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FAFSA Simplified Needs Test

xaminerxaminer Registered User Posts: 3 New Member
edited September 2010 in Financial Aid & Scholarships
I have a high school senior. We'll apply for FAFSA in Jan 2011.
I am a single mom. Income is $49K, and we rent, do not own our home.
However, we own a rental property out of state that produces passive income.
Thus, I file a 1040 return. In order to qualify for the Simplified Needs Test, I need to
1) earn less than $50K - yeah, got it
2) file a 1040A or 1040EZ
Given the rental property, I use itemized deductions, and cannot file a 1040A.

I was wondering if anyone knows, can I convert the rental property into an LLC, and then be able to file a 1040A?

My EFC with the rental property as an investment is $36700.
My EFC without rental property as an investment is $9500.

just examining our options...
Post edited by xaminer on

Replies to: FAFSA Simplified Needs Test

  • thumper1thumper1 Registered User Posts: 63,493 Senior Member
    My EFC without rental property as an investment is $9500.

    I don't know the answer to your "LLC" question. BUT even with an EFC of $9500, you student will not qualify for much in federally funded need based aid. The cut off EFC for a Pell Grant, for example, is in the $5200 range. Your child would be eligible for a Stafford loan just by filing a FAFSA. You would need to check to see whether your state has aid for students within your income range.
  • sk8rmomsk8rmom Registered User Posts: 5,746 Senior Member
    2) file a 1040A or 1040EZ

    Not necessary to meet this requirement if you have a household member who qualified for a federal means-tested benefit in 09/10 (ie reduced school lunches, etc.) or if you are a dislocated worker. Probably doesn't apply to you right now, but just saying...

    I believe the income from the LLC would still require you to file a 1040, but that's a conversation you should have with your accountant. If you read the FAFSA instructions carefully you'll see that the exclusion for small businesses doesn't apply to rental properties, which are treated as investments unless the rental is incidental to the main purpose of the business so, while the LLC may be a good idea for other reasons, it's probably not going to lower your EFC. Are you using a realistic value for your rental property based on the premise that you would have to sell it tomorrow? Is the $49K your AGI?
  • xaminerxaminer Registered User Posts: 3 New Member
    49K in my AGI
    In my divorce settlement I got the 2nd home (out of state), and cash, and my ex the local family home. We made that choice because the 2nd home gets positive cash flow, while I do not have enough income to make mortgage payments on the local home. Once my daughter is off to college, I was thinking of converting the 2nd home (from a 1031 rental) into my primary residence.

    2nd home net value is $350K. mortgage $95K. passive income is $6K before income taxes.
    cash (in stocks and bonds) is $140K
    daughter college funds = $25K in a 529 + $25K in a UTMA

    she is looking at private schools. $40K to $47K per year.

    while it may looks like I have a lot of assets, the investments are really meant to be my primary residence.

    how about if the 2nd home and (stocks/bonds) are in a Living Trust? What is the FAFSA treatment on living trusts?
    OR any other advice is welcome.
  • swimcatsmomswimcatsmom Registered User Posts: 15,651 Senior Member
    Trusts are reportable assets for FAFSA.

    I'm afraid FAFSA does not care that assets are supposed to be your primary residence. Only if they are.

    If your D is looking at expensive private schools do they require CSS? Remember simplified needs is only for FAFSA. Schools that require CSS will used FAFSA for determining federal aid (which would require an EFC of a little over 5,000 for any federal grant aid). Any institutional aid would be based on CSS which does not have a simplified needs test that I am aware of.

    There was talk of possible changes in FAFSA for next year (though I don't know the status of that). Not sure if the simplified needs will still be part of it.
  • alamemomalamemom Registered User Posts: 6,384 Senior Member
    In addition to the CSS/Profile (which will consider assets protected by the simplified needs test as well as home equity), most private schools that require the CSS/Profile also require tax return copies including all schedules. If you are able to find a way to qualify for the simplified needs test you would want to be sure your child applies to FAFSA-only schools or you will find your expected contribution will be in the $30,000-range at a Profile school in spite of your efforts.
  • xaminerxaminer Registered User Posts: 3 New Member
    So much to understand. I'm new to this. What type of Federal aid is possible for anyone? Is it just a Pell Grant?

    At one school she is applying to, they use the CSS/Profile. The others seem to use FAFSA.
  • sk8rmomsk8rmom Registered User Posts: 5,746 Senior Member
    Pell, SEOG, work study, and Stafford and Perkins loans are the primary sources of federal aid. Pell is the only one with a "hard" EFC cutoff. SEOG, work study, and Perkins are campus-based, meaning that each school can allocate their limited share of these funds according to their own aid formulas. SEOG and Perkins generally go to those who are also Pell-eligible, but work study is usually distributed more broadly. Your child will be eligible for Stafford loans.
  • swimcatsmomswimcatsmom Registered User Posts: 15,651 Senior Member
    The main federal grant aid is the Pell. The maximum Pell for 2010-2011 is $5550 which requires an EFC of 0. As the EFC goes up the Pell eligibility goes down until there is no Pell eligibility at around EFC 5200 (ish - don't know the exact cut off offhand). Other than that there is the SEOG. The SEOG is campus based (meaning a school gets $xxx only and once they have awarded it they have no more) and the eligibility criteria and maximums are set by each school. For instance the max SEOG at my son's school was $100, at my daughter's it is $2,000. Both my kids' schools required a 0 EFC for SEOG. That is about it for federal grants. (2 other grants, the ACG and the SMART, both required Pell eligibility but they will no longer exist after the 2010-2011 school year. There is a grant called the TEACH grant which is for teachers in certain fields and carries strict service conditions which, if not met, cause the grant to revert back to an unsubsidized loan with in interest being charged from the initial disbursement of the grant).

    Other than that federal aid consists of loans and work study.

    Loans can be student or parent. Student loans may be subsidized (govt pays interest until the student graduates or drops below half time plus a grace period) or unsubsidized. Subsidized required need. The main student loan is the Stafford loan. A freshman is eligible for $5500 in Stafford loans of which up to $3500 may be subsidized if there is financial need. There is also a student loan called the Perkins loan. It is another campus based program with limited funding.

    The parent loan is the PLUS loan. It is unsubsidized with an interest rate of 8.5% (though I think this may have changed to 7.9%).

    Work Study is need based. Campus based so limited funding. The max at my daughter's school is $3400 but this will vary by school. Student has to first be awarded WS, then find a WS job (usually at the school but also some community & non profits). Earns a wage based on hours x hourly rate.

    That is about it for federal aid. The rest would come from the school if they offer institutional aid. Some states also have need based aid for their residents.
  • 'rentof2'rentof2 Registered User Posts: 4,327 Senior Member
    All schools require the FAFSA, and in addition some require the CSS Profile and/or some other financial aid applications of their own.

    One thing to keep in mind, also, about the Profile, is that some colleges also require the non-custodial parent's financial information and include that as a resource for the student. This is regardless of whether the non-custodial parent is willing to contribute.

    Not all Profile schools ask for this, but that information is probably available on the college's website.
  • RedrosesRedroses - Posts: 3,293 Senior Member
    Putting the property into an LLC won't help, it's a reportable asset either way. If it were your primary residence now you'd be in good shape for FAFSA schools, but Profile schools would still be an issue.
  • thumper1thumper1 Registered User Posts: 63,493 Senior Member
    Principia College does not require the FAFSA...I know about this one and there may be a few others out there too that I don't know about.

    With an EFC of over $9000, I'm going to hedge my bet that this student would qualify for a Stafford loan only in terms of need based federally funded aid.
  • 'rentof2'rentof2 Registered User Posts: 4,327 Senior Member
    Yeah, there's another one too, thumper; Hillsdale, which is some kind of anti-government, libertarian-type enterprise. I'm sure there are some other odd-ball institutions, including a few that the federal gov't won't even sanction. I just said "all" because it's virtually all and sometimes adding qualifiers like "most" is a little misleading when the exceptions are SO few.
  • BedouinBedouin - Posts: 423 Member
    What an ignorant comment. Hillsdale College only stopped paticipating in the Federal Financial Aid scheme because they were being pressured to abandon the clauses in their charter that prohibited discrimination/segregation based on race, religion, and sex -- they were in fact the first college to have such a clause, dating back to their foundign prior to world war I. They're not "anti-gov't" they just opted out to avoid having to participate in institutional racism and sexism that was all over America (and pervasive in the college system) prior to Civil Rights Movement.

    tis is all beside the point; colleges that don't even accept the FAFSA are rare and usually small LACs; just because your EFC is too high for the Pell grant doesn't mean that yo ushouldn't apply to any schools that use the FAFSA at all. Institutional aid and state aid is foten a lot more fleixible and generous than the federal aid, and there is always an opportunity for your student to find a job this summer to defray expenses for the fall.
  • sk8rmomsk8rmom Registered User Posts: 5,746 Senior Member
    rentof2 - Thomas Aquinas, a Catholic school in CA, and Grove City College, a Christian school in PA, also do not require FAFSA or distribute federal aid by choice. Neither are really oddballs in the wacko anti-government sense, although their philosophies are not shared by all. Thomas Aquinas offers only a single degree in liberal arts. Both provide FA, including grants, scholarships, and loans, through their own endowments.
  • 'rentof2'rentof2 Registered User Posts: 4,327 Senior Member
    Yeah, I guess what constitutes oddball is a matter of opinion. In mine, yeah, definitely oddball. And the much touted claim of Hillsdale to "not discriminate" is double-talk for rejecting laws prohibiting discrimation by institutions the receive federal aid.

    I am clueless as to how it happened, but somehow I got on Hillsdale's mailing list, so I get their absurd propaganda in my mailbox constantly.
This discussion has been closed.