Should a Family Sell Student-Owned Stocks to Get More Financial Aid? - Fastweb

Should a Family Sell Student-Owned Stocks to Get More Financial Aid?

Mark Kantrowitz

April 02, 2012

I have two daughters. One is a junior in college. The other is a senior in high school who will be going to college this fall. They both have stocks given to them by my parents years ago, from which they get quarterly dividends of around $140 each. Every year on the FAFSA I have to put the current value of the stocks under their student assets on line 41, in the amount of $11,236. They each have only around $1,500 in income and savings. My younger child has a little more as she hasn’t spent her savings on college yet. As parents, our assets were less than the required amount and our total adjusted gross income was about $62,000. We do have 529 plans for them also, in our names. Our EFCs were 5335 and 6378. I want to know if it would be better to sell the stocks or keep them, in order to have less assets and get more aid, because it seems like we don’t get much help. They both got merit scholarships from their colleges. — Ann M.

Selling the college junior’s stocks will have no impact on her eligibility for need-based financial aid because she has already filed the Free Application for Federal Student Aid (FAFSA) for her senior year in college.

The FAFSA is typically filed in January through June before the start of the academic year, although it can be filed during the academic year through the end of the following June. While the income figures reported on the FAFSA are based on the tax year prior to the award year, the asset figures are based on a snapshot as of the date the FAFSA is filed. For example, the asset value of a brokerage account is usually based on the most recent account statement received before the FAFSA filing date. Unless there are unusual circumstances or the FAFSA is selected for verification, the FAFSA cannot be updated for changes that occur after the FAFSA is filed. For example, the FAFSA cannot be updated because of a subsequent change in the value of an asset.

Selling the high school senior’s stock holdings, on the other hand, might improve her eligibility for need-based financial aid, if the proceeds are contributed to a custodial 529 college savings plan. A custodial 529 plan is like a regular 529 plan, except that the student is both the account owner and beneficiary. The FAFSA treats a custodial 529 plan as though it were a parent asset, yielding a more favorable treatment.

Parent assets are assessed less harshly than student assets on the FAFSA. An asset protection allowance based on the age of the older parent shelters $40,000 to $50,000 or more of parent assets. Any remaining parent assets are assessed on a bracketed scale that ranges from 2.64% to 5.64%. Student assets are not protected by an asset protection allowance and are assessed at a flat 20% rate. For example, shifting $11,000 in assets from the student’s name into a custodial 529 plan account will reduce the EFC by at least $1,600, which might be enough for her to qualify for a small Pell Grant, since her current EFC is close to the eligibility cutoff for the Pell Grant program.

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