Finding financial aid as a married student

By: Savingforcollege.com

Q:

Dear Joe, My boyfriend and I have a dilemma that no one seems able to solve. It appears that if we marry before he completes the majority of his degree, he will qualify for less in federal school loans, if at all. We're looking at approximately $50,000 in tuition alone. I'm a self-employed sole proprietor of an expanding service business -- even in this economy! It seems that as his wife, my gross income -- not my net -- will be used to determine my ability to pay for his education. To finish as quickly as possible, he will most likely not work much while in school. Ideally, he wouldn't work at all. There is no way that my net income will cover his education on top of our San Francisco rent, food and my own school loans! What are our options for financing his education? Are we limited to waiting to marry and/or (taking) out private loans? To add to the debacle, because of my age, we may have our first child before he finishes school. It'd be great to be married and for him to be close to graduation before having a baby! Help! -- Susie

A:

Dear Susie,

Your boyfriend's situation is not as dire as you think. It's true that once married your income and assets will normally be combined with his in determining his "expected family contribution" in the federal aid formula, and a higher contribution leads to less need-based aid. But only the net income from your business -- not your gross sales -- is counted. More specifically, the Free Application for Federal Student Aid, or FAFSA, asks for adjusted gross income, which for a self-employed individual includes the net income from Schedule SE of your tax return.

Being married may actually improve your boyfriend's eligibility for need-based federal aid. Unlike most undergraduate students, he will automatically be considered "independent" and will not have to include his parents' assets and income on the FAFSA, as most undergraduates are required to do. Note that the federal government looks at the marital status of the student on the date the FAFSA is filed, so your boyfriend should consider whether it's best to fill out and sign the application before or after the day you get married.

Having, or expecting, a child can help even further when it comes to qualifying for financial aid, as the formula provides more shelter for your combined income and assets.

The best way to plan for all these variables and compare outcomes under different scenarios is to use Savingforcollege.com's simple financial aid calculator. You can access other tools at Web sites run by the College Board and the U.S. Department of Education.

If after all is said and done your boyfriend finds he is not eligible for need-based aid, don't despair. Federal student loans will still be available to him under the Stafford Loan program, although the terms are not as advantageous as they would be for a student with financial need. And remember, federal aid of any type is unlikely to pay for all of his schooling. Other sources will need to be tapped along the way.

Popular Questions

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Two kids, two 529 plans?

Dear Big Bill,
While it's possible to maintain a 529 plan in just one child's name, even when you intend to send more than one child to college, I generally recommend that families open a separate 529 account for each child.

That's assuming there is no additional cost to maintaining multiple accounts. If your 529 plan charges an annual or quarterly account maintenance fee, check to see if you can avoid the fee by signing up for automatic contributions through payroll deduction or electronic funds transfer)

With a separate 529 plan for each child, it becomes easier for you to tailor the mix of stocks, bonds and stable-principal investments (e.g., stable value, guaranteed principal and money market funds) to the particular ages of your children. When your older child is nearing high school graduation, you may want to ratchet down the level of market risk in her 529 plan. At the same time, you could keep a more-aggressive asset allocation in your younger child's 529 plan, accepting more risk for a potentially higher return. Many 529 plans offer "age-based" investment options that automatically make these adjustments as the beneficiary ages.

Separate accounts for your children also offer more gift-tax leeway. Since your 529 contributions are treated as gifts from you to the account beneficiary, your $15,000 (in 2018) annual gift exclusion will go twice as far with two accounts -- one for each child -- than with just one account.

Financial aid is another reason to recommend maintaining separate accounts. You wouldn't want the investments reserved for your younger child's future college expenses to count against your older child's financial aid eligibility. Be warned: The rules here are rather murky, and the impact of a sibling's 529 account may depend on the college's own policies as well on as the type of aid -- federal or institutional -- being sought.

Finally, I believe that separate 529 accounts allow for better family bookkeeping. There will never be any doubt as to your intention to help send all of your children to college. You'll avoid the uncomfortable position of being asked to explain to a curious 8th-grader why account statements are showing up in the mail with only a brother or sister's name on them. And in the event of your death or divorce, no matter how unlikely, your legal representatives and other family members will have less reason to question your actions in setting up and funding the 529 plans.

Even with separate accounts, you'll continue to have the flexibility to shift the money around in the future. You simply need to make sure that whenever funds are withdrawn from the 529 plan to pay for college they are coming from an account in the name of the child incurring the costs. It's a simple matter to change the beneficiary designation among family members at any time, transfer 529 funds between different family members' accounts or split one 529 account into two. The ability to move assets around the family is a key advantage of 529 plans when comparing other college-savings alternatives, such as Uniform Transfers to Minors Act, or UTMA, accounts.

Original Post: 2005-10-13
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The Coverdell ESA and the 529 plan are both excellent college savings vehicles because they are both tax-free when used for college. But many families face a choice: do they use a 529 plan for all of their child's college savings, or do they use a Coverdell for the maximum amount of $2,000 each year and put any any extra savings above $2,000 into a 529 plan? In spite of its low annual contribution cap, Coverdell's are now attracting quite a few families. There are two major reasons for that. One is that only the Coverdell allows you to self-direct your investments, just like you might self-direct the investments in your IRA. The other is that in addition to college expenses, Coverdells can be withdrawn tax-free to pay for a broad range of K-12 expenses, while 529 plans are limited to K-12 tuition. This feature is appreciated most in families planning to send their children to private grade schools, which may include additional costs such as room and board or uniforms. A 529 plan, on the other hand, does not impose age limits or income limits like the Coverdell does and so overall we see a lot more money going into 529 plans than into Coverdells. Plus many savers are happy with the investment choices offered by the 529 plans and don't necessarily want to self-direct their investments. And don’t forget this: your state may be giving you a state tax deduction for using a 529 plan, but there are no states offering a state tax deduction for investing with a Coverdell ESA.

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