Need some help paying for college? The first thing you need to do is to file your Free Application for Federal Student Aid (FAFSA). Worried that you won't qualify for aid? Even parents and students who have some savings may still be eligible. Colleges and universities use the information from your FAFSA and federal tax return to calculate your Expected Family Contribution (EFC). However, not all funds are treated equal. The following slideshow explains the different effects that seven household assets can have on your financial aid eligibility.
Read on to get a better idea about how much you might be eligible for!
Since the 2017-18 FAFSA, instead of using prior year income as 'base year' income, the FAFSA uses prior-prior year income. For example, the FAFSA will report 2016 calendar year income for the 2018-19 Expected Family Contribution (EFC) determination instead of 2017 calendar year income.
A student's financial aid package can be reduced by as much as 50% of the value of student income reported on their FAFSA. That means if a grandparent gifts $10,000 to help pay for his grandchild's college, it could reduce the student's federal financial aid by $5,000 the following year. This includes withdrawals from a 529 plan. To avoid this, we typically advise grandparents to wait until the grandchild's junior year of college (after he or she files their last FAFSA) to help pay for college.
Prior-prior reporting offers grandparents greater flexibility in tapping their 529 accounts for grandchildren, allowing them to provide financial support as early as the student's sophomore year, after the second-to-last FAFSA is filed.
It's also worth noting that gifts to the parent do not get reported as income on the FAFSA. They must still be reported as an asset to the extent that they are not yet spent as of the date the FAFSA is filed. So, alternatively, the grandparents could give the money to the parent.