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 haveonly 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 assetsand 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 filedthe 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. The parents could also sell the high school senior's stock holdings and spend the money on her education. Generally, it is best to spend the student's assets down to zero before touching the parent's assets, since student assets are assessed more harshly than parent assets. For example, if $11,000 in student assets are spent on her college costs before the next FAFSA is filed, this will decrease the EFC by about $2,200. However, there are a few caveats: Capital Gains. If the stocks have appreciated significantly, selling the student's stocks will incur capital gains which will be treated as student income on the subsequent year's FAFSA. Student income above an income protection allowance is assessed at a 50% rate. The income protection allowance for a dependent student will be $6,000 in 2012-13. Depending on the amount of appreciation, the capital gains might offset much of the improvement in aid eligibility from changing the asset treatment of the stocks. But the capital gains will affect eligibility for need-based aid only during the subsequent year in college. The student will still benefit from increased aid eligibility during the remaining years in college. (Ideally stocks and other appreciated assets should be sold at least two years prior to enrollment to prevent the capital gains from affecting eligibility for need-based aid.) Merit Aid. Depending on the college's policies, increasing the student's eligibility for need-based aid may cause the college's merit-based scholarships to be reduced. Some colleges will reduce their grants when a student receives more aid from another source. Tax Credits. The Hope Scholarship tax credit provides a tax credit of up to $2,500 per student each year based on up to $4,000 in qualified higher education expenses, such as tuition, fees and textbooks. The family cannot use 529 college savings plan money to pay for these qualified higher education expenses, as IRS rules do not allow the same expenses to qualify for both a tax credit and a tax-free distribution from a 529 plan. Double-dipping is not allowed. So it is best to plan on paying for $4,000 in college tuition, fees and textbooks with cash or loans in order to maximize eligibility for the Hope Scholarship tax credit.
Fastweb makes finding scholarships a breeze.
Become a member and gain exclusive access to our database of over 1.5 million scholarships.