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Does Adoption Affect an Orphan's Eligibility for Financial Aid?

Mark Kantrowitz

April 22, 2013

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.


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