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Is the Non-Custodial Parent a Parent for Federal Student Aid Purposes?

Mark Kantrowitz

February 22, 2010

Accordingly, it is usually best if divorce decrees and separation agreements change the owner of a qualified education benefit to the parent who will be completing the FAFSA. Ask your ex-husband to rollover your daughter’s Coverdell account into a new account where you or your daughter are listed as the account owner. Such a rollover will not be considered to be a taxable transfer.

Another option is to wait until after you file the FAFSA for your daughter’s senior year in college to take a distribution from her Coverdell account.

Who applies for the Stafford loan under the following scenario: My daughter lives with her mother. We are divorced. Her mother has no savings, very poor credit (low 500 FICO score) and is in arrears on many debts, but earns a salary of approximately $80,000. Even though her mother is responsible for completing the FAFSA, I will be paying for as much of my daughter’s college education as I can because her mom has no money. I intend to apply for the Stafford under my name and with my financial information. Because her mom’s information was entered on the FAFSA but my information will be entered on the Stafford loan, does this present a problem? — Robert D.

The Stafford loan is a student loan and will be borrowed by your daughter. Annual loan limits on the Stafford loan for a dependent student range from $5,500 as a college freshman to $7,500 as a college senior. You are thinking of the Parent PLUS loan, which is borrowed by a parent. The annual loan limit on the PLUS loan is the full cost of attendance minus other aid received. The Stafford loan is prefered because it has lower interest rates and fees than the PLUS loan.

While a non-custodial parent is normally not considered a parent for federal student aid purposes, the regulations at 34 CFR 682.201(c) and 34 CFR 685.200(c) permit the non-custodial parent to borrow from the PLUS loan program to help pay for a child’s college costs. The total PLUS loan amounts borrowed by both parents may not exceed the cost of attendance minus other aid received.

However, it may be advantageous to have your ex-wife to apply for a PLUS loan instead. If a parent is denied a Parent PLUS loan because of an adverse credit history (e.g., a current delinquency of 90 or more days is sufficient), the student becomes eligible for increased unsubsidized Stafford loan limits. These are the same limits available to independent students, ranging from $9,500 as a college freshman to $12,500 as a college senior. Since your ex-wife probably has an adverse credit history, her PLUS loan application will be denied. It may not even be necessary for her to apply for the PLUS loan, since the regulations at 34 CFR 682.201(a)(3) and 34 CFR 685.203(c) permit colleges to grant the higher Stafford loan limits to students whose “parent likely will be precluded by exceptional circumstances” from borrowing under the PLUS loan program. Note that once your daughter is granted the higher unsubsidized Stafford loan limits, you cannot obtain a Parent PLUS loan yourself or your daughter will lose access to the higher loan limits.


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