After submitting our FAFSA for my son, we got back an EFC of 23207
on the SAR. I have been told by admissions that that is extremely
high. The FAFSA says I have to include child support payments we
received for him last year, even though the payments will end this
year before the start of his freshman year. The amount was
approximately $6,000. Also the FAFSA says I have to include UTMA
accounts in net worth of investments. My son has a $30,000 UTMA
account that he is listed as secondary on and his grandfather is
primary. My son does claim the dividends on his personal tax return,
but we haven't decided if we will use any of that money toward college
expenses. I contacted the school and they tell me I can submit a
change of income form through the school for the child support issue
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and that I don't need to include the UTMA information at all on my
FAFSA because my son is not primary on the account. The FAFSA form
instructions say quite the opposite. Can I make the necessary
correction on the FAFSA that they (admissions) say? I am trying to not get
myself in trouble. What should I do?
— Dave B.
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In just one sentence: What scares you most about the college admission process?
College admissions staff do not necessarily have the expertise to
answer questions about financial aid. Address questions about
financial aid to a college financial aid administrator, not a college
College admissions staff also do not have the authority to make
adjustments to data elements on the Free Application for Federal
Studnet Aid (FAFSA). Congress specifically delegated the authority to
make adjustments only to the college's financial aid administrators.
Some colleges have set up one-stop shops that combine the customer
service operations of admissions, financial aid, bursar and
registrar. These streamlined hub operations can be convenient, saving
the student from having to run around campus to visit multiple
offices. They can answer simple questions about financial aid and hand
out forms. But they don't always have the depth of expertise to answer
technical questions about financial aid. Unfortunately, it isn't
always possible to tell whether the answer to a question requires
technical expertise. But if an answer conflicts with information
available from other credible sources, such as the FAFSA instructions,
and the front office staff are unable to resolve the conflict, ask to
speak to a financial aid administrator.
Tip: When asking a question about financial aid, write down the name
and/or ID number of the person answering the question. This will allow
supervisors to provide additional training to staff who answer
The college's change of income form is used to initiate a professional
judgment review by a financial aid administrator. It is not uncommon
for child support payments to end before or during enrollment. Most
college financial aid administrators will make adjustments when the
previous year's income is not reflective of ability to pay during the
award year. The $6,000 in child support payments received may account
for as much as $3,000 of the $23,000 EFC.
But the admissions staff are wrong about the UTMA account. An UGMA or
UTMA account is a custodial account, where the account is owned by a
minor. As noted in the FAFSA instructions, custodial accounts must be
reported as investments on the FAFSA and are reported as assets of the
account owner, not the custodian. The titling of an UTMA account
established by a grandparent for a grandchild will be "[Grandparent's
Name] as custodian for [Grandchild's Name] under the [Grandchild's
State of Residence] Uniform Transfer to Minors Act" or something
This is in contrast with a Totten Trust, which is typically titled as
"[Grandparent's Name], in trust for [Grandchild's Name]". A Totten
Trust is a revocable transfer that passes to the beneficiary without
probate upon death of the account owner.
The terms "primary" and "secondary" have no legal meaning when
referring to the custodian and account owner of a custodial account
and may be ambiguous as to which is which.
Since families sometimes get confused about the difference between
custodial accounts and Totten Trusts, an experienced financial aid
administrator will always try to clarify who legally owns the
account. In most cases the child is the account owner, especially when
the parent refers to it as an UGMA or UTMA account or custodial
account. When in doubt, a good rule of thumb is to follow the
taxes. If the child reports the interest and dividends on his income
tax return, the child is the account owner.
A $30,000 custodial account contributes $6,000 of the $23,000 EFC.
There are a few ways to reduce the impact of a custodial account on a
student's EFC. But these strategies will not affect the student's
eligibility for need-based financial aid for the fall, since the FAFSA
has already been filed. The FAFSA uses a snapshot approach with regard
to reporting assets, measuring the asset value as of the date the
FAFSA was filed. The FAFSA may be changed to correct errors in the
information reported as of the date the FAFSA was filed, but may not
be be updated for subsequent changes in the nature or value of the
assets. For example, if the applicant transposed two digits in the
account balance, the applicant can correct the error on the FAFSA. But
the applicant cannot update the asset value because some of the money
was spent after the FAFSA was filed. So any steps taken now will
affect the treatment on the subsequent year's FAFSA but not the
current year's FAFSA.
One solution is to spend down the balance in the UTMA account to pay
for the student's college education. This will reduce the impact of
the UTMA account on eligibility for need-based financial aid next
year. The family should spend the student's assets to pay for the
student's education before using any parent assets. If the family
spends down the UTMA account balance to zero, it will reduce the EFC
by as much as $6,000.
Another solution is to roll the money into a custodial 529 college
savings plan account. A custodial 529 plan is titled the same as the
original UTMA account that was used to fund the 529 plan. Even though
the student is the account owner (and beneficiary) of a custodial 529
plan, federal law treats such accounts as though they were parent
assets on the FAFSA. This yields a much more favorable treatment on
the FAFSA, reducing the impact of the $30,000 account from at most
$6,000 to at most $1,700.
(Note that some financial planners have encouraged families to set up
529 plans with a grandparent as the account owner, as opposed to the
student or parent, because accounts owned by a grandparent are not
reported as assets on the FAFSA. However, if a 529 plan is not
reported as an asset on the FAFSA, any distributions from the 529 plan must
be reported as untaxed income to the beneficiary on the subsequent
year's FAFSA. That usually results in a much greater increase in the
student's EFC than a 529 plan owned by the student or
parent. If a 529 plan that is reported as an asset on the FAFSA,
distributions are not reported as income on the FAFSA.)
Addressing the child support and UTMA account issues will reduce
the EFC to about $14,000. This is still too high an EFC for the
student to qualify for a Pell Grant, but the student might qualify for
a subsidized Stafford loan and perhaps some other aid from the
college's own funds, depending on how much the college costs.