Will Differences in Parent Assets Due to the Omission Sibling-Owned Custodial 529 Plan Accounts Cause Problems on the FAFSA?
December 19, 2011
But what about custodial 529 plan accounts that are owned by a sibling of the student? Are they reported as an asset of the parents on the student’s FAFSA, as they would on the sibling’s FAFSA? Or are they not reported on the student’s FAFSA because they are owned by neither the student nor the parent?
The most plausible interpretation is that custodial 529 plan accounts owned by the student’s siblings are not reported on the student’s FAFSA because neither the student nor his/her parents own the account. In the statutory language in section 480(f)(3) of the Higher Education Act of 1965, the phrase “the student” is referring to the applicant, not students generally.
However, there is still enough ambiguity that a college’s financial aid administrator may insist on a different interpretation where custodial 529 plan accounts owned by a sibling must be reported as a parent asset. They might note that sibling 529 plan accounts that are owned by a parent are reported as parent assets on the FAFSA, and argue that it doesn’t make sense for custodial 529 plan accounts owned by a sibling to be treated any differently. (It really doesn’t make sense, but the law doesn’t always make sense. For example, the current statutory language corrected an error in the previous statutory language, and may eventually be amended to resolve this ambiguity.) Until the US Department of Education issues clear guidance to clarify whether custodial 529 plan accounts owned by a student’s siblings are reported as parent assets on the student’s FAFSA, the interpretation is left to the discretion of the college’s financial aid administrator, and the decision of the financial aid administrator is final.
If 529 plan accounts owned by a student’s siblings are not reported as a parent assets on the student’s FAFSA, this can yield different figures for parent assets on the student’s FAFSA and a sibling’s FAFSA. If both the student and the sibling are enrolled at the same college, this discrepancy will be considered conflicting information. Conflicting information must be resolved before financial aid can be disbursed. Conflicting information can be resolved by explaining that the discrepancy is not really conflicting information, or by changing one or more of the data sources to eliminate the discrepancy.
When the college’s financial aid administrator asks about the discrepancy, the family can respond by noting that the discrepancy is due to the treatment of custodial 529 plan accounts. The financial aid administrator may either agree with the family or insist on changing the parent assets reported on both FAFSAs to include all sibling-owned 529 plan accounts.
Incidentally, the term “financial aid officer” may offend some financial aid administrators even though the Higher Education Act of 1965 uses the terms interchangeably, because that’s like calling them the financial aid police. The most common job titles are “financial aid administrator”, “financial aid counselor”, “financial aid adviser”, “director of financial aid” and “director of student finance”.