Should a Family Sell Student-Owned Stocks to Get More Financial Aid?
April 02, 2012
The parents could also sell the high school senior’s stock holdings and spend the money on her education. Generally, it is best to spend the student’s assets down to zero before touching the parent’s assets, since student assets are assessed more harshly than parent assets. For example, if $11,000 in student assets are spent on her college costs before the next FAFSA is filed, this will decrease the EFC by about $2,200.
However, there are a few caveats:
Capital Gains. If the stocks have appreciated significantly, selling the student’s stocks will incur capital gains which will be treated as student income on the subsequent year’s FAFSA. Student income above an income protection allowance is assessed at a 50% rate. The income protection allowance for a dependent student will be $6,000 in 2012-13. Depending on the amount of appreciation, the capital gains might offset much of the improvement in aid eligibility from changing the asset treatment of the stocks. But the capital gains will affect eligibility for need-based aid only during the subsequent year in college. The student will still benefit from increased aid eligibility during the remaining years in college. (Ideally stocks and other appreciated assets should be sold at least two years prior to enrollment to prevent the capital gains from affecting eligibility for need-based aid.)
Merit Aid. Depending on the college’s policies, increasing the student’s eligibility for need-based aid may cause the college’s merit-based scholarships to be reduced. Some colleges will reduce their grants when a student receives more aid from another source.
Tax Credits. The Hope Scholarship tax credit provides a tax credit of up to $2,500 per student each year based on up to $4,000 in qualified higher education expenses, such as tuition, fees and textbooks. The family cannot use 529 college savings plan money to pay for these qualified higher education expenses, as IRS rules do not allow the same expenses to qualify for both a tax credit and a tax-free distribution from a 529 plan. Double-dipping is not allowed. So it is best to plan on paying for $4,000 in college tuition, fees and textbooks with cash or loans in order to maximize eligibility for the Hope Scholarship tax credit.
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 Niche's $1,000 Summer Scholarship, and VIP Voice's $5,000 Scholarship.