What Do You Do When Income or an Asset Isn't Really Your Money?
Either approach carries some risk.
If the applicant reports the net asset value on the FAFSA and the FAFSA is selected for verification, the college will question the mismatch between the savings account balance and the amount reported on the FAFSA. The applicant must be able to clearly document that the money must be repaid to the long-term disability insurance carrier. Even so, the college might still decide to disallow it. College financial aid administrators like to see offsetting transactions occurring in the same year. It is also a bit problematic if the money was commingled with other funds, as opposed to being deposited in a dedicated account.
If the applicant reports the savings account balance and asks for a professional judgment review, it is possible that the college may deny the request. Professional judgment reviews are subject to the discretion of the college financial aid administrator, and decisions to grant or deny an adjustment can sometimes be a bit arbitrary.
Either way it is possible that the college financial aid administrator will disallow treating the liability to the insurance company as an offset to the value of the savings account. But asking for a professional judgment review may put the college’s financial aid administrator in a more positive frame of mind than having the financial aid administrator note a discrepancy during verification. When a discrepancy is identified during verification, colleges tend to be more suspicious and less likely to be accommodating to the family.
The best approach, however, is to report the net asset value on the FAFSA, consistent with the statutory requirements and the FAFSA instructions. When in doubt, follow the rules. The family should also call the college’s financial aid office and/or the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243) before filing the FAFSA to ask how to report the money. This will help allay suspicions that the family was trying to hide the money. The family should write down the response along with the date and time of the call and the name of the person with whom they spoke. If the FAFSA is selected for verification, the family should include a copy of these notes along with an explanation that documents the calculation of the net asset value and the liability to the insurance company.