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That Free Financial Aid Seminar May be Just a Worthless Sales Pitch

Mark Kantrowitz

November 18, 2011

Error: A 529 college savings plan counts 6% against you. A 529 college savings plan owned by a dependent student or the student's parents is treated as a parent asset on the FAFSA. The asset protection allowance for typical parents of college-age children is about $50,000. Any reportable assets above this threshold are assessed according to a bracketed scale, with a top bracket of 5.64%. A 529 college savings plan that is owned by a third party, such as a grandparent, aunt or uncle, is not reported as an asset on the FAFSA. However, any distributions from the 529 plan will be treated as untaxed income to the beneficiary, which can reduce aid eligibility by as much as 50% of the amount of the distribution. If the 529 college savings plan is owned by an independent student, it is treated as a student asset on the FAFSA. This will reduce aid eligbility by 20% of the asset value. Error: Four years ago the 20% contribution from student assets was 35%. With the health care bill it's going back up. The Higher Education Reconciliation Act of 2005 (P.L. 109-171) did amend 20 USC 1087oo(h) to replace the 35% contribution from student assets with a 20% rate, effective July 1, 2007. However, there is no language in the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152) concerning the contribution from student assets. There is no pending legislation which would change the contribution from student assets. The FY2012 budget legislation in the US House of Representatives does propose cutting the automatic zero EFC threshold from $31,000 to $15,000 and rolling back the student income protection allowance to 2008 levels, but neither of these proposals has any connection with the percentage contribution from student assets. Perhaps the speaker's political views lead him to utter false information about federal student aid. Error: By law every school has to audit 30% of FAFSA forms. The 30% verification requirement is by regulation, not statute, and is changing. Moreover, many colleges voluntarily verify 100% of the FAFSA forms they receive. The new program integrity regulations published in the Federal Register on October 29, 2010 implement a new verification regime starting July 1, 2012. This will affect FAFSAs filed on or after January 1, 2012 for the 2012-13 award year. The 30% verification requirement is eliminated. Instead, the US Department of Education will be using a more targeted verification process, where the items selected for verification will be based on the applicant's characteristics and the data elements on the FAFSA. An anomalous value for a data element, for example, may trigger verification of that data element. A data element may also be selected for verification because it is prone to error. There is no minimum or maximum number of FAFSAs that may be selected for verification. The expectation is that there will be an increase in the number of FAFSAs selected for verification, but fewer data elements on the FAFSAs will have to be verified. Also, the $400 verification tolerance will be replaced with a $25 tolerance.

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