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Someone told me that the FAFSA statement of parental and student assets is effective as of the day you sign the FAFSA, meaning that you could move a large amount of liquid cash into, say, an annuity or a life insurance contract a few days before signing, thus hiding that money. Is that true? It seems to me as though that would look kind of suspicious.

By California Mom (Calmom) on Wednesday, October 10, 2001 - 07:03 pm: Edit

You are supposed to report assets as of Jan. 1st of the year that the FAFSA is prepared. You also are supposed to report ALL financial assets -- so if you bought an annuity you would still need to report current cash value of the annuity.

But yes, with planning you can reduce paper assets. Any money in retirement funds does not have to be reported, so parents can maximize their IRA contributions to effectively shelter some of their earnings.

Also, parents can pay off debt to reduce the assets - such as paying off a car loan or paying down a home equity account. But keep in mind this only works because the FAFSA doesn't give parents a place to account for debt. So paying off debt really isn't hiding money, it's just eliminating some of the family's deficit.

I'm not sure there really is a solution. Any way that FAFSA restructured things would probably simply create more loopholes or ways to manuever.

However, almost all colleges require that families submit copies of their tax returns. Records of interest and dividends will show where there has been a large amount of cash. If the financial aid staff sees something on a tax return that doesn't quite fit with what's on the paperwork, they will make an inquiry.

By Roger (Roger) on Wednesday, October 10, 2001 - 09:27 pm: Edit

Anonamom, the FAFSA is actually fairly straightforward and you can minimize some kinds of assets to reduce your EFC. As California Mom notes, you can do things like pay down debt to reduce liquid assets. If you need a car or a roof, it would be better to make those purchases earlier rather than later.

You may not be out of the woods, though. Be aware that some schools may look at other materials, including:

The CSS Profile, which requires more detail in some areas than the FAFSA.
Custom questions on the CSS Profile - colleges can specify additional questions that are tacked onto the Profile. A few years ago when I did this I think one school asked about automobiles; I have no idea what they did with this info, perhaps it was just a reality check for the rest of the info.
The college's own financial aid form - the same questions asked different ways, or new ones peculiar to the school.
Tax Returns - depending on the school, the most recent filing and perhaps the previous one.
Business Info - if you happen to be a business owner, expect to supply a special Profile form and tax returns.

Each school's financial aid office (or web site) can tell you which forms will be required. As California Mom points out, if you have an amount of interest income on your tax return or income report, but no corresponding asset at year end, the financial aid people may question that or even "impute" an asset on your balance sheet to explain the interest. As long as you can explain the issue logically, though, you should be OK. Good luck - the financial aid process is no fun, but it gets easier with time!

By Puzzled on Friday, October 12, 2001 - 10:30 pm: Edit

Who should fill out the Fafsa and other forms? The student or the parents?

By California Mom (Calmom) on Saturday, October 13, 2001 - 02:26 am: Edit

In theory, the student, but it asks for a lot of financial information about the parents' income and assets, so I filled it out. I know more about my son's assets than he does, anyway -- about all I needed from him was a copy of his last paystub of the year.

By Michigander on Monday, November 26, 2001 - 01:05 pm: Edit

Yuck - only a month away from FAFSA filing! If you have done one before, is it true that you can edit the old data somehow to save completing an entirely new one?

By California Mom (Calmom) on Monday, November 26, 2001 - 03:40 pm: Edit

I don't know, but the financial aid office from our son's college wrote to us and said that the government would be sending a FAFSA update form to us -- so we might get forms in the mail sometimes in the next few weeks.

Obviously they aren't here yet, but the IRS does a good job of remembering to send me forms at the right time each year, so I'm just going to wait and see.

By 1sttimecollegemom on Tuesday, December 04, 2001 - 06:46 am: Edit

Do they have anyplace on the form which lets you explain a situation which might not be a regular employment time frame. I'll try to explain. Hubby works contruction. He does not own his own business, but is hired by the companies he works for on a job to job basis. He may get called by company X who will send him to NY for a 6 week job, he may get called by company Y to go to CA for an 18 mo. job. When on the job he will work 7 days a week, 12 to 14 hours a day. The companies he works for realize that to compensate for a un-natural work environment with inconsistant work available they must pay their employees a pretty decent wage, when their working. Consequently, there are times when he may have down time, and I have learned over the years to have a financial cushion sort of speak, usually enough to last the 6 mo. winter layoff period. Will they take this into account? Or will they assume that this is disposable income? Because this cushion will be larger in December obviously than it would be in say April, when the work season usually kicks back up again, I obviously would have to report it as an asset, or maybe I should pre-pay the mortgage, car payments and utilities ahead?

I hate to ask so many questions, but his un-orthodox work schedule and the fact that he isn't "employed" by one employer where someone can verify income has put us in binds before and I don't want to be surprised when this comes up during the FAFSA application process.

By Dadster on Tuesday, December 04, 2001 - 09:29 am: Edit

The FAFSA doesn't leave a lot of room for creativity, but you should explain this situation to the college financial aid office. The CSS Profile, if required by your child's school, also has a blank space for explanations. Your best bet, though, is with the college itself. They usually have some flexibility in how they interpret the numbers.

The FAFSA does look at whole-year income, so big month-to-month swings won't make any difference. If you have accumulated savings to weather the slow construction season, those will be considered a parental asset and figured in your EFC. That's where (maybe) they could cut some slack if you can make a persuasive case.

By California Mom (Calmom) on Tuesday, December 04, 2001 - 12:18 pm: Edit

It is o.k. to prepay some expenses, and certainly if your situation is that you expect no income January - March, it is fair that you would use assets available in December to prepay those amounts. In fact, with interest rates on savings so low these days, you'll come out ahead. That is, the savings from reducing the interest charged by prepaying your mortgage and car payment will outweigh the amount of interest you would get with the money sitting in a regular savings account. In fact, you might want to consider paying off your car loan entirely, if you can afford it.

However, you need to make sure that your lender knows you intend to prepay, so they will apply those amounts correctly to the upcoming payments. Otherwise, the lender could simply apply the payments to principal and still expect regular payments through the coming months.

You should be aware that depending on your total income level, a certain portion of your assets are exempt from consideration anyway. So you really do not need to try to reduce assets to 0. There are financial aid calculators at sites like http://finaid.com/ that you can use to figure out an approximation of your situation. You can play around with these a little bit to see how your situation might change with hypothetical variations in the amount of assets you have on hand.

By Dadster on Wednesday, December 05, 2001 - 08:32 am: Edit

Good advice, Calmom - the prepayment of expenses approach can be used by anyone eligible for financial aid to reduce EFC. Of course, small prepayments won't have a big impact, but saving 6% on any amount will beat the interest you'll earn in a few months.

Accelerating payment of home mortgages can also have a favorable tax impact by increasing interest deductions for the current year. I know that one common year-end tax tip is to make your January payment in December. Naturally, I wouldn't think about offering tax advice - check with your tax advisor to be sure what will work for you.

By AmazingMolly on Tuesday, December 11, 2001 - 01:08 pm: Edit

What about if you are a kid who has to go through their parents financial information, but whos parents say they cant make the family contribution. That leaves me with about 2790 dollars to pay myself, and i cant work that much and keep my grades up at the same time. Are their other options?

By Dadster on Tuesday, December 11, 2001 - 01:28 pm: Edit

Well, I'd suggest talking to the financial aid office for starters, Molly. If there is anything exceptional about your situation, they might cut you some slack. If it's simply a case of your parents not wanting to help out, loans may be the only way to close the gap. This approach has its own drawbacks, although if you can keep the amounts pretty low your debt load won't be too bad when you graduate. By finding a good summer job or paid internship, you could probably sock away most of what you need (if you can live at home or find an internship with paid housing).

As another alternative, if your parents aren't destitute, you might try to borrow the money from them.

Be aware that many, or even most, families aren't able to just pay the EFC like they would pay the electricity bill, since most people don't have that much excess income - they end up having to liquidate savings or take out loans to meet the EFC. There's a College Loan thread going that talks about that very topic. The debt loads being discussed there should make you feel pretty good by comparison. Good luck - you are really pretty close, Molly, and you should be able to attend that school if that's where you want to go!

By Roger (Roger) on Tuesday, December 11, 2001 - 01:38 pm: Edit

AmazingMolly, check out the Expected Family Contribution discussion, too. Good luck!

By Ed Cable on Friday, December 28, 2001 - 10:10 pm: Edit

I've heard that a way to save on what the student would be expected to contribute financially is by shifting the location of his/her assets to the parents accounts. I think that the student is expected to contribute 35% of his/her assets while parents only have to contribute a lower percentage of theirs. Would this be legal and/or ethical to do this and would it work?

By burningman on Friday, December 28, 2001 - 10:46 pm: Edit

Hi, Ed. What you say is is accurate in most cases. However, there are a couple of issues to consider before you start swapping assets. First, if the assets are held under UGTMA, there are restrictions on how they can be used, and the can't be arbitrarily transferred. If the assets are in the student's name alone, then transferring large sums might have gift tax implications. Lastly, the colleges will look at interest earned during the prior year, and if it doesn't match the current asset amount, they may either "impute" an asset or ask additional questions.

Asset switching strategies should probably be completed by 10th grade or so; ideally, the assets shouldn't ever be in the student's name at all.

As they say in the commercials, consult your financial advisor to be sure which approach might be applicable for you.

By burningman on Tuesday, January 01, 2002 - 06:52 pm: Edit

Ed's question really highlights an important point - in most cases, it's a terrible idea to save in the child's name. Those gifts from Grandma, etc., all end up reducing any aid to the tune of 35% of their value every year.

By all means save for college, but don't do it in the kid's name. And instead of Grandma writing checks to the kid for future college expenses, have her set up a designated account for the child in Grandma's name that can then be used to pay tuition when needed. (Naturally, you might want to take the appropriate steps to insure the kid gets the money in the event of Grandma's premature demise).

The usual cautions apply - everyone's financial situation is different, and sometimes an approach that works well for most may not be appropriate for everyone.

By Sarah DiAngelo on Friday, January 10, 2003 - 01:12 am: Edit

I am unemployed; my husband's parents each made a $10,000 gift to him each year. It really substituted for my salary (but much less). We put it in our checking account, but sent our daughter to private boarding school her senior year, so we have pretty much reduced our "cushion." Is this money considered "Cash received" or untaxed income? It doesn't seem to fit the types of untaxed income on line 80 of FAFSA, and I believe it is other monies or cash received. Of course, what's left will show up in our account and be assessed. I know other forms will ask outright if we have received or expect to receive "gifts from relatives." I want to report correctly, of course.

By Highlander2000 (Highlander2000) on Monday, January 20, 2003 - 10:06 pm: Edit

FAFSA fafsa Fafsa its always FAFSA!!!
jk just in case if you live in louisiana and know TOPS will pay all or most of your fees then listen up: There is an abbreviated form of the FAFSA available that you can file just to receive TOPS.
THere is one ridiculous catch - if you file this abbreviated form, you'll be the first to have TOPS terminated if Louisiana runs short on money.

Gotta love Louisiana.

Highlander

By Wadad (Wadad) on Tuesday, January 21, 2003 - 01:14 am: Edit

Gifts are gifts, they are not income, taxed or otherwise. If you save them, they will increase your assets, which get counted in calculating the EFC, but not in the same way as income would.