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Articles / Applying to College / Effect on FAFSA of Grandma's $$ in Parent's Name

Effect on FAFSA of Grandma's $$ in Parent's Name

Sally Rubenstone
Written by Sally Rubenstone | Aug. 13, 2010

Question: My wife has a fund that was actually her mother's money that has been put in her name and in her two siblings' to protect it from being used up for her mother's convalescent care.

We have found out that having it in our names cost us money in college funding for our child. We can't use the money, but we can't figure out how much it costs us, in order for the fund to reimburse us. My wife's share of the fund is about $200,000.

What should we do, put the money in the names of the siblings and get it out of our names or leave it alone? Is there away to figure out what it costs us?

This was a tough one for "The Dean" whose eyes tend to glaze over when facing numbers. Thus, I consulted my financial aid guru, Ann Playe (former associate director of admission and financial aid at Smith College). Here's what she said:

He should assume that around $12,000/year is the calculation from a $200,000 asset. In other words, the family's Expected Family Contribution calculates to a number ~$12,0000 higher per year than it would have, if that asset were not in his wife's name. They could talk to the siblings and draw up an agreement whereby her name is removed from that asset while there are children in college. I think she needs to think about whether the other two will cut her back in if the mother passes away. (She may want to consult a lawyer.) That probably would be fine as long as the sibs don't also have college kids, too.

The one drawback to this plan is that some colleges look at prior year income tax returns, and if she is reporting any gains or losses on that asset, they are going to ask questions. If the colleges wanted to play hardball, they could count the $12,000 back into the EFC, if they choose to, since moving that asset out of her name could be construed as devious.

The parents could also try just asking financial aid offices to exclude that asset in their calculations, but some may and some may not. It may depend on how specific a contract was drawn up to specify how the money is used and what kind of records they have for monies spent.

Even schools that only use the FAFSA calculation and don't ordinarily request prior-year tax returns could end up asking for them if the student is chosen (by a random process) for verification. (30% are chosen for verification). Chances are that, if the student is not from a poor family and eligible for a Pell grant, they won't be picked for verification ... but there is no guarantee!

If all they are going to be eligible is loans anyway, then it really doesn't matter that much and they should just go ahead and report the asset, then appeal just to the school to discount that asset to make her eligible perhaps for more subsidized rather than unsubsidized loan. That's why knowing the bottom line of an estimated family contribution would help in making a decision on how this should be presented.

Do keep in mind that free advice from the Internet is sometimes worth only what you pay for it, and I caution you to be especially wary where money matters are concerned. However, Ann is a seasoned pro, and thus I hope her counsel will provide you with the direction you need to navigate this maze.

Written by

Sally Rubenstone

Sally Rubenstone

Sally Rubenstone knows the competitive and often convoluted college admission process inside out: From the first time the topic of college comes up at the dinner table until the last duffel bag is unloaded on a dorm room floor. She is the co-author of Panicked Parents' Guide to College Admissions; The Transfer Student's Guide to Changing Colleges and The International Student's Guide to Going to College in America. Sally has appeared on NBC's Today program and has been quoted in countless publications, including The New York Times, The Washington Post, USA Weekend, USA Today, U.S. News & World Report, Newsweek, People and Seventeen. Sally has viewed the admissions world from many angles: As a Smith College admission counselor for 15 years, an independent college counselor serving students from a wide range of backgrounds and the author of College Confidential's "Ask the Dean" column. She also taught language arts, social studies, study skills and test preparation in 10 schools, including American international schools in London, Paris, Geneva, Athens and Tel Aviv. As senior advisor to College Confidential since 2002, Sally has helped hundreds of students and parents navigate the college admissions maze. In 2008, she co-founded College Karma, a private college consulting firm, with her College Confidential colleague Dave Berry, and she continues to serve as a College Confidential advisor. Sally and her husband, Chris Petrides, became first-time parents in 1997 at the ripe-old age of 45. So Sally was nearly an official senior citizen when her son Jack began the college selection process, and when she was finally able to practice what she had preached for more than three decades.

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