I'm confused as to how to treat a prepaid tuition plan when
applying for financial aid. I'm an independent student but I have a
small prepaid tuition account which is held by a parent as account
owner with me as the beneficiary. Since I don't list parent assets
when filling out the FAFSA, do I need to list the prepaid tuition
plan? If so, how does this effect my financial aid? Do I list the
current value of the plan?
— Jim C.
The College Cost Reduction and Access Act of 2007 changed the
treatment of qualified education benefits effective July 1,
2009. Qualified education benefits include 529 college savings plans,
prepaid tuition plans and Coverdell education savings accounts.
A previous article discussed the
asset treatment of college savings plans for dependent students
For an independent student, a qualified education benefit plan is
treated as a student asset if the student is the account owner or if
the student is the beneficiary.
Thus you should report the prepaid tuition plan as your asset on the
FAFSA even though you are independent and your parent is the account
owner. This will reduce your financial aid eligibility by 20% of the
value of the prepaid tuition plan account. The value of the prepaid
tuition plan is the refund value as reported on the most recent
Your parent could change the beneficiary listed on the account, but then you
wouldn't be able to use the money to pay for your
education. A better
strategy is to spend the money to pay for your education as quickly as
possible so that it doesn't affect your aid eligibility next year as
Don't forget about the Hope Scholarship tax credit, which is based on
$4,000 you pay in tuition, fee and course material expenses. There are
coordination restrictions in the Internal Revenue Code that prevent
double-dipping, so you can't use the same expenses to justify both the
Hope Scholarship tax credit and the tax-free distribution from a
prepaid tuition plan or 529 college savings plan. Since the Hope
Scholarship tax credit typically has a greater financial value than
the tax-free distributions, you will want to reserve $4,000 in
expenses to qualify for the Hope Scholarship. You can pay for these
expenses out of pocket or with student loans. The rest of your
expenses can be paid using the prepaid tuition plan.
When am I supposed to compete my application for FAFSA? I am going
to be a high school senior this fall and will graduate the following
May. Also by when?
— Tania O.
The FAFSA should be filed as soon as possible on or after October 1 of
your senior year in high school (and each subsequent year in college
except the last).
You cannot file the FAFSA before October 1, as the form depends on
your income from the prior tax year, which ends on December 31.
The FAFSA is used to apply for state grants in addition to federal
student aid. You should submit the FAFSA as soon as possible after
October 1 because several states have very early deadlines for state
grants, some even as early as February.
wait until you've filed your federal income tax
returns or you've been admitted to a college to file the FAFSA. You can
estimate your income based on your W-2 and 1099 statements and the
last pay stub of the year. You will have an opportunity to correct any
The FAFSA has a filing cycle, starting October 1 and ending
June 30 of the following year. You can submit the FAFSA at any time
before June 30 or the end of the academic year, whichever comes
sooner, and still qualify for federal student aid. The college just
needs to receive a valid output document with your EFC before the
earlier of these two dates. Some forms of federal student aid have
payment period (semester) limits, which may affect the amount of aid
you can receive, so it is better to submit the FAFSA sooner rather
than later. If your circumstances change mid-year, you can appeal for