<p>My parents sold stock to pay my tuition and it significantly increased their adjusted gross income. now instead of an EFC of zero our EFC is 10,000. </p>
<p>Are we missing something?</p>
<p>No you are not missing something. The money earned from selling those stocks increased your parents unearned income…thus increasing your EFC.</p>
<p>Next time borrow against the stock, if they have any left, and pay off the loan immediately after filing your last FAFSA.</p>
<p>You could borrow against the stock, as whydoicare suggests, but the disadvantage with that approach is that the stock will then need to be reported as an asset each year, whereas had they been sold and used for tuition the money would be gone. </p>
<p>Stocks are hard to deal with. They are, IMO, treated unfairly by FA. As an asset, they are valued the same as cash, but in fact they are not the same, since stocks (that have appreciated) have a capital gains tax liability. And in addition, as you’ve pointed out, if you sell them to pay tuition, you also incur an income bump, which decreases your aid eligibility. You should run the numbers for your own situation, but my conclusion is that it’s best to liquidate stocks needed for tuition before the freshman FA evaluation period begins.</p>
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The usual way to borrow against stock is in a margin account. This reduces the reportable value of the stock, just like a mortgage reduces the reportable value of realestate. The main risk with borrowing in a margin account is that if there is a big turndown in the market, you can be forced to sell the stock if the loan against it hits below a minimum % of the stock’s value. </p>
<p>The maximum an asset can contribute to the FAFSA EFC is around 5.6%, compared to a maximum of around 47% for income pover a certain amount.</p>
<p>I’m wondering if this student had an Auto 0 before (so stock value didn’t count), but then once stock was sold, that changed everything.</p>
<p>Could be. Selling stock would make them ineligible to file a 1040a or ez, one of the possible criteria for the auto 0 EFC and for the simplified needs test.</p>