The affect of contributions from a 529 account owned by a student's grandparents on his Pell grant.

Paying for College
1

Are the following statements true?

  1. Pell Grant Awards are based exclusively on the (i) EFC from the student’s SAR, (ii) academic year structure, and (iii) student’s cost of attendance.
  2. Total Income = AGI (or Earned Income) + Untaxed Income – Excludable Income
  3. Untaxed Income includes contributions from 529 savings plans owned and funded by students' grandparents.
  4. A student's Total Income would be $0 if his only 2018 income was $2,000 from a Federal Work Study program.
  5. The student's Total Allowances Against Income for 2018 would be $6,893; i.e., State and other tax allowance (VA: 4%): $80 + Social security tax allowance: $153 + Income protection allowance: $6,660.
  6. The student can received less than $6,893 in contributions during 2018 from the 529 savings plan his grandparents have for him without increasing his EFC or decreasing his Pell grant.

Thanks!

Joe

2

@BelknapPoint is this one true if the student had other income?

To the OP…what FAFSA are you talking about. The one using 2018 income…etc…won’t be used until 2020-2021 FAFSA.

3

My suggestion is that the OP take some time to go through the applicable FAFSA formula to get the best possible understanding of what the numbers are and how a change in one place can have an effect in other places.

https://ifap.ed.gov/efcformulaguide/attachments/071017EFCFormulaGuide1819.pdf

4

@thumper1

Yes, I am trying to anticipate how 529 contributions to my son in 2018 and 2019 would impact his EFC and therefore his Pell Grant during his 4th undergraduate year AY20-21 and his 5th undergraduate year AY21-22 and similarly, my daughter who is one year younger than my son.

Joe

5

@BelknapPoint

Please help me understanding your advice.

According to the Congressional Research Service report titled Federal Student Aid: Need Analysis Formulas and Expected Family Contribution dated March 30, 2018, disbursements from education savings accounts that are owned by grandparents are considered untaxed income.

It is my understanding that students’ untaxed income not reported on Lines 44a-h would be reported on Line 44i or 44j.

If my understanding is correct, it would follow that disbursements to students from education savings accounts that are owned by grandparents would be reported on Line 44i or 44j.

Since the only “variable” in my example above is whether or not my son receives 529 disbursements from his grandparents for qualified college expenses, are you suggesting that Line 44i and 44j are used to calculate values other than TOTAL INCOME?

6

Maybe I could understand things easier if I took baby steps…

Is it true that Pell Grants are based exclusively on (i) a student’s EFC, (ii) the academic year structure at the college in which the student is enrolled, and (iii) the student’s cost of attendance?

7

Yes, but understand that there is a max for the Pell for all students ($6095 per year) so it doesn’t really matter if your school costs $10k or $60k, you’ll only get $6095. That’s if you qualify for a full Pell grant, and if you are a full time student.

8

There is no line 44.i. or 44.j. Money received from a grandparent, from a 529 account or otherwise, would be reported on line 45.j. If you want to know how a change in any FAFSA entry might effect the student’s FAFSA calculated EFC, use the appropriate formula available through the link that I pasted in post #2 above.

9

@BelknapPoint

Yes, I will look to the formulas your mentioned in Post #2. Thanks!

Is there anyway I can fix the typographical errors, i.e., 44… should have been 45…, above?

Thanks, again, for your help!

Joe

10

@joecoletta

The single thing to remember. The FAFSA EFC is largely based on parent income (and assets). But mostly parent income unless the family has HUGE assets.

So…would your child qualify for a full Pell Grant of $6095 if you used only your income? To qualify for the full amount, your FAFSA EFC would have to be $0.

11

It has become painfully obvious to me that I did not properly ask one or more questions or clearly explain my concern and will now try to correct those shortcomings. (Should I ask this question in a new thread?)

The issue I am trying to understand is if each of my two children receive distributions in 2018 from their respective 529 account owned by their grandparents’ where each account lists them individually as the beneficiary, will receiving these distributions in 2018 cause their 2020-2021 Pell grants to be reduced.

I find I understand complex issues best by asking questions in the context of an example; so here goes…

Let’s assume both of my children have no taxed or untaxed income in TY 2018 except for each of them receiving approximately $3,000 in distributions, which is well under their IPA, from their individual 529 savings plans owned and funded by their grandparents.

My question is: Given the scenario above, would the amounts of my children’s Pell grants in AY 2020-2021 be greater if they had not received the $3,000 in distributions from their individual 529 savings plans owned and funded by their grandparents?

12

FAFSA EFC determines the amount of the Pell grant. A link to the FAFSA EFC formulas has been provided for you. Why are you so resistant to plugging your hypothetical numbers into the appropriate formula so that you can get your own answer? Why are you expecting someone else to do this work for you?

13

@joecoletta

No way to answer your question. Much depends on YOUR income and assets from 2018 for that 2020-2021 academic year…and 2018 isn’t over yet.

I would suggest you run YOUR numbers through the link provided upstream. Really…no one here can give you advice based on a hypothetical scenario.

14

Nobody can answer this because we don’t know your full financial situation – your household income, assets, etc. The question cannot be answered just by knowing the amount of the 529 distribution. That’s why you have to run the numbers yourself using the link @BelknapPoint provided.

15

The $3000 given to each child is not income for that child so isn’t under the ~$6800 income protection allowance.

16

@twoinanddone In other threads, experts have said that a distribution from a grandparent IS income. That’s why families are advised to be careful with grandparent 529s and not to take a distribution until spring semester of sophomore year (assuming the student is graduating in 4 years.)

17

I am sorry, but I must respectfully disagree; although, I am sure the only reason I am being disagreeable is my ignorance. I probably should have started with, “I am sorry, but I must ignorantly disagree.” (Please accept this introduction in the light-hearted spirit in which it is intended. Thanks! Joe)

Despite my ignorance, since my question was not seeking a quantitative answer, I thought the scenarios I previously provided were sufficient to allow someone to provide me with a confident Yes (the AY 2020-2021 Pell grant would be less than it would have been had your son not received the 529 distribution in 2018) or No (the AY 2020-2021 Pell grant would remain unchanged since the 529 contribution in 2018 would not have increased your son’s AY 2020-2021 Available Income because your son’s AY 2020-2021 Total Income with the 529 contribution included is still less than his IPA). Obviously, I was wrong.

I think I have now provided enough information below for someone to be able to determine if the Pell grants would be affected by using money from the 529 account owned by my parents, but I am probably wrong, again.

If we consider the following…

(1) In AY 2018-2019, my son and daughter both had $0 Total Income (before the IPA), both had a 2596 EFC, and both received a $3,546 Pell grant; i.e., $1,773 per semester.

(2) I am forecasting that the only significant change in my family’s finances will be both children will earn $2,500 from a Federal Work-Study Job during TY 2019 and TY 2020. (Neither child had Federal Work-Study jobs during TY 2018.)

(3) If my forecast above is correct, I expect my son and daughter will each be awarded Pell grants valued between $3,000 and $3,500 in AY 2020-2021.

So, my question is …

Despite the actual amount of my children’s AY 2020-2021 Pell grants, would their Pell grants be smaller if my children used 529 dollars in 2018 provided their AY 2020-2021 Total Incomes including the 529 contributions received in 2018 were less than the IPA for AY 2020-2021?

Thanks, in advance, to anyone whose chooses to leave an answer.

Sincerely,

Joe

FYI…

In the spirit of playing fair, I will not return here until after I have modeled my question using the 2018-2019 EFC-DEPENDENT Excel ™ Worksheet and determined not only the Yes or No answer, but an estimate of what the effect, if any, the 2018 use of 529 dollars might have on my children’s Pell grants. (It will be interesting to see if there is agreement between the results of my calculations and any Yes/No answers that people might provide.)

18

Before I posted my first question here, I captured every single data point needed to completed my son’s and daughter’s AY 2019-2020 FAFSA (Basis Year: 2017) in the same Excel spreadsheet I used last year to capture every single data point needed to complete my son’s and daughter’s AY 2018-2019 FAFSA (Basis Year: 2016).

In addition, before I posted my first question here, I ran my son’s AY 2018-2019 and AY 2019-2020 FAFSA data through the following EFC calculators with and without a hypothetical $3,000 529 distribution.

  1. Your EFC-DEPENDENT Excel-based Calculator,
  2. CollegeBoard’s EFC Calculator, and
  3. FSA’s FAFSA4Caster

This exercise allowed me to confirm my son’s and daughter’s EFC and Pell grant and it also confirmed my suspicion that using 529 contributions would NOT affect my children’s Pell grants provided the 529 contributions do not cause my son’s and daughter’s Total Income to exceed their IPA.

However, concluding that (limited) 529 contributions did not negatively impact my children’s Pell grants created a conundrum for me on two fronts. First, my financial advisor, who is paid by retainer, insists that if my kids use any of their grandparents’ 529 dollars before their junior year, their Pell grants will disappear. Second, using 529 dollars before the end of the sophomore year is contrary to most of the advice I have received related to 529 distributions.

So, I decided before going toe-to-toe with my financial advisor over using 529 dollars this Fall, I would first ask a few YES/NO questions here with only the minimum amount of information needed for someone familiar with EFC and Pell grant calculations to answer my questions without getting all caught up in the minutia of 110+ FAFSA questions.

It took me approximately 3 weeks to:

  1. Collect all of the available .GOV and .EDU advice on EFC and Pell grant calculations,
  2. Collect all of my 2017 data for the upcoming FAFSA,
  3. Identify and select the most desirable EFC calculators,
  4. Run all of the necessary models, and
  5. Address any issues and concerns that arose while executing steps 1 through 4.

Only after these 3 weeks of preparation did I posted my first two questions.

Why did I not embrace my conclusions and feel it necessary to validate my conclusions here by asking my initial questions, you ask. Well, I do not know what I do not know and I wanted to be doubly sure I was right before I tell my financial advisor that he is wrong.

19

Regarding my offer to help update the CollegeConfidential EFC DEPENDENT Calculator, I am confident in my newly acquired understanding of the regulations and promulgations related to both EFC and Pell grant calculations and my longstanding knowledge of Excel programming, and hope I can help others by helping this Forum with its EFC Calculator.

Respectfully,

Joe Coletta

20

Why does anyone with a financial adviser (on retainer, no less) and grandparents paying some of the college expenses feel it is so necessary to protect $3000 in Pell grant money.

I don’t think you are going to find a lot of sympathy here if your kids lose a little Pell grant money, but if you want to be 100% sure that they will get the Pell grant, turn down the money from the grandparents or delay taking it until junior year. Your kids could easily earn that money with summer jobs too.