Our son is a sophomore in college. He receives both subsidized and
unsubsidized loans. My husband and I have been paying the remaining
balance for his education. I recently inherited approximately
$100,000. I am aware that we should pay off high interest debt with
this money. However, we want to save enough to pay for the rest of
his college education (about $65,000). How will our assets be looked
at by the FAFSA? We previously had assets under $5,000. We are both
51 years old.
— Cathryn C.
All or part of your assets will be disregarded by the federal need
analysis formula. The federal formula excludes the net worth of the
family home, money in qualified retirement plans — such as a
401(k), IRA or 403(b) — and any small businesses owned and
controlled by the family. If your income is less than $50,000 and you
are eligible to file an IRS Form 1040A or 1040EZ (or you satisfy
certain other criteria) all assets will be disregarded. There is also
an asset protection allowance, based on the age of the older parent,
that shelters about $50,000 for most parents of college-age children,
including you. Ultimately, less than 4% of dependent children have any
contribution from parent assets as part of their expected family
Any parent assets that are assessed by the need analysis formula are
assessed according to a bracketed system with a top bracket of
5.64%. So $65,000 in assets would reduce his eligibility for
need-based aid by at most $846, corresponding to the $15,000 above the
asset protection allowance.
The federal need analysis formula does not count consumer debt, such
as auto loans and credit card debt, but it does count cash in the
bank. So you may be able to improve your son's eligibility for
need-based financial aid by using some of the inheritance money to pay
off your credit cards.
There are also financial benefits to eliminating credit card debt and
other high-interest debt. If you use the inheritance to pay for his
education, you will not need to borrow from the Parent PLUS loan
program, which has a 7.9% interest rate. But if you have some debt
with a higher interest rate, such as credit card debt, it is better to
pay of the higher-rate debt first. For example, if you're paying 14.9%
interest on $10,000 in credit card debt, using the inheritance to pay
off the credit card debt will save you $1,490 a year in interest. You
might then need to use the Parent PLUS loan to pay for your son's
college tuition, but that will cost you only $790 a year in interest
on a $10,000 debt.
Moreover, you can deduct up to $2,500 in interest paid on federal and
private student loans on your federal income tax return. The student
loan interest deduction is an above-the-line exclusion from income, so
you can take the deduction even if you don't itemize. You can't deduct
the interest paid on credit card debt or auto loans.
Also, are you saving enough for retirement?
What kind of financial aid and scholarships are available for my
daughter, who is a 7-year survivor of a malignant brain tumor. She is
only a junior in high school but I want to see what kind of options I
have next year. She has long term side-effects from the radiation and
chemotherapy. Any information you can provide, would be great.
— Marie S.
The free Fastweb scholarship matching service includes several types
of cancer scholarships, including college scholarships for cancer
survivors, scholarships for siblings of children affected by cancer
and scholarships for children of parents who have or have had
cancer. To find the cancer scholarships, login to the site and click
on the "My Profile" link on the upper right hand corner of the
page. There are two relevant characteristics in the Personal Info
section of the profile and two in the Parent Activities section. In
the Personal Info section you'll find "Cancer" in the Disability menu
and "Cancer, Siblings Diagnosed With" in the Personal Attributes
menu. (There may also be other conditions that are relevant in the
Disability menu.) In the Parent Activities section you'll find
"Cancer, Deceased due to" and "Cancer, Survivor/Living With" in the
Parent Attributes menu. After you save the changes, any relevant
cancer scholarships will be included in the list of matching
You can also find information on Cancer Scholarships on Fastweb
as well as in the Cancer Scholarships
page on FinAid.
See, for example, the
Pediatric Brain Tumor Foundation of the United States