Progression has reached federal student aid as news that the FAFSA form will now recognize parents that are also same-sex couples.

Currently, the Free Application for Federal Student Aid referred to “mother/stepmother” and “father/stepfather” in reference to obtaining information about an applicant’s parents.

As a result, applicants with same-sex parents had no choice but to either choose to classify parents at random in the “mother” and “father” categories or exclude one parent from the form all together. [gate]

This creates problems because the children of same sex parents are forced to create applications where their family structure is not correctly represented, thus making the form inaccurate. Students will be able to accurately claim their financial status and reflect their true financial needs since both parents will be represented on the form.

Beginning on the 2014-2015 FAFSA form, applicants will be able to accurately list their parentage under “Parent 1” and “Parent 2,” marking the first time that the department will be collecting data for same-sex parents the same way as heterosexual parents.

In a press release, Secretary of Education Arne Duncan stated that the form changes would, “ensure taxpayer dollars are better targeted toward those students who have the most need” and “provide an inclusive form that reflects the diversity of American families.”

Duncan also stated that the percentage of affected families or the monetary amount resulting from any award reductions were not taken into consideration when deciding to update the FAFSA form.

“We don’t know whether it will cost more or less. We just think it’s more accurate, more inclusive, more fair, and better reflects the reality of young people’s family circumstances,” said Duncan.

The change allowing all families to be treated equally on the document will also ensure that the process is not delayed for students that are children of same-sex parents, which has been an issue in the past.

In addition, this change will likely lead to progression throughout the entire financial aid system, since many organizations, non-profits and government agencies create their applications while referencing the well-known FAFSA document.

While only a small percentage of applicants will be affected, the April 29th announcement was a huge step forward, as far as the LGBTQ community is concerned, even though it could actually reduce the amount of aid granted to children of same-sex couples because both parents’ income will be eligible for consideration.

Why do the government and colleges use last year's income to determine
financial aid for the current year? Our financial situation has
changed, my husband was laid off last year but our FAFSA looks
okay because of his severance pay. We need financial aid help in order
to help our daughter who wants to attend college in the fall.
How can we qualify for a Pell Grant when last year's income is used to
determine our eligibility?
— Anonymous

Financial aid application forms start with the previous year's income
because this information is verifiable. It can be compared with
information reported to the IRS on W-2 and 1099 statements and the
taxpayer's federal income tax return. It is also a reasonably accurate
proxy for the family's income during the award year.

However, sometimes there are unusual circumstances that can cause the
previous year's income to not reflect the family's ability to
pay. These can include one time events, such as a special bonus or
inheritance. These can also include job loss and salary reductions,
high unreimbursed medical and dental care expenses, high dependent
care costs for a special needs child or elderly parent and private
K-12 tuition for the student's siblings. Unusual circumstances can
include anything that has changed since the start of the previous tax
year and anything that distinguishes the family from the typical
family.

Families who are affected by an unusual circumstance should ask the
college financial aid administrator for a professional judgment review
(PJ). Some colleges call it a special circumstances review or a
financial aid appeal.

Families can appeal for more aid at any time, not just at the start of
the financial aid application season. If a job loss occurs in the
middle of the year, the family can and should ask for PJ then and not
wait until the next year.

Ask the college financial aid administrator about the college's
procedures for a professional judgment review. Some colleges ask the
family to complete a special form that is designed to elicit details
about the family's financial situation. Others ask the family to write
a letter summarizing the unusual circumstances.

In both cases the process is driven by independent, third party
documentation. For example, if a primary wage-earner lost his or her
job, supply the college with a copy of the layoff notice and a copy of
a recent letter showing the receipt of unemployment benefits within
the last 90 days.

When a family is affected by job loss, often the college will switch
from the previous year's income to an estimate of the current year's
income. This estimate will take severance pay and unemployment
benefits into account.

I am trying to advise two students whose mother died four years ago
and their father died last week, unfortunately. The girls' grandmother
is now taking care of them (a 9th and 10th grader) and we are
concerned about the possible college financial ramifications. They
are in the process of determining the Social Security benefits from
their father's contributions. Once that amount is established (depends
on claims), it may be advantageous financially for the grandmom to
adopt them. However, will it be an advantage on college financial
award/need-based aid to be an orphan or the adopted "child" of a
"mother" who will be 70+ at the time they apply for college.
— D.P.

An orphan is a child both of whose parents are dead. But is a child
who is adopted after the death of both biological parents still
considered an orphan? How does a student's status as an orphan affect
eligibility for need-based financial aid?

The Higher Education Act of 1965 specifies that a student who was an
orphan at any time since reaching age 13 or older is considered an
independent student even if the student is subsequently adopted. This
definition was enacted by the College Cost Reduction and Access Act of
2007 (P.L. 110-84), effective July 1, 2009.

The current statutory language appears in 20 USC 1087vv(d)(1)(B):

The term "independent", when used with respect to a student, means any
individual who —

...

is an orphan, in foster care, or a ward of the court, or was an
orphan, in foster care, or a ward of the court at any time when the
individual was 13 years of age or older;

The previous language appeared in 20 USC 1087vv(d)(2) and read "is an
orphan or ward of the court or was a ward of the court until the
individual reached the age of 18."

The dependency status of each girl is determined separately from the
other.

(A student can also qualify as an independent student if the student
is in a court-ordered legal guardianship, or was in a court-ordered
legal guardianship prior to reaching the age of majority. The legal
guardianship must have been determined by a court of competent
jurisdiction in the student's state of legal residence.)

So if the orphaned girls are age 13 or older at the time of their
adoption, their adoption by the grandmother will not affect their
status as independent students. (Placing the girls into a
court-ordered legal guardianship before they reach the age of majority
will also cause them to be considered independent students.) An
independent student does not report the income and assets of the
student's biological or adoptive parents on the Free Application for
Federal Student Aid (FAFSA).

But if a student is an independent student, any financial support
provided by the grandparents to the student will be counted as untaxed
income to the student on her financial aid application forms.

[page]

If the girls are adopted before reaching age 13, they will be
considered dependent students and the income and assets of the
adoptive parents must be reported on the FAFSA. But then the support
the student receives from her adoptive parents is not reported as
untaxed income to the student.

Whether independent student status yields more or less financial aid
will depend on the tradeoff between counting the income of the
adoptive grandparent versus counting the financial support from the
grandparent.

Generally, if the grandparent's sole source of financial support is
Social Security retirement benefits, the student might qualify for
more financial aid as a dependent student, since most of the
grandparent's income will be sheltered by the income protection
allowance and various tax allowances. Otherwise the students will
likely qualify for more financial aid as independent students.

There are other aspects of the financial aid formulas that may affect
the amount of financial aid the student receives. Life insurance
proceeds are reported as an asset on the FAFSA and may affect
eligibility for need-based aid. However, if an independent student's
income was less than $50,000 and the student filed or was eligible to
file an IRS Form 1040A or 1040EZ, the student will qualify for the
simplified needs test, which causes assets to be
disregarded. The student can also qualify for the simplified needs
test by having anyone in the student's household receive certain
means-tested federal benefits, such as SSI, SNAP, free and reduced
price school lunch, TANF or WIC, instead of the income tax return
requirement. (For a dependent student, the income and tax return
criteria apply to the student's parents and the parent's household.)

In addition to the simplified needs test, there is automatic zero
EFC, which substitutes a lower income threshold ($24,000 in
2013-14). If a student qualifies for automatic zero EFC, the student's
EFC is set to zero and the student will receive a full Pell Grant. But
automatic zero EFC is available only for dependent students and for
independent students who have a dependent other than a spouse. An
independent student who does not have a dependent other than a spouse
is not eligible.

There are a variety of scholarships for orphans, which can be found by
searching the Fastweb scholarship database. Some of these scholarships
treat an adopted child differently than an unadopted orphan. But
usually the distinction is drawn between children who are in foster
care versus children who are not in foster care.

Everyone wants a slice of the American Dream and, in this modern day, going to college is essential to success. Forget the Jones’, these days Americans are finding it increasingly difficult to keep up with the very student loans they took out to help ensure future success.

So, what happens when they very institution that’s supposed to safeguard your future now sabotages it with years’ worth of debt? Experts aren't completely agreed upon in terms of how to go about solving the crisis but, judging by these numbers, we’d say the issue runs pretty deep.

Here are some shocking student loan debt numbers, via the Huffington Post: [gate]

$1.1 trillion:

37 million:

2:

$101.8 billion:

Nearly 300 percent:

$26,600:

40 percent:

More than 80 percent:

Nearly 1 in 5:

6.8 percent:

More than 1 in 10:

22.7 percent:

Keep your fingers crossed for a swift solution on the student loan crisis because numbers of this magnitude don’t just resolve themselves.

I'm currently an MBA student who has a VERY adverse credit
history. Part of which includes a defaulted Federal Loan. I'm halfway
through my first year of business school and find myself needing more
money. I've found someone who does not have an adverse credit history
who is willing to cosign. I'm worried that I still won't receive the
loan. What are the chances that I will be approved for the Grad
PLUS Loan with the cosigner? If not, are you aware of any other
avenues for someone who is in my position?
— A.P.

There are two separate issues. One relates to eligibility for federal
student aid in general. The other relates specifically to eligibility
for federal student loans.

Per the regulations at 34 CFR 668.32(g)(1), a student who is in
default on a federal student loan — such as a Federal Perkins,
Federal Stafford or Federal PLUS loan — is ineligible for any
federal student aid. (A Federal Parent PLUS loan borrower must
likewise not be in default on a federal education loan.)

However, a borrower who is in default on a federal education loan may
nevertheless qualify for federal student aid if the borrower
rehabilitates
the defaulted loan or repays the loan in full, per the regulations at
34 CFR 668.35. To rehabilitate a defaulted federal education loan, the
borrower must make six consecutive on-time full voluntary monthly payments
under an arrangement that is satisfactory to the holder of the
loan. These payments cannot include involuntary payments made through
wage garnishment or the offset of federal and state income tax
refunds. (The payments, however, must also be "reasonable and
affordable.") To be considered on-time, the payment must be received within
15 days of the due date. Rehabilitation is a one-time opportunity to
regain eligibility for federal student aid.

To be eligible for the Federal PLUS loan, the borrower must not have an
adverse credit history. An adverse credit history is defined in the
regulations at 34 CFR 685.200(c)(1)(vii)(B) as including a
current delinquency of 90 or more days on any debt or having had
certain derogatory events within the last five years. These derogatory
events include bankruptcy discharge, foreclosure, repossession, tax
lien, wage garnishment or default determination. It also includes the
write-off of federal education loan debt.

Borrowers who are rehabilitating a defaulted federal education loan
can clear the default from their credit history by making 9 out of 10
consecutive, voluntary, on-time, reasonable and affordable monthly
payments under an arrangement satisfactory to the loan holder. To be
considered on-time, the payment must be received within 20 days of the
due date for Federal Stafford and Federal PLUS loans and within 15
days of the due date for Federal Perkins loans.

A borrower who has an adverse credit history may nevertheless still
qualify for a Federal PLUS loan by documenting to the satisfaction of
the US Department of Education that extenuating circumstances exist.

Extenuating circumstances can include evidence that the debt was
included in a Chapter 13 bankruptcy (as opposed to a Chapter 7, 11 or
12 bankruptcy), a divorce decree showing that the borrower is not
responsible for repayment of the debt, proof that a defaulted federal
education loan was repaid through consolidation and the consolidation
loan is not delinquent, documentation that the wage garnishment has
been released, documentation that a short sale has been approved and
completed, documentation that the mortgage has been paid in full,
documentation of an executed loan modification agreement, or
documentation that the derogatory event occured more than five years
ago, among other circumstances.

To ask for a review based on extenuating circumstances, select
"Document Extenuating Circumstances" on the left-side navigation after
logging in to StudentLoans.gov or call Applicant Services at
1-800-557-7394.

Borrowers can also qualify for a Federal PLUS loan despite an adverse
credit history by presenting the US Department of Education with
evidence that demonstrates that the credit report information that
caused the borrower to have an adverse credit history is incorrect.

Finally, borrowers can qualify for a Federal PLUS loan despite an
adverse credit history by obtaining an endorser (cosigner) who does
not have an adverse credit history. The extenuating circumstances
exceptions do not apply to the endorser.

So long as the student is not in default on a federal student loan and
the cosigner does not have an adverse credit history, the student
should qualify for the Federal Grad PLUS loan. But if the student is
in default on a federal student loan, the student will not qualify for
a Federal Grad PLUS loan even with a creditworthy cosigner.

A student who is denied a Federal Grad PLUS loan because of an adverse
credit history is unlikely to qualify for a private student
loan. However, the student might qualify for the private student loan
with a creditworthy cosigner.

The President's budget for fiscal year 2014, which was released on
April 10, 2013, includes a proposal for switching new federal student
loans to a hybrid fixed/variable interest rate scheme starting July 1,
2013. A similar proposal was introduced the day before by several
Republican Senators as the
Comprehensive Student Loan Protection Act (S.682).

Subsidized Stafford Loan Rate May Double

Currently, the subsidized Stafford, unsubsidized Stafford and PLUS
loans have fixed interest rates of 3.4%, 6.8% and 7.9%,
respectively. The interest rates on new subsidized Stafford loans will
double to 6.8% on July 1, 2013 unless Congress acts to block the
increase.
US PIRG
has proposed a one-year extension to the 3.4% interest rate until a
more permanent solution can be enacted.
(See
A Primer on the Doubling of the Subsidized Stafford Loan Interest Rate
for an analysis of the financial impact on borrowers of the increase
in the interest rate.)

Hybrid Fixed/Variable Interest Rates

Under the hybrid fixed/variable interest rate proposals, federal
education loans would continue to have fixed interest rates, but each
year's new loans would have a fixed rate based on market rates, pegged
to the 10-year Treasury rate plus a margin, without any caps on the
interest rates. The 8.25% cap on new Federal Direct Consolidation
Loans would also be eliminated.

The Republican proposal would set the interest rates on all new
Stafford and PLUS loans to the 10-year Treasury rate plus
3.0%. Assuming the current 10-year Treasury rate of 1.72% (as of April
5, 2013), that would yield a current rate of 4.72%. This interest rate
would be lower than the current unsubsidized Stafford and PLUS loan
interest rates but higher than the current subsidized Stafford loan
interest rate.

The President's proposal would set a different interest rate on each
loan. The interest rate on new subsidized Stafford loans would be set
to the 10-year Treasury rate plus 0.93% (currently 2.65%). The
interest rate on new unsubsidized Stafford loans would be set to the
10-year Treasury rate plus 2.93% (currently 4.65%). The interest rate
on new PLUS loans (including both Parent PLUS and Grad PLUS loans)
would be set to the 10-year Treasury rate plus 3.93% (currently
5.65%). These interest rates are all lower than the current interest
rates.

Note that the proposed interest rates would apply only to new federal
education loans. The interest rates on existing federal education
loans will not be affected under either proposal.

Low Rates Now May Mean Higher Rates Later

While these proposals will initially reduce the interest rates on
federal education loans, that is an artifact of the current unusually
low interest rate environment. The interest rates will eventually
increase and may ultimately be much more expensive than the current
6.8% and 7.9% fixed rates on Stafford and PLUS loans. There is no cap
on these interest rates.

[page]

The interest rates proposed for the unsubsidized Stafford loan —
the 10-year Treasury rate plus 2.93% or 3.0% — are similar to
the old CMT plus 3.1% variable interest rate that was available on
PLUS loans made before June 30, 1998, but without any cap on the
interest rate. Effectively the hybrid interest rates represent
interest rate increases masquerading as interest rate cuts.

If interest rates were to return to pre-credit crisis levels, the
interest rates on the unsubsidized Stafford loan will increase to
about 8.0% under both proposals, much higher than the current 6.8%
interest rate. (The interest rates on the subsidized Stafford loan
will increase to 6.0% and on the PLUS loan to 9.0% under the
President's proposal and 8.0% under the Republican proposal.) But it
could be even worse, since there are no caps. Based on 10-year
Treasury rates from the early 1990s, the interest rate on the
unsubsidized Stafford loan could be as high as 12.0%. (The interest
rates on the subsidized Stafford loan will increase to 10.0% and on
the PLUS loan to 13.0% under the President's proposal and 12.0% under
the Republican proposal.)

Both proposals would save the federal government tens of billions of
dollars over a 10-year period, money that would be paid by future
borrowers.

The Republican proposal would use the savings for deficit
reduction. The President's proposal would use the savings to expand
eligibility for the Pay-As-You-Earn Repayment (PAYER) plan to all
borrowers. Currently borrowers must have at least one loan disbursed
in FY2012 or a subsequent year (on or after 10/1/2011) and no loans
from prior to FY2008 (before 10/1/2007) to qualify for this repayment
plan.

The President's FY2014 budget also reintroduces a proposal to expand
the Perkins loan program from $1 billion a year to $8.5 billion a year by
turning it into an unsubsidized Stafford loan, designed to replace
private student loan borrowing. The increased revenue from the
unsubsidized Perkins loans would be used to fund an expansion in the
number of Federal Work-Study jobs, doubling the number of Federal
Work-Study jobs over a 5-year period. In the first year there would be
112,000 additional recipients of Federal Work-Study jobs, out of a
total of 809,000 recipients, and total Federal Work-Study funding
would increase by $150 million as compared with 2012.

Lack of Interest Rate Caps Yields a Bad Bargain

Trading off lower interest rates now for higher interest rates later
is a bad bargain. Even if interest rate caps are added to the
proposals to prevent double-digit interest rates, these proposals
still draw attention away from the real problem, which is the growth
in the amount of debt. New Stafford and PLUS loan debt will total about $117
billion in FY2014. Average debt at graduation continues to grow
every year because of the failure of grants to keep pace with
increases in college costs. The federal and state governments continue
to cut their support of postsecondary education on a constant
dollar per-student basis. The most effective way of making college
more affordable is to reduce debt by increasing grants, not by
tinkering with the interest rates.

The President's FY2014 budget proposes to increase the maximum Pell
Grant to $5,785 in 2014-15, up from $5,645 in 2013-14, a 2.48%
increase. A total of 9.4 million students would receive Pell
Grants. That's a baby step in the right direction. But much more money
is needed to make a dent in college affordability, not just a small
$140 inflationary increase in the maximum grant. Instead of discussing
the possible doubling of student loan interest rates, student aid
advocates should be demanding that Congress double the maximum Pell Grant.

You've mentioned previously that while Parent PLUS loans are
nominally eligible for public service loan forgiveness, they are not
eligible for IBR or ICR, which leaves nothing left to forgive. Is
there no relief for Parent PLUS loans altogether? Or, is there any way
for Parent PLUS loans to qualify for loan forgiveness?
— Anonymous

Federal Parent PLUS loans are not eligible for income-based
repayment. They are, however, eligible for income-contingent repayment
if they are included in a Federal Direct Consolidation Loan and the
borrower entered repayment on or after July 1, 2006. This
consolidation loan may then qualify for public service loan
forgiveness (PSLF).

Federal student loans, such as Federal Stafford loan and Federal Grad
PLUS loan, are eligible for income-based repayment (IBR) and
pay-as-you-earn repayment (PAYER). They are also eligible for
income-contingent repayment (ICR), an earlier version of income-based
repayment. These repayment plans base the monthly loan payment on a
percentage of discretionary income, as opposed to the amount you
owe. They often yield a lower monthly payment than under other
repayment plans, especially for borrowers whose total federal student
loan debt exceeds their annual income.

Federal parent education loans, such as the Federal Parent PLUS loan,
are not eligible for income-contingent repayment, income-based
repayment or pay-as-you-earn repayment.

(Private student loans are also not eligible for income-contingent
repayment, income-based repayment or pay-as-you-earn
repayment. Private student loans, also known as alternative student
loans, are non-federal loans that are not guaranteed or funded by the
federal government.)

All Federal student and parent loans are eligible for standard 10-year
repayment, graduated repayment and extended repayment. Graduated
repayment starts off with monthly payments at or slightly above an
interest-only payment and increases the monthly payment every two
years. The final payment is no more than three times the initial
payment. Extended repayment is a level repayment plan like standard
repayment, but may use a repayment term of 12, 15, 20, 25 or 30 years,
depending on the amount owed.

Federal student and parent loans are both eligible for public service
loan forgiveness. Public service loan forgiveness forgives the
remaining debt after ten years of full-time employment in a public
service job for borrowers who repay their loans under the
income-contingent repayment, income-based repayment, pay-as-you-earn
repayment or standard repayment plans. However, because Federal Parent
PLUS loans are not eligible for the income-contingent, income-based or
pay-as-you-earn repayment plans, the only qualifying option is to
repay the loans under standard repayment. (Even if Federal Parent PLUS
loans were eligible for income-contingent or income-based repayment,
the regulations at 34 CFR 685.219(c)(1)(iv)(A) and (B)
specifically exclude allowing Federal Parent PLUS loans that were
repaid under these repayment plans to qualify for public service loan
forgiveness.) But the debt will be paid in full after ten years of
payments under standard repayment, theoretically leaving nothing left
to forgive.

[page]

ICR and PSLF for Parent PLUS Loans

But there is a workaround that may allow some borrowers to qualify for
ICR and public service loan forgiveness.

Borrowers who entered repayment on or after July 1, 2006 may repay a
Federal Direct Consolidation Loan under the income-contingent
repayment plan even if the consolidation loan repaid Federal Parent
PLUS loans, per the regulations at 34 CFR 685.208(a)(2)(iii) (or 34
CFR 685.208(a)(2)(iv)(D), as amended November 1, 2012). This enables
recent Federal Parent PLUS loans to qualify for public service loan
forgiveness if and only if they are included in a Federal Direct
Consolidation Loan. Unconsolidated Federal Parent PLUS loans are not
eligible. The Federal Direct Consolidation Loans are also eligible for
25-year forgiveness for borrowers who don't qualify for public service
loan forgiveness, after 25 years of payments under income-contingent
repayment, standard repayment or the economic hardship deferment.

Federal Direct Consolidation Loans that refinance a Federal Parent
PLUS loan, however, are not eligible for the income-based or
pay-as-you-earn repayment plans.

The availability of ICR for Federal Parent PLUS loans may enable
retired parents on fixed income to save money by stretching out the
repayment term on the Federal Parent PLUS loans, similar to the
method suggested for federal student loans in
Ask Kantro: People Retiring with Student Loans May Save Money with Income-Based Repayment.

(The regulations are ambiguous whether "entered repayment" means just
on the Federal education loans in question or on any of the borrower's
Federal education loan. If the former interpretation applies, a
borrower with Federal Parent PLUS loans entering repayment prior to
July 1, 2006 might qualify for income-contingent repayment by
consolidating the loans into a Federal Direct Consolidation loan that
enters repayment on or after July 1, 2006. However, the latter
interpretation appears to be the correct interpretation, meaning that
only the more recent Federal Parent PLUS loans may qualify for
income-contingent repayment through consolidation and only if the
borrower did not enter repayment on any federal education loans prior
to July 1, 2006.)

Federal Direct Parent PLUS loan borrowers and borrowers of Federal
Direct Consolidation Loans that repaid a Federal Parent PLUS loan may
also petition the US Department of Education to allow repayment under
an alternate repayment plan. The borrower must demonstrate that the
terms and conditions of the other repayment plans are "not adequate to
accommodate the borrower's exceptional circumstances." Alternate
repayment plans are described in the regulations at 34 CFR 685.208(l)
and in practice are similar to the income-contingent and income-based
repayment plans. The alternate repayment plan is not eligible for
public service loan forgiveness or the 20-year or 25-year forgiveness
available under income-contingent, income-based or pay-as-you-earn
repayment.

Generally, Federal Parent PLUS loans are not eligible for other
federal loan forgiveness programs, such as teacher loan forgiveness.
They may, however, be eligible for the student loan repayment programs
sponsored by federal agencies under the authority of 5 USC 5379. They
may also be eligible for non-federal loan repayment and loan
forgiveness programs.

Federal Parent PLUS loans are eligible for other options for financial
relief, such as deferments, forbearances and the total and permanent
disability discharge.

Financial aid is an inherently complicated topic. Sometimes
students and parents have questions that may seem obvious to
people who have more experience with financial aid. But they can't
find the answers they need. This week's Ask Kantro column addresses
several such questions.

Hi. I was wondering how or where you can apply for the federal
supplemental educational opportunity grant. I can't seem to find out?
I already filled out my FAFSA. I did qualify for a Pell
Grant. Any info would be great.
— C.T.

Students apply for the federal supplemental educational opportunity
grant (FSEOG) by filing the Free Application for Federal Student Aid
(FAFSA). The FSEOG is a form of campus-based aid, where the college's
financial aid administrator decides which students will receive the
grant and how much they will receive. FSEOG funding is also limited,
so there is usually not enough money for every eligible student to
receive the grant.

The FAFSA excludes the primary residence as an asset, but what
about income property held in a revocable trust, where the trust is
owner and parent is beneficiary? Is that defined as an asset on the
FAFSA?
— L.W.

Trust funds are almost always counted as an asset on the FAFSA. The
only exception is an involuntary trust established by court order,
such as a trust fund to pay for future medical expenses of an accident
victim. A revocable trust is voluntary in nature and as such must be
reported as an asset on the FAFSA. The nature of the assets held in
the trust does not affect this requirement.

My daughter is attending a university in Florida. I just remarried,
but my new husband doesn't want to be used in or on the financial aid
forms. He doesn't want to be responsible for my daughter or her
expenses. We file taxes together and I use all of my disability checks
to take care of her. Is there any way to file using just my
information?
— V.M.

When the custodial parent has remarried as of the FAFSA application
date, the income and assets of the stepparent must be reported on the
FAFSA. There are no exceptions, not even if the custodial parent and
stepparent were not married until after the end of the previous
year. The stepparent's information is required even if there is a
prenuptial agreements. The requirement to include stepparent
information on the FAFSA appears in section 475(f)(3) of the Higher
Education Act of 1965.

Filing the FAFSA, however, does not obligate the stepparent to pay for
the student's education. But the stepparent should realize that the
student will likely qualify for less financial aid because of the
stepparent's income and assets.

I am a single parent, age 56 and my daughter will be applying for
college next year. I make less than $60,000, but have just over
$100,000 in savings and mutual funds that I have saved towards
retirement as I am self employed. (I just recently found out about
other self employed retirement options.) Will my daughter receive less
financial aid because I do not have this savings in a "specified"
retirement fund?
— C.J.

Money in a qualified retirement plan account is not reported as an
asset on the Free Application for Federal Student Aid
(FAFSA). Qualified retirement plans include 401(k), 403(b), 457(b),
Roth 401(k), Traditional IRA, Roth IRA, SEP, SARSEP, SIMPLE, Keogh, ESOP and
pension plans.

Money that is not in a qualified retirement plan account is reported
as an asset on the FAFSA even if the parent intends to use the money
for retirement. The money is reported as an asset even if the parent
has already reached retirement age. The money must be reported even if
it is stuffed in a mattress.

Nevertheless, some reportable assets are sheltered by the federal need
analysis methodology.

The simplified needs test causes all assets to be ignored if the
parents' adjusted gross income is less than $50,000 a year and the
parents were eligible to file IRS Form 1040A or 1040EZ or the family
satisfies certain other criteria relating to means-tested federal
benefit programs.

Otherwise, there is an asset protection allowance that shelters a
portion of parent assets based on the age of the older parent. The
asset protection allowance fluctuates up and down from one year to the
next based on the inflation rate. For most parents of college-age
children, median age 48, it will be about $40,000 to $50,000. For
parents age 56, it will be about $48,000 to $65,000. For parents age
65 or older, it will be about $62,000 to $84,000.

Any reportable assets above the asset protection allowance will be
assessed on a bracketed scale that runs from 2.64% to 5.64%. (For independent
students with dependents other than a spouse, the bracketed scale runs
from 1.54% to 3.29%.)

So in a worst case scenario, $100,000 in reportable parent
assets ($50,000 after subtracting the asset protection allowance) will
reduce eligibility for need-based financial aid by no more than
$2,820, as compared with having the money in a qualified retirement
plan.

My son has been accepted to an expensive private non-profit college
for the fall. We have been awarded a pretty generous financial aid
package from the school (approximately $30,000) which leaves me with
about $20,000/year left to finance. I make about $50,000/year. I will
be applying for the Parent PLUS loan and have several questions. I'm
in the process of refinancing my home and know that my credit score is
748. I have done a lot of research on this loan and I guess I'm just
looking for reassurance. My biggest fear is that when it comes time to
apply, I will not be approved or something will stand in our way. I
believe my credit shouldn't be a problem, but my income is not very
high. Over the course of four years and approximately $20,000 in loans
each year, would this be a problem in getting approved, due to the
high debt to income ratio? Also, the loan can be deferred until after
my son graduates, correct? Can I be put on a repayment plan that is
income based? I know we will be paying this loan for a long time (25
years or so), but was hoping that there is some leniency in the way
the loan is repaid. Any information you can provide will be greatly
appreciated. Thank You!
— Robert B.

The Federal Parent PLUS loan can be deferred while the student is in
school on at least a half-time basis and for six months after the
student graduates or drops below half-time enrollment. The interest
will be added to the loan balance if it is not paid as it
accrues. This can increase the loan balance by about a fifth.

Eligibility for the Federal PLUS loan does not depend on the borrower's credit
scores. Eligibility also does not depend on income, debt-to-income
ratios or debt-service-to-income ratios. The eligibility criteria also
do not consider whether the borrower owes other types of debt.

A Federal PLUS loan borrower must not have an adverse credit history,
which is defined in the regulations as involving a current delinquency
of 90 or more days on any debt or a five-year lookback for certain
derogatory events, such as bankruptcy discharge, foreclosure,
repossession, tax lien, wage garnishment or a default determination.

Even if a parent has been denied a Federal PLUS loan because of an
adverse credit history, it may still be possible to get a Federal PLUS
loan. If the denial was due solely to a 90-day delinquency, the parent
can make payments to bring the delinquent account current and then
reapply for the Federal PLUS loan. The parent can appeal the Federal
PLUS loan denial based on extenuating circumstances. The parent can
also get approved if a creditworthy endorser agrees to cosign the
loan. If one parent has an adverse credit history and the other does
not, the parent with good credit can apply for the Federal Parent PLUS
loan.

If the parent has been denied a Federal Parent PLUS loan, the student may be
eligible for an additional $4,000 or $5,000 per year in unsubsidized
Stafford loans, depending on the year in school.

But just because you can borrow all the remaining costs doesn't mean
you should. Repaying $80,000 in Federal Parent PLUS loans on a $50,000 annual
income will be difficult. The monthly payments will represent almost a
quarter (23%) of gross income on a 10-year repayment term, 16% on a
20-year term and 14% on a 30-year term. Anything over 10% will be a
struggle, and 15% is the stretch limit for most people. These
correspond to about $34,500 and $51,750, respectively, on an annual
income of $50,000 and a 10-year repayment plan.

Parents should not borrow more than they can afford to repay in 10
years or by the time you retire, whichever comes first. For most
parents this means borrowing no more than the parent's annual income
and ideally a lot less. Parents should also not count on the child
being able to help them repay the Federal Parent PLUS loans. The total
student loan debt at graduation, including any Federal PLUS loans the
parent expects the student to repay, should be no more than the
student's expected annual starting salary.

Federal Parent PLUS loans are not eligible for the income-based
repayment or pay-as-you-earn repayment plans. Federal consolidation
loans that repaid a Federal Parent PLUS loan are also not eligible for
the income-based repayment or pay-as-you-earn repayment plans.
(Federal student loans, including the Federal Stafford and Federal
Grad PLUS loans, are eligible for income-based repayment and
pay-as-you-earn.)

Federal Parent PLUS loans are not directly eligible for
income-contingent repayment, a less-generous predecessor of
income-based repayment. However, if the Federal Parent PLUS loans were
made since July 1, 2006 and have been consolidated into a Federal
Direct Consolidation Loan, the consolidation loan is eligible for
income-contingent repayment, per the regulations at 34 CFR 685.208(a)(2)(iii).

My daughter graduated from undergraduate school in May of this
year. As far as student loans were concerned she was considered a
dependent for the 4 years she attended there and we filed our income
tax as such. However, she started graduate school in July of this
year and in order to attend she had to apply for a student loan as an
independent. My question is since she was considered a dependent for
the first half of the year and an independent for the second half, can
or should we claim her on this year's income tax returns as a
dependent and if so would this affect her loan for graduate school in
any way?
— Donna W.

Dependency status on federal income tax returns and on the Free
Application for Federal Student Aid (FAFSA) are not
related. Claiming a student as a dependent on the parent's federal
income tax return generally does not affect the student's eligibility
for financial aid.

Dependency status on IRS Form 1040 is specified by the
Internal Revenue Code of 1986 [26 USC 152]. Dependency status on the
FAFSA is specified by Section 480(d) of the Higher Education Act of
1965 [20 USC 1087vv(d)]. These laws are different and have different
definitions of the term dependent, although there are some similarities.

Chapter 3 of IRS Publication 17
describes the criteria for a child to be considered a dependent on
the parent's income tax return.
Generally, a child must be under age 19 or a full-time student for at
least 5 months during the year to be considered a dependent for
federal income tax purposes. The child must have lived with the
taxpayer for more than half the year, notwithstanding any temporary
absences for illness, education, business, vacation or military service.
The child must not have provided more than half of his or her own
support. (Note that scholarships do not count when determining how
much support was provided by the child.) Multiple support agreements
allow divorced parents to decide which parent can claim the child as a
dependent.

To be considered a dependent for federal student aid purposes, the
child must not be an independent student. A graduate student is
automatically considered an independent student. (A student will also
be considered independent if he or she is over age 24 as of December
31 of the award year, is married, has dependents other than a spouse,
is a veteran or on active duty in the Armed Forces, or is an orphan or
satisfies certain other criteria.) If a child is not an independent
student, the parent must also have provided more than half of the
child's support. The definition of support for the FAFSA differs
slightly than the definition used by the IRS. The child does not have
to live with the parent to be considered a dependent on the FAFSA.

Thus a graduate student may be claimed as a dependent on the parent's
federal income tax return if the student satisfies the IRS rules for a
qualifying child without affecting the student's status as an
independent student for federal student aid purposes. The graduate
student is independent on the FAFSA because she's a graduate student,
regardless of whether the parent supports her or not.

Likewise, whether the child was a dependent student for part of the
year and an independent student for the rest of the year has no impact
on whether the parent can claim the child as an exemption on the
parent's federal income tax returns. It is irrelevant. The dependency
status for federal student aid purposes and the dependency status for
federal income tax purposes are separate, unrelated concepts.

Note that if a parent claims a graduate student as a dependent on the
parent's federal income tax returns, it may affect the student's
ability to claim certain tax benefits on her own federal income tax
return. For example, students who are claimed as an exemption on
someone else's federal income tax return are not eligible for the
student loan interest deduction.

Congress did not reach an agreement to reduce the FY2013 budget
deficit on March 1, 2013. Accordingly, the automatic across-the-board
budget cuts known as sequestration will become effective on March 27,
2013, cutting funding for some federal student aid programs for the
remainder of the FY2013 budget year and 2013-14 award year.

The US Department of Education has issued
preliminary guidance
to colleges about the impact of FY2013 sequestration on federal student aid.
[This article has been updated to reflect updated guidance published
on March 15, 2013.]

The US Department of Education is interpreting the Balanced Budget and
Emergency Deficit Control Act of 1985 (BBEDCA), as amended by the
Budget Control Act of 2011 (BCA), as exempting the Pell Grant program from the
automatic across-the-board cuts for 2013-14. The Pell Grant program is
not, however, protected in subsequent years.

Other federal student financial aid programs will be cut by about 5%.

The Federal Work-Study (FWS) and Federal Supplemental Educational
Opportunity Grant (FSEOG) programs will be cut by $89.5 million for
2013-14, a 5.52% decrease. These cuts will most likely be manifested
in cuts in the number of awards as opposed to the average award. This
may result in about 33,000 fewer FWS awards and 71,000 fewer FSEOG
grants. It is possible that the US Department of Education may let
colleges decide whether to cut the number of awards or the average
award.

The loan fees for Federal Direct Stafford loans will increase from 1.0%
to 1.051% and the loan fees for the Federal Direct PLUS loan (including
both Parent PLUS and Grad PLUS loans) will increase from 4.0% to
4.204%. These increases apply only to loans that are first disbursed
after the sequester takes effect. Second disbursements of previously
disbursed loans will not be affected.

The amount of awards made under the Iraq-Afghanistan Service Grant
(IASG) and TEACH Grant programs will be reduced. Again, the grant
reductions apply only to awards with a first disbursement after the
sequester takes effect. The reduction in the Iraq-Afghanistan Service
Grant is 37.8% of the award amount the student is otherwise eligible
to receive, not the maximum award amount. Similarly, the reduction in
the TEACH Grant is 12.6% of the actual award amount.

There may also be indirect cuts in student aid funds. Federal research
grants, which are a source of funding for graduate students, will also
be cut by sequestration. Cuts in federal support of postsecondary
education may put additional pressure on college and university
student aid budgets.

If sequestration continues into FY2014, the budget cuts next year will
be more severe.

Prospects for avoiding sequestration in FY2014 are slim, with the
start of FY2014 just 6-7 months away on October 1, 2013. Now that
Congress has jumped off the fiscal cliff once, fear of the fiscal cliff
will not be as effective in motivating Congress to act.
Across-the-board budget cuts are a blunt instrument as compared with
more selective cuts. But members of Congress who are opposed to tax
revenue increases might prefer such cuts over the alternative. The
American Taxpayer Relief Act of 2012 took the expiration of Bush-era
tax cuts off the table, eliminating a source of leverage for
proponents of tax increases. There might not be any movement on
sequestration until the midterm Congressional elections in 2014,
depending on how voters react to the impact of sequestration.

How is a life estate reflected on the FAFSA? A student's parent has
a deed with student's grandparent having life use of the property
through a life estate. Please be New York state specific with the
response.
— T.G.

A life estate involves an irrevocable grant of a future
interest in a property while reserving a present interest in the
property. The grantor designates one or more people to have the
benefit of the property for the duration of their lives, usually the
grantor and the grantor's spouse. Upon their death the estate passes
to the grantee. The future interest is called a remainder and
the grantee is called a remainderman.

A life estate is often used as a way to transfer title to a property
to one's heirs while avoiding probate. It can also have some tax
benefits, such as a stepped up cost basis. Life estates can also be
used to donate property to a charitable organization while retaining
the use of the property for the remainder of one's life.

In effect, a life estate splits ownership of a property between the
present and future interests. As such, it is an asset and must be
reported as an asset on the Free Application for Federal Student Aid
(FAFSA). The only exception is when the property is also the principal
place of residence of the applicant or the applicant's parents.

For example, suppose a grandparent allows the parent and student to
live in her home as their principal place of residence and has also
granted the parent a future interest in the home through a life
estate. Then the parent's future interest in the home is not reported on the
FAFSA because it is the parent's principal place of residence. The net
worth of the principal place of residence is not reported as
an asset on the FAFSA, including both the present and future interest
in the property, or any partial interest in the property.

On the other hand, suppose the student and parents live in their own
home and the grandparent sets up a life estate to have ownership of
the grandparent's home pass outside of probate. Then the remainder of
the life estate is treated the same as a vacation home and its net
worth must be reported on the FAFSA as an investment asset.

The restrictions on access to the property while the grandparent is
alive are irrelevant, since the restrictions were imposed voluntarily
by the grandparent.

The value of the remainder is the net present value of the future
interest in the property. To calculate the net present value, one must
first project the date of termination of the life estate based on
actuarial tables for the grandparent's life expectancy. Then the
future appreciation of the property is discounted back to the
present. If the discount rate is equal to the rate of appreciation,
then the net present value is just the present value of the
property. There's enough uncertainty in the future appreciation of
real estate that often it is simplest to just report the current net
market value of the property as an asset.

The treatment of a life estate on the FAFSA does not depend on state
law. So long as the life estate was properly created (e.g., on a deed
that provides the property "to the grandparent for life, then to the
parent"), the remainder is an asset that must be reported on the
FAFSA.

I am a 38-year-old wife and mother who decided to go to college 20
years out of high school. I am a student at an online college
and receive financial aid myself. My son is a high school senior with
a very small part time job at the local Burger King. He plans to
attend an out-of-state college, however those plans may be dashed
after this morning. We filled out a FAFSA for him this morning and it
showed an estimate of $2,600 Pell Grant and $5,500 Direct Loan. My
question is why does he qualify for less aid than I get if our
financial aid is based on the same household income? And is there
anything we can do to get his increased?
— Amy G.

There are many reasons why a dependent student may qualify for a
different amount of financial aid than his parent who is also enrolled
in college.

Most forms of need-based financial aid are based on financial
need. Financial need is defined as the difference between the
college's cost of attendance (COA) and the expected family
contribution (EFC). Financial need can increase with decreases in the
EFC and/or increases in the COA. So if the parent is enrolled at a
more expensive college, the amount of financial aid the parent
receives may be greater. The COA also acts as a cap on the amount of
financial aid.

The parent's EFC may also differ from the student's EFC. This affects
the financial need, indirectly affecting the amount of need-based
financial aid. It can also directly affect the amount of the Pell
Grant, which is based on the EFC, not financial need.

The student's income and assets may contribute to the student having a
higher EFC. The student's EFC is increased by 50% of his income above
the income protection allowance for dependent students (about $6,000)
and by 20% of his assets. The student's income and assets are not
reported on the parent's FAFSA and so do not affect the parent's EFC.

On the student's Free Application for Federal Student Aid (FAFSA), the
number in college figure does not include the parent. On the parent's
FAFSA, both the student and parent are included in the number in
college figure. Whether a parent can be counted in the number in
college on a dependent student's FAFSA has been subject to the
discretion of college financial aid administrators since the Higher
Education Amendments of 1992. The number in college can have a big
impact on the EFC, since the parent contribution is divided by the
number in college.

Parents who are enrolled in college at the same time as their
dependent students may wish to ask their student's college financial
aid administrator for a professional judgment review. Some colleges
call this a special circumstances review or financial aid appeal. The
financial aid administrator will want to see proof of the parent's
enrollment, such as a copy of a paid bursar's bill. The financial aid
administrator will verify the enrollment with the other college
because this data element is prone to fraud. If the financial aid
administrator decides to make an adjustment, some will increase the
number in college figure while others will subtract amounts paid by
the parent from parent income.

There are also some differences because the student is a dependent
student while the student's parent is an independent student.

A dependent student's EFC may include up to 5.64% of the parent's
assets. The EFC of an independent student with dependents other than a
spouse may include up to 3.29% of the assets of the independent
student (and spouse, if any). The asset conversion rate for
independent students with dependents other than a spouse was decreased
from 12% to 7% by the College Cost Reduction and Access Act of 2007.

The asset protection allowance for a dependent student is based on the
age of the older parent. The asset protection allowance for an
independent student is based on the age of the student. The age of the
student's spouse is ignored. If the parent who is enrolled in college
is the younger parent, each year of difference in the parent ages can
yield as much as an $80 increase in the EFC.

Loan limits also differ for dependent and independent students. The
annual Stafford loan limit for an independent student is $4,000 or
$5,000 higher than the limit for dependent students, depending on the
year in school. The aggregate Stafford loan limit for a dependent
student is $31,000, much lower than the $57,500 limit for an
independent student. The parent of a dependent student can borrow from
the Parent PLUS loan program, however. (If a dependent student's
parent is unable to borrow from the Parent PLUS loan program due to an
adverse credit history, the student will be able to borrow at the
higher Stafford loan limits for independent students.) An independent
student who is not in graduate or professional school cannot borrow
from the PLUS loan program.

Please help me out with question. I am majoring in finance. I am
thinking about pursuing a double-major in finance and real estate. I
will have to take only 6 more classes than what I am supposed to take for
my finance major. Will my financial aid cover the extra classes?
— Jeffrey P.

As noted in a previous Ask Kantro column,
What types of student aid are available for a second Bachelor's degree?,
the Pell Grant, Federal Supplemental Educational Opportunity Grant
(FSEOG) and TEACH Grant are not available to students who have already
received a Bachelor's degree.

Students are considered to have earned a Bachelor's degree if they
have completed all of the requirements for the degree, even if they
have not yet received the diploma.

In certain limited circumstances, students who are completing a
State-required post-baccalaureate teacher certification program are
still treated as though they were undergraduate students for federal
student aid purposes. These students are eligible for the Pell Grant
and the TEACH grant but not the FSEOG grant, and their Stafford loan
eligibility is restricted to the undergraduate loan limits.

Colleges have some discretion in deciding when a student has completed
a Bachelor's degree program. Some colleges have more flexible policies
than others, so it is worthwhile to ask the college for a copy of its
written policies concerning financial aid eligibility for students who
are seeking a double-major.

Per the regulatory definition of undergraduate student at 34
CFR 668.2, a Bachelor's degree program is normally expected to take
only four years. There are exceptions for certain majors that may take
as long as five years. But if the degree program normally lasts six
years (e.g., certain dual-degree programs that result in a graduate or
professional degree in addition to a Bachelor's degree), the student
is considered to be an undergraduate for only the first three or four
years of the program. So college financial aid policies are less
likely to be flexible about double-majors that take an extra year for
completion of the second degree.

The safest approach is for students who are double-majoring
to avoid completing the last requirement for either major until their
last semester of enrollment. That way the students can continue
receiving financial aid until they are ready to graduate with both
degrees simultaneously.

It is important to review all of the college's policies concerning
double-majors to make sure you are aware of all of the
requirements. For example, the college might require students who are
double-majoring to have accumulated a minimum number of additional
credits beyond the requirements of the longer of the two majors. If
you miscalculate, you might complete the requirements for only one of
the two majors and have to take an additional class or two without
financial aid for the second degree. Retaining financial aid
eligibility for a double-major requires careful planning.

We just sold our house and have not yet found our new
house and have a lot of cash on hand. We will use the cash to buy a
home in the next couple of months. The cash is a false representation
of our savings, but since we don't have a mortgage, it looks like we do.
We need to keep the cash readily available for a purchase. We are
ready to file our FAFSA, but not clear on how we should handle this.
We want to be ethical, but not hurt our likelihood of getting aid.
What do you suggest we do?
— Cheryl P.

Cash on hand must be reported as an asset on the Free Application for
Federal Student Aid (FAFSA), regardless of the intended purpose.

Similar questions are often asked in a variety of circumstances,
all involving the family's intentions. Money intended for retirement
but which is not saved in a qualified retirement plan account must be
reported as an asset on the FAFSA, even if the parents are already
retired. Life insurance proceeds must be reported as an asset even if
the money is intended to cover living expenses for the rest of the
survivor's life. The cash proceeds from the sale of the family home
must be reported as asset even if the family intends to use the money
to buy a new home. Savings that an undergraduate student intends to
use to pay for graduate school or as a down payment on a first home
must still be reported as an asset.

Sections 480(f) and (g) of the Higher Education Act of 1965 [20 USC
1087vv(f) and (g)], which define the terms "assets" and "net assets",
respectively, do not include any exceptions based on the intended
purpose of the money.

After all, the family may currently intend to use the money for a
particular purpose, but nothing stops them from using all or part of
the money to pay for another purpose, such as college costs, a family
vacation or living expenses.

The family might not want to use the money to pay for college, but
the philosophy of student financial aid is to provide assistance when
the family is unable to pay for college, not just unwilling to pay for
college.

Congress added an exclusion from assets for the net worth of the
family's principal place of residence in the late 1980s because
Congress did not want to be perceived as forcing families to sell
their homes to pay for college. (Also, the prevailing interest rates on
mortgages were unusually high at the time, making home equity loans
and lines of credit an impractical source of education financing.) But
in this case the family home has already been sold.

The family can always appeal to the college's financial aid
administrator, asking him or her to exclude the proceeds of the sale
of the home from assets. The gist of the argument is that these assets
result from a timing issue and that the money does not really reflect
the family's ability to pay for college during the award year. The
financial aid administrator is more likely to grant an adjustment when
the purchase of a new home is imminent. For example, the family should
be under contract to purchase a new home with a closing scheduled for
no more than a few months from the current date. The money should also
be kept in a separate account — perhaps even an escrow account
— and not commingled with other funds. Financial aid
administrators are also more likely to grant an adjustment when the
sale of the home was involuntary in nature, such as due to foreclosure
or relocation.

College financial aid administrators may also make an adjustment in
unusual situations, such as when the money is from an insurance
settlement or government aid to a family whose home was damaged or
destroyed by a natural disaster. Likewise, college financial aid
administrators may exclude the proceeds of a loan for rebuilding the
home.

If the college financial aid administrator does not grant an
adjustment, the impact on aid eligibility may be relatively
small. Need analysis formulas are more heavily weighted toward income
than assets. Every $100,000 in cash assets will decrease aid by at
most $5,640.

I am 19 and have a baby (1 month old) and I am living with my
boyfriend and his mother. I am confused about whose tax information to
use on the FAFSA. My boyfriend's mother is in Section 8 housing and
put me in it and in her food stamps.
— J.F.

A student who has one or more dependent children that she supports is
considered independent on the Free Application for Federal Student Aid
(FAFSA). Parental information is not required on the FAFSA of an
independent student.

The children must receive more than half of their support from the
student throughout the award year, which runs from July 1 to June
30. The children do not need to live with the student.

Support that the student receives from sources other than her parents
will count as part of the support she provides to her children. This
includes support she receives from her boyfriend and from her
boyfriend's parents. It also includes money from government aid
programs, such as TANF and SNAP (food stamps). Student financial aid
(including student loans) also counts as part of the student's own
support. Amounts the student spends from savings and income to support
her children also count as part of her support of the children.

If the student's parents, however, directly or indirectly provide more
than half of the support for the student's children, the student is
not considered to be independent. The student's parents would then be
required to complete the FAFSA. The boyfriend's parents cannot
substitute for the student's parents on the FAFSA.

Regardless of whether the student is dependent or independent, any
support she receives from her boyfriend or his mother should be
reported as untaxed income to the student on her FAFSA.

Incidentally, if the boyfriend is the children's father (or the
children live with him) and he provides more than half of the
children's support, he can also be considered independent on his own
FAFSA. So it is possible for both of a child's unmarried parents to
each be considered independent on the FAFSA because they are each
providing more than half of the child's support.

[page]

My daughter, who just turned 22 years old, is in school and working
a part-time job. She had a child last November and is a single
mom. She filed the FAFSA in January as an independent student based on
her now having a dependent child. My question is that during most of
last year, she was still my dependent. Can I claim her on my tax
return this year and keep from hurting her chance to get FAFSA for
this year and next? She will be providing over 50% support this year
for her son and I will not be claiming her.
— Alan H.

As discussed in the answer to the previous question, for a student to
be independent by virtue of having a dependent other than a spouse,
the student must provide more than half of the child's support during
the award year. This support must come from sources other than the
student's parents.

The focus is on the support she provides during the award year, not
during the previous tax year.

If the student started supporting herself and her children in the
middle of the award year, the total support she provides through the
end of the award year must be more than half of the support the
children received from all sources during the full award year.

For example, if a student provides all of her children's support for
more than half the award year, or more than half support for the full
award year, she will be considered independent by virtue of having a
dependent other than a spouse. But if she provides only half their
support for half the award year, she will still be considered a
dependent student.

Whether or not the student is claimed as an exemption on her parent's
federal income tax return generally does not affect eligibility for
federal student aid, since the IRS uses a different definition of
support than the US Department of Education. However, college
financial aid administrators may question whether a student was really
providing more than half of her children's support if she is claimed
as a dependent on someone else's federal income tax return.

If the student is claimed as an exemption on someone else's federal
income tax return, she will not be eligible to claim various education
tax benefits on her own return that year. These include the American
Opportunity Tax Credit (also known as the Hope Scholarship Tax
Credit), the Lifetime Learning Tax Credit and the Student Loan
Interest Deduction. If the other taxpayer decides to not claim her as
an exemption, she will be able to claim these education tax
benefits. However, a student who could have been claimed as an
exemption on someone else's income tax return is not eligible for the
partial refundability aspect of the American Opportunity Tax Credit.

I am 25 years old and recently had to move back in with my mom. I am
going to college this fall and wanted to know if living with her would
affect my financial aid, and if it does how long do I need to be
living on my own to regain independent status?
— R.R.

A student who is over age 24 as of December 31 of the award year is
automatically considered to be dependent, regardless of whether she
lives with her parents or not.

February is a short month packed with lots of events. With Groundhog's Day, Black History Month, Ash Wednesday, Valentine's Day and President's Day. You probably thought nothing more would fit in these short 28 days. But, if so, you were wrong!

February is also Financial Aid Awareness Month. Which makes it the perfect time to complete your FAFSA form and learn some more about financial aid and how to score more of it. FastWeb's here to help.

[gate]

In honor of this auspicious occasion and to help you understand all of your financial aid options, we've listed some resources you can use to learn more about financial aid:

Get More on FAFSA

• How to Deal if Your Parents Can't Pay
  
• Avoid FAFSA Mistakes that Can Cost You
  
• Big FAFSA Overview
  
• FAFSA and the Independent Student
  
• 15 Questions to Ask Your Financial Aid Office
  
• The FAFSA - Step One for Financial Aid
  
• Guide to Financial Aid Award Letters
  
• Dropping Out Means Paying Back Financial Aid
  
• Financial Aid Glossary

Get More on Scholarships

• How Scholarships are Judged: An Inside Look
  
• Develop Your Scholarship Game Plan
  
• Five Scholarship Myths
  
• Small Awards Pay Big Dividends
  
• Scholarships for Dummies: Common Sense Places to Look for Scholarships
  
• 10 Ways to Make Scholarship Sponsors Love You

Get More on Loans

• Student Loan Glossary
  
• Borrowing for College: How Much is Too Much?
  
• Choosing an Education Loan
  
• Solutions for Borrowers Who are Having Trouble Repaying Education Loans
  
• Should You Prefer Your Preferred Lender List?

Kantro Says

• Questions About the FAFSA
  
• How does divorce affect eligibility for student financial aid?
  
• How Much Income is Too Much When Applying for Need-Based Aid?
  
• Can I Get a New Financial Aid Package if My Mom Lost Her Job?
  
• Which parent is responsible for completing the financial aid application?
  
• Financial Aid without Filing the FAFSA?

How do we answer the question "Do you own your home" on financial
aid forms when we are in pre-foreclosure? We are not yet in active
foreclosure, but are several years in arrears on our mortgage as we
are significantly underwater on our loans and have been unsuccessful
so far in getting a satisfactory modification. To that end, we just
retained a bankruptcy attorney to expedite the process, and expect to
"forfeit" the house in the end either through a short sale or in
bankruptcy.
— P.G.

Need analysis formulas use a snapshot approach to evaluating
assets. Assets are reported on the FAFSA, PROFILE and other financial
aid forms based on the status in effect on the date the financial aid
application forms are filed. So until the foreclosure is finalized,
the home must still be reported as an asset.

(The Free Application for Federal Student Aid (FAFSA) ignores the net
worth of the family's principal place of residence. Vacation homes and
other real estate must be reported as an asset on the FAFSA, usually
as an investment asset. On the other hand, the family home must be
reported as an asset on the CSS Financial Aid PROFILE form and some
institutional financial aid forms.)

Applicants cannot anticipate a future change in the status of the
asset, not even if foreclosure is imminent. The lender does not take
legal possession of the asset until the foreclosure is
complete. Applicants also cannot update the assets listed on the FAFSA
after the application is filed, even if the status of the asset
changes the day after the application is filed.

But a home that is in pre-foreclosure is unlikely to have much of an
impact on eligibility for need-based aid. Colleges that consider the
family home as a reportable asset always base their assessment on the
net worth of the asset. The net worth is the market value of the asset
minus any debt that is secured by the asset. The net worth of the
asset is also reduced by the amount of any liens against the asset. A
home that is in foreclosure or a pending short sale usually has little
or no home equity, and so will not have much of an impact on the
expected family contribution (EFC).

However, a foreclosure can affect eligibility for the Parent PLUS
loan. PLUS loan borrowers must not have an adverse credit history,
which is defined as a current delinquency of 90 or more days on any
debt or a five-year look-back for certain derogatory events in the
credit history. The derogatory events include bankruptcy, foreclosure,
repossession, tax lien, wage garnishment or default determination.

Once the foreclosure is complete, it will prevent the parents from
borrowing from the PLUS loan program for five years. (The initiation
of the foreclosure process is normally treated as evidence of an
adverse credit history. But the PLUS loan denial can be appealed based
on extenuating circumstances if the family obtains a loan modification
or short sale before the foreclosure process is complete.) Including
the mortgage in a chapter 7, 11 or 12 bankruptcy discharge will also
affect eligibility for the PLUS loan. A chapter 13 bankruptcy does not
affect PLUS loan eligibility.

The definition of an adverse credit history does not include short
sales. So a family facing foreclosure may prefer to have a short sale
to preserve eligibility for the PLUS loan. A deed in lieu of
foreclosure is treated the same as a foreclosure, unless it was
provided as part of a short sale.

If a dependent student's parents are denied a Parent PLUS loan because
of an adverse credit history, the student will be eligible for the
higher unsubsidized Stafford loan limits available to independent
students. These loan limits provide an additional $4,000 or $5,000 per
year in unsubsidized Stafford loan eligibility, depending on the year
in school. Some parents prefer to have their student qualify for the
higher unsubsidized Stafford loan limits, since the Stafford loan is a
student loan, not a parent loan. However, the increased unsubsidized
Stafford loan limits might not be enough if the student is enrolled at
a high-cost college.

Unfortunately, federal aid isn't distributed on whether or not your parents want to pay for your education; it all depends on if they can. Parents have many reasons for not contributing to their child's education: can't afford it; it's the child's responsibility; sticky divorce. But your parents refusal actually hurts you more than they may know.

Regardless of your parents' reasons, the federal government's opinion is this: paying for a college education is your parents' primary responsibility. The government will only finance your education if it's impossible for your parents to pay up. So what should you do? Fill out the FAFSA. Good news: it's not too late. Bad news: you're already enrolled in school and still need to convince your parents to fill out a FAFSA.

Even if you don't qualify for need-based aid, filling out the FAFSA automatically qualifies you for an unsubsidized Stafford Loan. Yes, "loan" may be an icky word, but a federal government loan is the best loan opportunity that you will ever come across. The interest rates are low, 6.8% on the unsubsidized Stafford loan, and the payment plans make it easy to pay off your debt.

Also, by filling out the FAFSA, you may qualify for subsidized Stafford and Perkins Loans as well as Pell Grants, which are even better.

Pitch the idea from the angle that they don't have to help financially but they can do you this huge favor. Additionally, it's not a bad idea to go to your school's financial aid office and present them with your situation. Maybe they can pull some strings or talk good old Mom and Dad into helping. Still not budging? Check out these other tips on convincing your parents to help this one last time.