<p>The life insurance payout has to be reported as required. The family can then request a special circumstances review. One thing a school “can” do (is not required to do, as it is PJ), is pull the amount out of income and only count it as assets. It would be wise to pay the bills before requesting the review, and submit the receipts with the request, to show what the money was spent on … the amount assessed toward assets can be reduced by that amount (most aid officers won’t reduce the assets by what someone “will” pay - the paid bills should be presented as evidence that the money has been spent and for what purpose). This would be more beneficial. It is hard to justify just ignoring a bunch of money. There has to be some assignment of the money to the EFC formula, and if some is not assigned (such as money used to pay for hospital and funeral bills), there needs to be documentation of why that determination was made.</p>