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Savings bonds and FAFSA...Need advice!

crabapplecrabapple Registered User Posts: 4 New Member
Hopefully someone here can give me some advice. I am PT college student who receives federal financial aid. When I filled out the FAFSA I put that I do not have any savings bonds because at that time, I did not. About a week ago I received in the mail a package from my Uncle. In it was an old savings bond he said he had bought for me years ago but had forgot about it. Right now I am in a financial bind right now and could REALLY, really use this $. My question is...since I said on the FAFSA that I did not have any savings bonds, what would happen if I cashed the bond? Would I get in trouble? Would my aid be reduced? Would the Government make me give the $ to them? Any advice would be greatly appreciated!
Post edited by crabapple on

Replies to: Savings bonds and FAFSA...Need advice!

  • calmomcalmom Registered User Posts: 18,834 Senior Member
    You won't get in trouble. You didn't know you had the bond as it was in your uncle's possession -- essentially it is a gift from a family member. You can cash the bond.

    It probably would be a good idea to save the letter that your uncle sent with the bond, though - and the envelope it came in. That way, it will be easy to document the circumstances under which you came into possession of the bond.

    When you cash the bond, you will have to provide your social security number, and next year you will receive a 1099 that shows interest earned on the bond. If you make enough money to pay taxes, you will have to include this amount as income on your tax return -- typically, on a savings bond, the interest is about half the amount of the bond, though it could be more.

    Thus, the interest portion of the bond will be included in the income reported on the 2007 FAFSA and that will be considered in determining your aid award for the 2007-2008 school year.
  • crabapplecrabapple Registered User Posts: 4 New Member
    Thanks for your reply! It's not that much money so hopefully it would not affect my financial aid. I just don't want to get in trouble because they think I lied, or something.
    Any other opinions?
  • SusantmSusantm Registered User Posts: 2,188 Senior Member
    What calmom says sounds right to me. You weren't lying. You had no idea you had a savings bond. You may have to pay interest on it next year and declare the interest, but unless it is a really big savings bond, it shouldn't make much difference, if any.

    It is refreshing to see someone so concerned about ethics, after some of the threads here about people trying to scam the system. :)
  • sblake7sblake7 Registered User Posts: 1,691 Senior Member
    Whose name is it in? Uncle and you? Uncle or you? Uncle as custodian under Uniform Gift to Minors Act? Your name alone? The answer to this question matters in terms of how you report this on FAFSA.

    Also, remember not to confuse income with assets.

    You'll derive income from the interest you get when you cash the bond. You'll have to declare the interest-- and it will be recorded on a 1099. Probably not a problem if you don't have much income.

    But you'll then have an asset-- the value of the redeemed bond. If you don't spend it (or convert it to a non-liquid asset) before you file your next FAFSA, your potential aid award will be reduced by 1/3 of the value of the bond.

    There's no asset protection allowance for the student.
  • calmomcalmom Registered User Posts: 18,834 Senior Member
    Actually, for the 2007 FAFSA, the formula has changed, and only 25% of student assets will be counted toward EFC.

    But I'm assuming that the amount of the bond is relatively small and crabapple will probably spend the amount cashed out relatively quickly, since he (she?) said he was in a financial bind. I could be wrong, but the circumstances didn't sound like it was a huge amount. It's not at all unusual for relatives to purchase small bonds and forget about them -- I've had a few like that pop up over the years in my family -- but it would be very strange for anyone to forget about a large bond.
  • crabapplecrabapple Registered User Posts: 4 New Member
    Quote sblake7
    "Whose name is it in? Uncle and you? Uncle or you? Uncle as custodian under Uniform Gift to Minors Act? Your name alone? The answer to this question matters in terms of how you report this on FAFSA."

    The bond is in my name, not mine and my Uncle's. I don't make much money and I will get around $500 from the bond. Would this amount affect my aid?
    After the bond get's cashed, it'll probably be gone within a week from paying bills.
  • crabapplecrabapple Registered User Posts: 4 New Member
    Quote Susantm
    "What calmom says sounds right to me. You weren't lying. You had no idea you had a savings bond."

    I'm hoping this is right. It makes me nervous because on the FAFSA there is a box you check that states you are not lying. It says that if they find out you lied on the FAFSA, that penalties exist and prosecution could result.

    So, basically what everyone's saying is that despite checking the box that I was not lying about not having any bonds, that I'll be fine...that I will just have to file a tax form that states the interest? Is that correct?
  • calmomcalmom Registered User Posts: 18,834 Senior Member
    If you didn't know you had the bond at the time you did the FAFSA, you were not lying and could not be held liable for lying. You can only be held responsible for "knowingly" making fraudulent statements.

    If it was a $10,000 bond, then there might be something to worry about. Even though the logic would be the same, $10K is a lot of money and people are going to ask questions about it.

    $500 is not a lot of money - especially when it comes to college expenses. It is very typical for middle class kids to get that sort of money as a high school graduation gift. No one knows in January how much money they are going to get as gifts in June. That's really what your uncle did -- he bought the bond as a gift to you, but he did not actually give the gift to you until now. So no one is going to think twice about it.

    There is a legal concept called "delivery" that governs how the law treats gifts, and basically a gift is not complete until the giver has surrendered physical control of the property. Up until the time that your uncle gave you the bond, even if you had wanted to, you could not have gotten access to it and cashed it. For example, if you had learned from another relative that he had the bond and asked for it -- and he had refused - there would be nothing you could do. You could not have gone to court and forced him to turn it over just because it was in your name --because it is a gift and he would have every right to withhold the gift until whenever he felt like delivering it.

    One of the peculiarities of the FAFSA system is that it asks only for the amount of assets you have as of the day you fill out the FAFSA. So if you fill out the FAFSA on January 10 and on January 15 you win the state lottery, you are not required to go in and amend the FAFSA.
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