafsa. Like, so what, like what do you do with this? Well, you can do nothing with it. I mean, just sort of nice to know you can wow your friends with this trivia knowledge. But you could also base where your student applies to college on what formula they use. So depending on your specific circumstances at home, right, Your financial circumstances at home, you might favor a school that only the only uses the fafsa.
Jack Wang [00:30:05]:
Or you might favor a school that uses css. So for example, like if you have multiple kids who are going to be in college simultaneously, you might pick a school that uses the css, but they still, because they still account for multiple kids going to college simultaneously, whereas the FAFSA does not. If you have significant, let's say, medical costs that you had to incur because someone got into an accident or something else happened, you might favor CSS or your kids in private school, right? You're paying for private school tuition. Again, you might favor css, but if you don't have any of those things, but let's say you have income, but you have owned your house for a long time. So and housing prices in your area have just absolutely shot through the roof like many parts of the United States, right? So now your income maybe didn't change that much, right? You don't maybe, you don't maybe look rich from an income standpoint, but you have like this multimillion dollar house now because housing prices shot through the roof. Well, if that's your situation, you might want to go on fafsa, right? Because again, the CSS world, home equity counts and not every school caps the amount of equity that's considered. You have there's so many schools that treat home equity as sort of unliMITed or no liMIT on the, you know, no cap on how much of that home equity value they would consider. So if you're in that situation, you might want to go FAFSA only.
Jack Wang [00:31:32]:
So I know that's not how people typically build their college list, right? Because that's not how the entire industry is set up. Right. With guidance counselors and college admissions counselors. But that may be something that you might want to do. And if you actually want to learn more about sort of the different players and who provides what help and you know, and what they do and what they don't do. I have an episode on that. Sort of the different players that are involved in the college planning process, it kind of breaks down sort of who does what. Right.
Jack Wang [00:32:03]:
Because a lot of times families will either not think about the financial aspect first or they kind of expect like their high school guidance counselor to think about for them. But I can guarantee you. Well, maybe guarantee is too strong word, but I can pretty much assure you that that is not the case. Most guidance counselors I've run into, they want to know about financial aid, but they really don't do anything with it because it is not their job to help you pay for college. Right. Their job is to help your kid get into college, which is a totally different question, totally different answer. So again, you may want to think about these up front as you're building the college list. So with that, I hope that you learned a lot through this little two part series taking a deep dive into the financial aid formula, the fafsa, the css.
Jack Wang [00:32:50]:
As always, I hope you find this knowledge useful and at a minimum, you can now go wow your friends with this newfound trivia knowledge. So stay safe, stay healthy and I'll see you next time. Thanks for listening to the Smart College Buyer podcast. I hope you found the information useful for your family. Follow me on LinkedIn for more episodes, videos and tips. The link is in the show notes. Remember, you can spend time now to plan and strategize or you can spend more money later. Success in college admissions and financial aid isn't about luck.
Jack Wang [00:33:25]:
It's about being intentional. I'm here to help you every step of the way.
I know some schools that use the CSS formulas where they'll go depending on how badly they want the student. I've seen some schools will say, well, if we really want the student, we'll cap the equity one times income. But if we accept the student, but the student really isn't a priority, we'll go two times income. Right. I've seen stuff like that too. Again, I'm not going to tell you who does that, but I've actually heard it firsthand. Welcome to the Smart College Buyer podcast. My mission is to help high school families pay for college without taking on a truckload of debt episode.
Jack Wang [00:00:32]:
I'll share insights into college admissions, financial aid, payment strategies, and more often with expert guests. I'm Jack Wang, your host. I started helping families after struggling to navigate the process myself. For my son, if I needed help, I knew others did too. Let's dive in. Welcome back to this episode of the Smart College Buyer podcast. As always, I'm your host, Jack Wang. So this is the second part of a two parter series where I take a deep dive into the financial aid formula so you can better understand what colleges are looking at and how they make adjustments and calculate ultimately how much they think you can afford.
Jack Wang [00:01:12]:
So the first part of this episode I did a deep dive into the FAFSA formula. So we talked about what counts, what doesn't count, when does it count, and some of the nuances of the adjustments and deductions and things like that that the FAFSA formula makes. So today I'm going to talk about the CSS or the CSS profile formula and same type of things and really talk about the key differences between the CSS and the fafsa. Now for those of you who may not know, the CSS profile form is the second form that some schools around the country, colleges use to determine the amount of financial aid that your student may or may not receive. These schools tend to be the Ivy Leagues, the near Ivy Leagues. So these are the big national names that are quite considered Ivy Leagues. So this would be things like Northwestern, Stanford, MIT, Boston College, Duke. Right.
Jack Wang [00:02:07]:
Vanderbilt, things like that. Right. So names that pretty much everybody would know but you know, are largely viewed as, let's say just outside the Ivy League. But it's not just private schools. There are a couple of public Ivies that are included. University of Michigan, Ann Arbor, University of Virginia, Charlottesville, University of North Carolina, Chapel Hill, and most recently University of Wisconsin, Madison. Those are all public schools, but they also use the CSS profile form. Now at the Highest level, the CSS profile form conceptually looks at the same things.
Jack Wang [00:02:49]:
It looks at income and assets. The timeline is the same income from prior, prior year or two year. Look back assets, the day that you're filling out the form. Right. But underneath that very simple explanation, there are many, many, many differences that we're going to talk about. But again, I have to caution you, just like on the last episode, if you're watching this podcast expecting to hear like, the secret code or the secret sequence or how many jumping jacks you have to do in order to get a ton of aid so your kid can go to college for free, again, that is not how it works here. I mean, that would be awesome if it did, but that is not how it works here. If you want to know how college aid is really given out, then go to my episode on how college aid actually works.
Jack Wang [00:03:39]:
Again, that's not true of every school, but that's largely kind of how the system works. And you get a better idea of what colleges are actually looking for when they determine who gets what it kind of aid and how much. So let's get into the CSS and we'll start at income. All right, so again, at the most basic level, it starts out the same way. Adjusted gross income and adding in, you know, which includes like dividend income, interest income, you know, business or rental income, etc. Etc. Like pension rollovers, whatever. Largely the same way, but just from an income standpoint, there are some adjustments that CSS schools can make.
Jack Wang [00:04:17]:
And by the way, I should mention that there is a base CSS formula. Okay? So when schools use the fafsa, the FAFSA is very black and white. When you send your FAFSA information to all different schools, they all get the same SAI number, Student aid index number. Now, what they do with it might be different, right? That's up to each school, but they all start with the same basic number. In the CSS world, that's not so true, because in the CSS world, first thing is they calculate what's called the family contribution or fc. But that family contribution can be very different from school to school, depending on what the school does or doesn't do in the base formula. So I'm going to talk about the base formula and then talk about some of the adjustments that different schools can make. So that's why you might see send the CSS profile form with the same exact information to two different schools, but they come back with wildly different financial aid offers.
Jack Wang [00:05:18]:
It does happen. Sorry about that little detour. But let's kind of go back to income. So in the base formula, what schools can do is they can add back losses. Now what do I mean by that? Well, if you're self employed or if you, let's say have a business or you have like rental income and working with your tax person or cpa, you can take, you can deduct a lot of things or do or take like a bigger depreciation expense or something. So if you're familiar with an accounting term, you know what that is. If you're not familiar with accounting term, depreciation is really, it's a non cash expense. You don't pay money out for it.
Jack Wang [00:06:00]:
But it's a, it's an expense to help you lower income, to lower your taxes. But a lot of those things that you can do for tax reasons that aren't real losses in the CSS world, schools can add those back. So for tax purposes you might have a really low income and owe little to no tax or get a big refund. But for CSS purposes your income might be a lot higher. And schools have tremendous leeway to either add back all of those losses or expenses or add back only part of it. You know, and I've seen situations where depending on why you took those losses, if it was sort of connected to your main source of income income, then they would sort of allow those losses because you know, you needed that, let's say equipment or car or tractor or whatever to, to generate the income that you did right to have work. But any sort of investment losses like like depreciation tied to like, like rental real estate, those are generally get added back. Some schools again add all of it back.
Jack Wang [00:07:03]:
Some schools only add part of it back. So it can really vary. But your income for financial aid purposes might look very different than your income for tax purposes. Now that one doesn't affect everybody because I said largely it's like business owners, self employed people, you know, people who invest in like rental real estate or other types of investments that are designed to generate a lot of tax losses. But one thing that does impact a lot more people is retirement plan contributions through your work. So again in the FAFSA world I talked about in the last episode that if you contribute to your employer retirement plan like a 401k or 403 and you do it through your paycheck, right, the amount of your total 401k or 403 contribution shows up on your W2 but that contribution amount is not actually on your tax return. So the FAFSA doesn't pick that up because it's not on the tax return. Well, in the CSS world you have to report how much you contributed to those workplace retirement plans, right? 401k, 403b.
Jack Wang [00:08:12]:
But also any other pre tax contributions such as your flex savings account. So flex savings accounts are typically used for either like medical expenses or dependent care expenses or even contributions to a health savings account. The thinking there is that hey, you earned the money but you chose to put it over there, right? You can always undo that choice. You can say, well, I don't want to contribute to my retirement account, right? So then you would sort of get that money in your paycheck or I don't want to contribute to a flex savings account or something because I don't have any medical expenses or whatever. Okay, well then you get that money in the paycheck back, right? But the point is you still earn the money. It was still part of your pay, but you chose to put in those different places. So you have to manually report how much you put into those accounts each year and that is added back to your income for CSS purposes, even though you did not necessarily see it in your take home income or, or what ended up hitting your checking account after you got paid. So those are some of the major income adjustments, right? But now like the fafsa, there are also deductions, if you will, or what we call allowances.
Jack Wang [00:09:26]:
So in the FAFSA world there's what's called an income protection allowance based on the size, you know, the size of your family. There's also that in the CSS world actually works very, very similarly. Okay, the amounts aren't exactly the same, but they work very similarly. But there are also allowances for things like if you have a younger child that goes to private, private school, private K through 12 schools can, again, they don't have to, but they can deduct up to a certain amount of that private school tuition that you pay and deduct it from your wages, even medical expenses or dental expenses. There's an allowance for that. So each year you, they know that you're probably going to have to go to the doctor a couple times and get a prescription or go get a checkup at the dentist or something. It's probably going to cost you something. There's automatically sort of a built in allowance for those expenses, which by the way, the private school and the medical allowance are not in the FAFSA formula.
Jack Wang [00:10:26]:
You can ask for those via appeal, but they're not a base part of that formula. Other things. For example, there's what's called an education savings allowance. So if you have multiple children and you have one or more child children, child under 18, and you know, there's an allowance for you to be saving for their future college education, it's not a huge number, but, but that's like a small deduction. Okay. So there are these other deductions out of income that don't exist in the FAFSA world that can help you bring down income in the CSS world. Now, in the FAFSA world, and you may see this out on the Internet, but oftentimes people say, well, your income is assessed at anywhere between 22 and 47% for financial aid. The CSS world works similarly.
Jack Wang [00:11:23]:
It's the, the base range is between 19 and 51. Right. Depending on your, how high your income is after these adjustments. Okay. And again, as always, schools can choose to use all these adjustments, none of these adjustments or some of the adjustments, whatever. So that's why again, every school ends up doing something differently. Now I'm going to get to sort of what happens with multiple children a little bit later. But that's really the income thing.
Jack Wang [00:11:49]:
So there are these adjustments that schools can make. On the asset side now, there are many similarities. So bank accounts, non retirement investment accounts, you know, brokerage accounts, things like that, those all count. And like on the fafsa, the intent does not matter, the liquidity does not matter, things like that. So if you can't sell something right away because it's, you know, there's a vesting period or whatever it, you know, or you don't want to sell it because grandma lives in that second home that you own, all those same rules apply. But in the CSS world, now in the FAFSA world, the assets are assessed at anywhere between 0 and 5.64%. In the CSS world, it's 0, up to 5% for parents. And instead of 20% for students in the FAFSA, it is 25% for students in the CSS world.
Jack Wang [00:12:43]:
But in the CSS world, there is, there are some asset allowances. And so in the prior episode, I mentioned that there used to be something called the asset protection allowance, which is based on the age of the older parent. In the CSS world, there's something called an emergency reserve allowance, which is not based on the age of the parent, it's based on the family size. So, you know, it's not saying that this asset doesn't count, but a certain amount of value right so if you have like $100,000 in countable assets, you know, up to a certain dollar amount just flat out just doesn't count. Okay? So it's a little bit more generous in the CSS form because you have that allowance. And there's also something called a cumulative education savings allowance. So basically, if you have younger children, right, and you're saving for college for those younger children, then there's a certain amount of money that the base formula says, okay, you're allowed to have up to this amount saved for college. So we will not count in the asset formula.
Jack Wang [00:13:47]:
So that's another savings allowance, if you will. Again, some schools use it, some schools don't. Some schools use it part of the way, et cetera, et cetera. 529s. This is another adjustment on 529s. So in the FAFSA world, only the 529, where the student is the student on the FAFSA who is the beneficiary is the only 529 that you have to report, assuming it's owned by the student or the parent. In the CSS world, you have to report all of the owned 529s by the student or by the parent. So that means if you have three kids in all right, the oldest one is the one sort of on the form, and you have younger, two younger kids, and you have 529 for the benefit of those two younger kids, you have to report that as well.
Jack Wang [00:14:34]:
Okay? That's part of your assets. So that's a difference. As far as student assets go, one key difference is, again, on the fafsa, you're only looking at, you know, the bank account that's in the name of the student, or we talked about the whole, like, utma, UGMA situation. On the css, you are also required to report accounts that are in the names of the other children in the household. So again, if you have three kids, again, the oldest ones the subject of the form, and the younger two each have their own savings account with like $1,000 in it, you have to report those as well. Right? The CSS tries to take a look at the entire family overall. All right? So those are some of the major differences. Now, one of the key, key key areas of difference on the CSS versus the FAFSA is the value of the equity in your primary residence.
Jack Wang [00:15:37]:
So basically, how much your house is worth, the house that you live in, minus whatever the mortgage balance is. And so one of the things that is asked on the CSS profile form is. The form asks you, you know, assuming you own your own home is what year did you buy it and how much did you pay for it, right? What was the purchase price? What year did you buy? The reason for that is because schools have tremendous leeway in trying to figure out how much your house is worth today. Some schools will just take whatever value report, right? So if you report your Zillow value, right, like value off a 0, Zillow or Redfin or something like that, then you can do that. The base formula says that you cannot use your tax assessment value. But some schools actually know that do allow you to do that if that's there. But many other schools will impute a value. And what they do, they essentially project out of value.
Jack Wang [00:16:35]:
And what they do is they'll say, okay, well if you buy your house in the year 2000 for this amount of money, there's something called the, the federal home price index. And you can, and you can look up in your, like in your area since you know, the year 2000, home prices on average have increased by x percent from then till now. So they take that increase and they apply it to your purchase price and that's how much they think your home value worth, right? And then they recalculate the amount of equity you have in your house off of that projected value. Now that could mean that your house, you have way more equity in your house in the calculation than what you think you actually have. All right, so that does happen. Okay. But again, schools are free to do anything. So anyone, those methodologies.
Jack Wang [00:17:31]:
And then on top of that, schools sometimes will cap how much equity you have. That will count in the formula and they'll typically cap it at a multiple of your income. So common sort of multiples are 1.0 or 1 times income, 1.2, 2.0, 2.4. Those are the typical multipliers. But remember what I said earlier about the adjustments in income and adding back losses and adding back like 401k contributions and things like that. Well, that has an impact on these multipliers, right? So you might have a million dollars of equity in your house, right? And the school, you somehow find out from the school that they cap the amount of equity at one times your income, right. That they're going to use in the asset calculation. So you're thinking, well, if my, if my income is 100,000 dol and they cap it at 1 times income, then only $100,000 of my million dollars in equity is going to count for the css Purposes, you're thinking, okay, that's not too bad.
Jack Wang [00:18:37]:
All right, it's not great, but it's definitely not terrible. It's a lot better than counting the whole thing. But if your income's $100,000 because you had taken all these deductions or losses on your tax return and Your income's really $500,000, adding all these things back, or. Or it's really a lot higher because you contribute a lot of money to your 401k. So now your adjusted income is really $500,000. Right. Adding back those losses. And they're saying, okay, yeah, we're going to take one times your income.
Jack Wang [00:19:07]:
Now that means that they're going to take $500,000, your equity, when you thought that all along they were only going to use $100,000 a year equity. Right. So that's where there's a lot of interplay between these. And again, schools can use different things. And I've seen schools, again, I'm not going to out anybody, but I know some schools that use the CSS formulas where they'll go depending on how badly they want the student. I've seen some schools will say, well, if we really want the student, we'll cap the equity 1.1 times income. But if we accept the student, but the student really isn't a priority, we'll go two times income. Right.
Jack Wang [00:19:46]:
I've seen stuff like that, too. Again, I'm not going to tell you who does that, but I've actually heard it firsthand. So a lot of times, you know, people, you know, that's one. This is one of the major differences in the CSS formula versus the fafsa. People are like, yeah, your value of your house counts, but it's not always what people think. Or, you know, you might have just refinanced and borrowed out all the equity. And you might think, well, I have no equity in my house. But when they project out the value of your house using the home price index, you might have hundreds of thousands of dollars in equity that you don't think you actually have, but then get used in the CSS formula.
Jack Wang [00:20:21]:
So again, there's all these variations. The other thing that this base CSS formula does, and again this is up to each school, is unlike the fafsa, the base CSS formula will give you an adjustment based on the number of students you have in college simultaneously. Now, the FAFSA used to do this. Up until a couple years ago, the FAFSA used to take what was then called efc or expected family contribution, now called SAI Student aid index. They used to take whatever that number is calculated and if you had two kids in college simultaneously, they would take the then EFC and divide it by the number of kids in college. Right? So EFC divided by two for two kids in college and each individual student would be assigned that EFC for then the colleges that the students went to to then calculate aid off of that. Right? But that dividing thing now in the FAFSA formula isn't there anymore, but it still is in the base formula. But it's not a straight, like if you have two kids in college, it's not a straight take your family contribution, divide by two.
Jack Wang [00:21:32]:
When you have two kids in college, it's a 60, 60 split instead of divide by two which would be a 50, 50 split. So the CSS formula recognizes that if you have two kids for college, you are going to end up paying a little bit more, sort of in a practical sense. So it kind of reflects that if you have three in college, you know, so if you took something divide by three, it'd be right, 33, 33, 33 or a third, a third, a third in the CSS formula, it's really 45, 45, 45 and so on and so forth. So you do get, you know, people used to call this like a multi kid discount. It's really not a discount, but it did make your chances of getting aid a little bit higher. And that's what. And so that still exists in the CSS formula. So those are sort of the major, major differences between the CSS formula and the FAFSA formula.
Jack Wang [00:22:24]:
But the CSS form itself goes on. So it'll ask you questions like what do you project? You know, so what do you project your current income to be? Right, Your income in the current year, what do you project that to be? And so schools sometimes will use that income to calculate aid versus that prior prior year income. Again, schools can choose to do whatever they want. The form also asks like what does the student think they might earn? Like the summer in between graduating high school and going off to college? Or what the student might earn thinking about if they get a part time job while they're at the college, gifts or payments on behalf of the student by other outside family members, like grandparents paying for college or withdrawing out of a grandparent owned 529. That counts as income in the CSS world, even though it did not count as income in the FAFSA world. Okay, that's called an untaxed benefit, child support Again, in the FAFSA world is treated as an asset. In the CSS world, child support received is considered income. Remember, income, income weighs more heavily than assets, right? So that is a significant difference.
Jack Wang [00:23:41]:
But the one thing about the CSS form that does not exist on the FAFSA form is each school used in the CSS form can ask optional questions, right? And you don't know these until you get to the very end of the form. So optional, like I've seen optional questions like are the parents or the students the beneficiary of a trust, like an overseas trust that you haven't otherwise disclosed? The schools, I've seen schools ask, what kind of car do you drive? What year is it? What's the value and how'd you pay for it? Because one of the things, if you remember from the css, the, the prior video, personal property is not considered an asset. Okay? So you, you can own a Ferrari as long as you, you have the Ferrari for personal use. You know, the 3, 400. I don't know how much Ferraris go for these days, but however much money you put into that Ferrari, that's not considered an asset. But some schools have caught onto the fact that people, people say like, hey, I have a lot of money in my checking account right now, so in order to get it down, I'll go buy a car. And because cars aren't considered an asset and oh, by the way, it might have needed a new car anyway. So there are some schools, actually there are quite a few schools, I ask you, like, what kind of car do you drive? What year is it? How did you pay for it? Things like that.
Jack Wang [00:25:01]:
They will also ask you how much of your assets actually is in 529. Because on the forms you don't, you know, it just asks you about the assets, but doesn't ask you, like, is this like rental real estate or is this like a 529 or whatever? Like it just asks you like for the total amount of reportable assets. So some schools will separately ask you for how much are in 529s. Other slight differences. Other, different. Well, I don't know how slight there are, but other differences. For example, non qualified annuities, you know, so non qualified being not already in an IRA account, you know, those were not reportable for fafsa, but they are reportable for the css. The CSS also asks you about retirement account balances, whereas the FAFSA did not.
Jack Wang [00:25:51]:
Now keep in mind how much that's already in your IRAs or 401s and things like that in those retirement accounts is not part of the formula. They're not considered assets. But the CSS still asks you to report those. And the way that I've seen schools use it is, let's say you make a financial appeal because let's say your income dropped. And so you're saying, hey, my income dropped because something happened at work or whatever. So we're really poor now. But then if that college sees that, okay, yeah, you're saying that you're poor now, but you have $5 million sitting in your retirement account. They're going to say like, yeah, you know what? You're not so poor.
Jack Wang [00:26:30]:
So again, the retirement account balances don't count in the base formula, but I have seen them sort of being used as part of appeals. So those are sort of the major differences between the CSS formula and the FAFSA formula. Now, there is sort of this third sort of category. And what I mean by this is that schools can and do change between one formula and the other. So University of Vermont is a recent example of where they were FAFSA for a long time. They actually switched the CSS for a year and then switched back to fafsa. Why they did it is completely beyond me, but that's what happened. But there are some schools that made the switch.
Jack Wang [00:27:14]:
But. And, but they said, but, you know, we kind of like some of the information on the css, but we're just not going to make our families fill out the entire form. So I call these FAFSA plus schools. That's not the official name, but that's what I call them. So a lot of these schools were CSS in the past. They made the switch to FAFSA only, but then the school itself might have a supplemental form. So the school itself might ask you about the value of your house and your mortgage. Right.
Jack Wang [00:27:42]:
So they do the home equity calculation. They might ask you about other 529s. Right. So some of the things on a CSS form they would want, but not everything. So there are a number of schools out there that do that as well. So it's not a. You're either this or you're that. You can be somewhere between.
Jack Wang [00:28:03]:
But again, the hardest part about this is that schools that use the CSS have tremendous leeway in terms of what they count, what they don't count. You know, some schools will, like if you have another child in college already getting sort of, that's, you know, the 60, 60 break for multiple kids. But they might further Deduct how much you're paying for college out of pocket to the other college, you know, to send your other kid there. Other schools use like a standard figure. Like, hey, if your other kids at a four year public, instead of, you know, deducting the actual cost, they have like a standard figure for that that they deduct or they might not deduct anything at all. It really kind of varies by school, so there are little nuances like that. So while again, the FAFSA is very black and white, the CSS is very much shades of gray. So now, having gone through all this, what does this even mean? Right? Oh, and by the way, I totally, totally forgot, probably should put this beginning.
Jack Wang [00:29:03]:
But you know, how both formulas handle divorce situations is very different. So I have another episode on divorce and financial aid. So if you're, if you are divorcing or already divorced and you want to know sort of who files and who files what and the differences between how these two formulas look at it, go to that other episode about divorce and financial aid and talk about all the details there. But again, so we're getting back to like, all right, now you know more detail about the intricacies of the CSS and the fafsa. Like, so what, like what do you do with this? Well, you can do nothing with it. I mean, just sort of nice to know you can wow your friends with this trivia knowledge. But you could also base where your student applies to college on what formula they use. So depending on your specific circumstances at home, right, Your financial circumstances at home, you might favor a school that only the only uses the fafsa.
Jack Wang [00:30:05]:
Or you might favor a school that uses css. So for example, like if you have multiple kids who are going to be in college simultaneously, you might pick a school that uses the css, but they still, because they still account for multiple kids going to college simultaneously, whereas the FAFSA does not. If you have significant, let's say, medical costs that you had to incur because someone got into an accident or something else happened, you might favor CSS or your kids in private school, right? You're paying for private school tuition. Again, you might favor css, but if you don't have any of those things, but let's say you have income, but you have owned your house for a long time. So and housing prices in your area have just absolutely shot through the roof like many parts of the United States, right? So now your income maybe didn't change that much, right? You don't maybe, you don't maybe look rich from an income standpoint, but you have like this multimillion dollar house now because housing prices shot through the roof. Well, if that's your situation, you might want to go on fafsa, right? Because again, the CSS world, home equity counts and not every school caps the amount of equity that's considered. You have there's so many schools that treat home equity as sort of unliMITed or no liMIT on the, you know, no cap on how much of that home equity value they would consider. So if you're in that situation, you might want to go FAFSA only.
Jack Wang [00:31:32]:
So I know that's not how people typically build their college list, right? Because that's not how the entire industry is set up. Right. With guidance counselors and college admissions counselors. But that may be something that you might want to do. And if you actually want to learn more about sort of the different players and who provides what help and you know, and what they do and what they don't do. I have an episode on that. Sort of the different players that are involved in the college planning process, it kind of breaks down sort of who does what. Right.
Jack Wang [00:32:03]:
Because a lot of times families will either not think about the financial aspect first or they kind of expect like their high school guidance counselor to think about for them. But I can guarantee you. Well, maybe guarantee is too strong word, but I can pretty much assure you that that is not the case. Most guidance counselors I've run into, they want to know about financial aid, but they really don't do anything with it because it is not their job to help you pay for college. Right. Their job is to help your kid get into college, which is a totally different question, totally different answer. So again, you may want to think about these up front as you're building the college list. So with that, I hope that you learned a lot through this little two part series taking a deep dive into the financial aid formula, the fafsa, the css.
Jack Wang [00:32:50]:
As always, I hope you find this knowledge useful and at a minimum, you can now go wow your friends with this newfound trivia knowledge. So stay safe, stay healthy and I'll see you next time. Thanks for listening to the Smart College Buyer podcast. I hope you found the information useful for your family. Follow me on LinkedIn for more episodes, videos and tips. The link is in the show notes. Remember, you can spend time now to plan and strategize or you can spend more money later. Success in college admissions and financial aid isn't about luck.
Jack Wang [00:33:25]:
It's about being intentional. I'm here to help you every step of the way.
