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Ask Kantro: Questions about Income and the Free Application for Federal Student Aid (FAFSA)

My husband earns about $125,000 in salary and I am a stay at home mom. My husband just changed jobs and got his deferred salary and his retirement from 25 years of employment, so last year’s income looks huge when it really wasn’t. We also have a 19-year-old child with autism who lives in a group situation with social and living classes as well as some college. It costs us $57,000 per year out of pocket with no financial help for it. We also have large medical expenses as well as helping an elderly parent financially. My 17-year-old plans on attending college next year. Will we qualify for student financial aid? Can we include all this information on the FAFSA form? — Sara A.

The FAFSA is a one-size-fits-all form that does not currently have a place where you can list unusual circumstances. Instead, Congress delegated the authority to college financial aid administrators to make adjustments on a case-by-case basis to the data items used to calculate the expected family contribution when justified by special circumstances. The amount of the adjustment is based on the financial impact of the special circumstances. After the adjustment the standard formula is used to calculate a new expected family contribution. This authority is called professional judgment and is subject to the financial aid administrator’s discretion with no appeal. (Some colleges call it a special circumstances review or a financial aid appeal.)

You have mentioned several circumstances that should qualify for an adjustment, including the lump sum retirement distorting income, the unusually high child care costs for a disabled child, the unreimbursed medical expenses and the eldercare expenses. You should write a letter to each college asking for a professional judgment review. The letter should summarize the special circumstances and their financial impact on your family. Include photocopies of independent third-party documentation of the expenses, as the school will need the documentation before they can make an adjustment.

Note that your husband’s retirement funds must be rolled over into a qualified retirement plan. The college will not make an adjustment to income or assets if the money is sitting in an unrestricted bank or brokerage account, as then the money could be used for any purpose.

I’m 49 years old and our son is currently 19 years old going to college. The college denied us financial aid this year because they claim we made too much money. I earn about $50,000 and my son earned about $11,000 last year. Do I need to kick him out of the house to be able to get help? I can’t believe that he is old enough to die for this country, but not old enough to apply for aid without us. — Ernie G.

The most likely cause of the loss of aid eligibility is your son’s income. The expected family contribution (EFC) includes half of dependent student income above $3,750. So his $11,000 income increased his EFC by $3,625. Between that and your income his EFC is probably above the cutoff for the Pell Grant. But he may be eligible for low interest loans such as the subsidized Stafford loan. Also, despite the loss in aid eligibility he still comes out ahead financially by more than $5,000 because of the extra income.

Kicking him out of the house will not increase his aid eligibility. He will still be considered a dependent student through age 24. Self-sufficiency has not been considered grounds for a dependency override since 1992. If you cut off all support and refuse to complete the FAFSA, the only aid he’ll be eligible for is the unsubsidized Stafford loan.

My Mom and Dad have both been unemployed for the last couple of years. This year my Dad started withdrawing money from his IRA in order to pay the bills, since my parents have used up their other savings. Since distributions from an IRA count as part of taxable income, next year’s FAFSA will show a big increase in income even though our financial situation is worse. I will not qualify for a Pell Grant or the Cal Grant because my EFC will be too high due entirely to the IRA withdrawals. Is there anything I can do? — Nancy A.

While money in a qualified retirement plan is disregarded as an asset, current year contributions are treated as untaxed income and current year distributions are included in taxable income. As you noted, this can affect aid eligibility the same as if it were earned income.

After you submit your FAFSA next year, send a letter to the college financial aid office asking for a professional judgment review. Include photocopies of current documentation of your parents’ unemployment (ideally dated within 90 days) as well as copies of documentation showing that most of their income was from a hardship withdrawal from your father’s IRA. Also mention whether they are receiving unemployment benefits or not, and if so, the total unemployment benefits for the year. The financial aid administrator will review the information you have provided and determine whether or not to make an adjustment. There is no appeal beyond the financial aid office, so be polite and promptly respond to any requests for additional information.

Ask Kantro is written by Mark Kantrowitz, an expert on paying for college and publisher of FinAid.org and Fastweb.com, the leading free web sites for information about student financial aid, student loans and scholarships. Write to Ask Kantro at AskKantro@Fastweb.com.