What Happens If You Deliberately Don't Report Assets on the FAFSA?
March 28, 2011
I’m doing everything possible to lower my EFC. I have assets, UTMA, mutual funds, stocks and I know they hurt my chances of receiving free money (Federal or state grants). I was thinking of cashing in the assets and putting them in a safety deposit box. That way I won’t have to claim them on the FAFSA because they are no longer assets. I have two children who will be attending college. The age difference of the two is six years. Which means they won’t be in college (hopefully) at the same time. Is this legal to do? If not, what are the consequences if I do this. Are there fines, penalties, etc.? I’m exploring all my options and if this way is illegal, then obviously doing it is out of the question. BTW. Any suggestions how to lower your EFC when you have assets that count against you? — Rich N.
Failure to report assets on the Free Application for Federal Student Aid (FAFSA) is fraud. It doesn’t matter whether you keep the money in a safety deposit box or stuffed under your mattress. Failing to report the money is still fraud, since you will be making a false statement on the FAFSA in response to the question about the “total current balance of cash, savings and checking accounts.”
The penalties for providing false information on the FAFSA are severe. Per section 490(a) of the Higher Education Act of 1965 [20 USC 1097(a)], the penalties include a fine of up to $20,000 and/or up to 5 years in prison. These penalties apply both to attempts to receive and to the actual receipt of Title IV federal student aid through fraud, false statement or forgery. (The FAFSA also includes the following signing statement: “If you purposely give false or misleading information, you may be fined up to $20,000, sent to prison, or both.”) You will also be required to return all student aid, making it much more difficult for you to pay for college. Some colleges will expell students who submit falsified financial aid applications, as it is a violation of their honor code.
If you try to submit false information on the FAFSA, you probably won’t get away with it. The college financial aid administrator has much more experience in detecting discrepant information than you have in falsifying your FAFSA, so the odds are stacked against you. For example, cashing out your assets will generate capital gains that show up on your income tax returns. If your assets are inconsistent with your income or interest/dividend income is inconsistent with reported assets, the college might require you to submit several years of income tax returns and account statements. The verification process is not intended to be an audit, but if the college detects signs of fraud, they are required to notify the Inspector General at the US Department of Education (1-800-MIS-USED) for possible prosecution. The US Department of Education also has a variety of automated tools designed to detect fraud, and will be using a much more targeted process this year to select FAFSAs for verification.
It is also often pointless to try to hide assets. If parent assets are sufficient to eliminate eligibility for need-based aid, usually the parent income on its own is sufficient to prevent the student from qualifying for the Pell Grant and state grants. The need analysis formula is much more heavily weighted toward income than assets. You can see this by using a financial aid calculator to evaluate the impact of zeroing out the assets on the expected family contribution (EFC). Parent assets affect the EFC scores of only about 4% of dependent students.
The main type of assets that can have a big impact on aid eligibility are assets in the child’s name, such as the UTMA account, since 20% of the student’s assets will be added to the EFC. Parent assets are assessed at a much lower rate. To reduce the impact of the UTMA account, move the money into a custodial 529 college savings plan account. This is like a regular 529 plan account, but with the student as both account owner and beneficiary. The titling of the custodial 529 plan account is similar to that of the original UTMA account. The College Cost Reduction and Access Act of 2007 changed the treatment of student-owned qualified tuition plans (including 529 plans, prepaid tuition plans and Coverdell education savings accounts) to consider them as though they were parent assets starting with the 2009-10 award year. So shifting the money from the child’s name into a custodial 529 plan account is a legal way of reducing the impact of the assets on eligibility for need-based financial aid.
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