FAFSA "snapshot" of financial standings ...

MnOlderGal · August 1, 2006, 10:13pm

I have spent the last week pouring over different financial aid and college web sites over the past week and discovered this forum. There is better information here than anywhere on the web! Hopefully someone here can help answer my questions …

I am an older student (over 25) returning to college to get my first degree. I have had a 4 year absence from school. During that time, I have been working hard and gaining valuable “experience”. Along with that experience comes money. I have been trying to save up for a house.

So, as I understand it, the FAFSA is a snapshot of your assets at the time you apply. My assets at this time would make me ineligible for financial aid.

Now, I certainly don’t want to abuse the system. However, I don’t want this money that I’ve worked so hard to accumulate (and it isn’t much, but more than one year of school) disappear. I dropped out of school in the first place because I couldn’t afford it (one parent makes very good money, yet due to a strict divorce clause, wasn’t obligated to pay for college. However, this tidbit seemed to get overlooked by financial aid officers who required his income, even though it wasn’t applicable).

Now that I am over 25 and don’t have to declare my parent’s incomes, I’d like to finally get that degree. But that means that my house savings would be wiped out.

So, here are my questions:

<li>For what period of time does the “snapshot” of your financial standing end? For example, my mother is looking at buying a new car. If I buy this for her, then submit my FAFSA, at what point could she pay me back without it affecting my EFC?</li>
<li>Is this legal?</li>
<li>I found some interesting information on the FinAid website. Could I transfer my stocks to a 529?</li>
</ol>

Once again, I don’t want to do anything illegal or immoral. I just wonder if it’s even worth it to go back to school. I feel like I’m between a rock and a hard place … if only I hadn’t been so responsible with my money!

Thanks.

bandit_TX · August 2, 2006, 10:59am

Unless you have saved far more than I am able to, I think you may have misinterpretted the FAFSA. It is mostly about income. Cash on hand is hit heavily, but retirement accounts are not counted. You can fully fund IRAs, Roths, etc and that savings would not be counted, though the income that produced them would. Likewise, you could put a down payment on a house. The equity in the house is heavily discounted, and the payment is counted. Rent is likewise counted. The cash on hand (and assets like stocks) are as of the day that you file if I remember correctly. Your income is based on your most recent tax return (Apr 2007 for fall 2007 applicants). You also need to acquire health insurance and include those costs.

sblake7 · August 3, 2006, 2:09am

Yes-- FAFSA is a ‘snapshot’ of your assets on the day you file.

Since you’re 25 or older, you qualify as an independent student. Good news: your parents’ income and assets aren’t considered. Bad news: Your income and assets are.

You do get an income protection allowance-- above which, a % of your income gets contributed to the EFC (expected family contribution). In this case, the family is YOU, and it’s a pretty stiff % in most cases, up to 50% of income above the allowance. No asset protection allowance, though-- and if I’m reading the forms right, your assets (excluding retirement assets, and physical assets like cars and furniture) get assessed at 20% each year.

Use the FinAid caluclator here:

<a href=“http://www.finaid.org/calculators/scripts/estimate.cgi[/url]”>http://www.finaid.org/calculators/scripts/estimate.cgi</a>

to plug in rough numbers, and it will tell you what your income protection allowance is, and what % of your liquid assets get assessed.

There’s no time period involved regarding a snapshot-- your numbers have to be accurate on the day you file the FAFSA. Your assets can, and will change, after that. The next year you file another FAFSA, and take another shapshot of your assets.

Reducing ‘included’ assets prior to filing FAFSA is a legitimate and legal financial aid strategy. Converting included assets into non-included assets is a legitimate and legal finaincial aid stragegy. Hiding included assets, however, is fraud.

So-- buying a car before filing out FAFSA, instead of after, makes sense. Paying down credit card debt or home equity credit line before filing out FAFSA makes sense. Paying property taxes early, or pre-paying a vacation makes sense. And it’s legal.

“…my mother is looking at buying a new car. If I buy this for her, then submit my FAFSA, at what point could she pay me back without it affecting my EFC?”

Not real sure here. Clearly, if you were to use your assets to buy yourself a car, you’d be legally converting your included assets to non-included assets-- to the benefit of your financial aid package. You could, of course, later sell the car and recoup your liquid asset.

In your scenario, since you’re expecting repayment, you’d essentially be loaning the money to your Mom. As such, I think it would count as an investment, and the value of the loan would be included in FAFSA. If you didn’t include it, IMO you’d be essentially hiding assets, which is a no-no. But if you were to buy the car for her as a gift, or buy it in your name and let her drive it, I think you’d be fine.

Transfering your stocks to a 529 wouldn’t help you-- the 2006 loophole that allows 529’s not to be counted as assets on the FAFSA applies to 529’s that are owned by dependent students. More on that here:

<a href=“Top Tips 529 Plans - Understanding the new financial aid treatment of 529 plans”>Top Tips 529 Plans - Understanding the new financial aid treatment of 529 plans;

Toy with the FinAid calculator-- change some numbers and see what the impact is. It’s very helpful, as it gives you your income protection allowance for different situations.

FAFSA "snapshot" of financial standings ...

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