I'm doing everything possible to lower my EFC. I have assets, UTMA,
mutual funds, stocks and I know they hurt my chances of receiving free
money (Federal or state grants). I was thinking of cashing in the
assets and putting them in a safety deposit box. That way I won't
have to claim them on the FAFSA because they are no longer assets. I
have two children who will be attending college. The age difference of
the two is six years. Which means they won't be in college (hopefully)
at the same time. Is this legal to do? If not, what are the
consequences if I do this. Are there fines, penalties, etc.? I'm
exploring all my options and if this way is illegal, then obviously
doing it is out of the question. BTW. Any suggestions how to lower
your EFC when you have assets that count against you?
— Rich N.
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Failure to report assets on the Free Application for Federal Student
Aid (FAFSA) is fraud. It doesn't matter whether you keep the money in
a safety deposit box or stuffed under your mattress. Failing to report
the money is still fraud, since you will be making a false statement
on the FAFSA in response to the question about the "total current
balance of cash
, savings and checking accounts."
The penalties for providing false information on the FAFSA are severe.
Per section 490(a) of the Higher Education Act of 1965 [20 USC
1097(a)], the penalties include a fine of up to $20,000 and/or up to 5
years in prison. These penalties apply both to attempts to receive and
to the actual receipt of Title IV federal student aid through fraud,
false statement or forgery. (The FAFSA also includes the following
signing statement: "If you purposely give false or misleading
information, you may be fined up to $20,000, sent to prison, or
both.") You will also be required to return all student aid, making it
much more difficult for you to pay for college. Some colleges will
expell students who submit falsified financial aid applications, as it
is a violation of their honor code.
If you try to submit false information on the FAFSA, you probably
won't get away with it. The college financial aid administrator has
much more experience in detecting discrepant information than you have
in falsifying your FAFSA, so the odds are stacked against you. For
example, cashing out your assets will generate capital gains that show
up on your income tax returns. If your assets are inconsistent with
your income or interest/dividend income is inconsistent with reported
assets, the college might require you to submit several years of
income tax returns and account statements. The verification process is
not intended to be an audit, but if the college detects signs of
fraud, they are required to notify the Inspector General at the US
Department of Education (1-800-MIS-USED) for possible prosecution. The
US Department of Education also has a variety of automated tools
designed to detect fraud, and will be using a much more targeted
process this year to select FAFSAs for verification.
It is also often pointless to try to hide assets. If parent assets are
sufficient to eliminate eligibility for need-based aid, usually the
parent income on its own is sufficient to prevent the student from
qualifying for the Pell Grant and state grants. The need
analysis formula is much more heavily weighted toward income than
assets. You can see this by using a financial aid calculator to
evaluate the impact of zeroing out the assets on the expected family
contribution (EFC). Parent assets affect the EFC scores of only about
4% of dependent students.
The main type of assets that can have a big impact on aid eligibility
are assets in the child's name, such as the UTMA account, since 20% of
the student's assets will be added to the EFC. Parent assets are
assessed at a much lower rate. To reduce the impact of the UTMA
account, move the money into a custodial 529 college savings plan
account. This is like a regular 529 plan account, but with the student
as both account owner and beneficiary. The titling of the custodial
529 plan account is similar to that of the original UTMA account. The
College Cost Reduction and Access Act of 2007 changed the treatment of
student-owned qualified tuition plans (including 529 plans, prepaid
tuition plans and Coverdell education savings accounts) to consider
them as though they were parent assets starting with the 2009-10 award
year. So shifting the money from the child's name into a custodial 529
plan account is a legal way of reducing the impact of the assets on
eligibility for need-based financial aid.