<p>My friend has a 0 EFC. When her youngest son turns 18 next year he will get a lump sum payment of $25,000 from an accident when he was little. There will be another payment when he is 21…don’t know the amount. Does anyone know what impact this will have on fin aid?</p>
<p>The $25,000 will be viewed as an asset. If in the student name, about 20% of it will be expected to be used for college expenses for that one year. Is there any way the family can arrange for this to be put in the parents’ names or into one of the college funds that is protected (someone else here will be able to advise what that is)?</p>
<p>Or conversely, what is the matter with USING some of this money towards this student’s college education? Seems like a good use for the money from this end.</p>
<p>Add $5,000 to the EFC immediately. The kicker on this one is will the $25k be considered income. That’s more important than the asset value. </p>
<p>Dealing with the asset value is no big deal. As soon as the student receives the money, move the money into a 529. The assessment gets reduced from 20% to 5.6% ($5,000 down to $1400).</p>
<p>But find out if it will be taxable income. If that’s the case, the EFC will balloon and there’s not much you can do about it; other than an appeal after the fact.</p>
<p>Thumper she has no problem with him using this money for his education, we are just wondering what impact this will have. The doctors have said that he will lose his leg some day, and part of this money will be needed when this happens.</p>
<p>I would see if there can be a delay in the money disbursement if the money is supposed to be used for future medical needs.</p>
<p>The EFC is 0. Isn’t it possible that the money will simply be ignored as the parents income/assets are low?</p>
<p>^^^^^^
Nope, that is not the way the system works.</p>
<p>Actually if the parent’s income is below a certain amount, they would be eligible for simplified needs test and if so, there is no counting of assets.</p>
<p>True…</p>
<p>But, if the parents’ income is not that low (or they file certain tax forms), then maybe the parents need to put the cash disbursement in the parents’ name, instead of the child’s (it could be done legally - the child could “loan” the parents the money interest free - and put it in writing). Normally, I don’t like those sorts of games, but since the money is really for later medical expenses, I hate to see it get spent on education.</p>
<p>I’d question whether a personal injury settlement would be viewed as “income”. I know that for tax purposes, compensatory damages in a law suit are not considered taxable income. The theory is that the damages are are reimbursement for medical expenses.</p>
<p>Agreed with Calmom. I received a settlement for injury and it was not considered taxable income at all.</p>
<p>Same as with my daughter when she received a settlement due to a car accident - it was not taxable.</p>
<p>So the only issue is if it remains in a liquid bank account.</p>
<p>I don’t think it will count as income, but if it’s sitting in a child’s account, it will get hit. That’s why I think the child should “loan” it to the parents for 0 interest and have it sit in their account.</p>
<p>I don’t think you can “loan” that amount of money to someone. Sheesh…if that were possible, don’t you think lots of folks with huge assets would just “loan” the money to someone until they filed their FAFSAs? </p>
<p>If the money goes to the parents, the child could gift the maximum amount to the parents.</p>
<p>BUT the better plan would be to do some advance planning and have that payment deferred.</p>
<p>Or…they could just use some of it to pay for college.</p>
<p>It’s likely that, with a 0 EFC, simplified needs criteria could exclude the asset. Unfortunately, FAFSA considers all untaxed income, except for specifically excluded items, for both the student and the parent. So, assuming the settlement must be paid to the student, I think that 50% of the settlement in excess of the student’s $4500 income protection allowances would be included in the student’s contribution to EFC. It wouldn’t be a factor in subsequent years if the simplified needs test is met. She should definitely call the FAFSA help desk (800-4-FEDAID) to get a definitive answer on this before filling out the FAFSA.</p>
<p>From the 10/11 FAFSA instructions:</p>
<p>
</p>
<p>If income is not an issue with the settlement, then I’d recommend just moving the money into a 529 and dropping the assessment to the parent’s level. </p>
<p>I don’t think the loan idea would work. You’d just be trading a liquid asset (cash) for a non-liquid asset (receivable).</p>
<p>
See: [FinAid</a> | Professional Judgment | Principles of Professional Judgment](<a href=“http://www.finaid.org/educators/pj/principles.phtml]FinAid”>http://www.finaid.org/educators/pj/principles.phtml)</p>
<p>*I don’t think you can “loan” that amount of money to someone. Sheesh…if that were possible, don’t you think lots of folks with huge assets would just “loan” the money to someone until they filed their FAFSAs? *</p>
<p>Yes, you can loan that amount (or other amounts) to other people and people probably do do that. I wouldn’t recommend that in normal circumstances because of the ethics involved, but in this case the money is supposed to be reserved for serious medical issues.</p>
<p>It would be harder for people with long-term big savings to do this because they would likely also be showing interest income from a big amount of money. But, this is a one-time appearance of money.</p>
<p>Thank you all. I am not real FAFSA savy, but was worried about this money. He is a rising Junior so this will not happen til next year, but I always feel it’s better to be prepared. I will read all of your advise and do some digging. We both feel that some of the money should be used for college, but we know that there will be medical issues that this money will need to be used for in the future.</p>
<p>^^^</p>
<p>The problem is that EVERY year you have to fill out a FAFSA, so every year that money will be sitting in this student’s account. So, every year, a chunk could be expected to pay for college…leaving the student with not enough for his medical expenses.</p>
<p>the family should decide how much (in total) of the $25k they think should be spent on education. If nothing is done to protect the money, nearly all of it will be expected to be used for education. If that’s fine with the family, then good. However, if the family feels that $15k or so needs to be set aside for future medical needs, then the family needs to protect that money somehow.</p>