FAFSA Questions Concerning Assets and Legal Guardianships
October 20, 2009
I am an incoming freshman in college and my single mom is worried about the Free Application for Federal Student Aid (FAFSA). We recently sold our house and are currently living in a rented apartment. The money from selling the house is in her savings account. We are currently looking for a new house. My mom is worried that if we haven’t bought a house by January-March, the money she has to buy the house would be included on our FAFSA, which would reduce the aid. — Kimberly P.
Money in a bank account is counted on the FAFSA, while the net equity of your principal place of residence is not. Assets are reported as of the date the FAFSA is filed. So your mother is correct — if you haven’t bought a new home by the time you file the FAFSA, the money in the bank account will count against your aid eligibility.
However, it is still possible that the money in the bank account could be disregarded. If your mother’s adjusted gross income is less than $50,000 and she satisfies certain other criteria, such as being able to file an IRS Form 1040A or 1040EZ or qualifying for various federal means-tested federal benefit programs, the “simplified needs test” will cause assets to be ignored on the FAFSA.
Even if she doesn’t qualify for the simplified needs test, there is an asset protection allowance based on the age of the older parent that shelters a portion of parent assets. For most parents of college-age children (median age 48), the asset protection allowance is about $50,000. Above this threshold assets are assessed according to a bracketed scale with a top rate of 5.64%.
In practice, most families who qualify for the Pell Grant will not lose eligibility just because they sold a home and have not yet purchased a new home.
There is legislation currently pending in the US Senate that will eliminate the six asset questions from the FAFSA starting in the 2011-12 academic year. However, this legislation includes an asset cap that eliminates eligibility for the Pell Grant and other need-based aid for families with assets greater than $150,000 (US House of Representatives version of the legislation) or $250,000 (US Senate version of the legislation).
I have a 17 year old granddaughter who lives with my husband and me. She has no contact with her mother and her father signed away parental rights at age 5. The judge has given us custody. Is she considered independent on the FAFSA? We are retired and have limited income. Should we as her custodians assume the parental place on the forms? — Marsha R.
The College Cost Reduction and Access Act of 2007 (P.L. 110-84) and the Higher Education Opportunity Act of 2008 (P.L. 110-315) changed the definition of an independent student to include students who are or were in a court-ordered legal guardianship immediately prior to reaching the age of majority. She will be considered independent and the parent questions on the FAFSA will be left blank. However, any cash support you provide her (including housing, food, clothing, medical and dental care, college costs and any other money you paid on her behalf) will be reported as untaxed income on her FAFSA.
Need money to pay for college?
Every semester, Fastweb helps thousands of students pay for school by matching them to scholarships, grants and awards for which they actually qualify. Sign up today to get started. You'll find scholarships like the Course Hero's $5,000 Scholarship, and easy to enter scholarships like Niche $1,000 October Scholarship.