When Can a Student's Grandparents Substitute for the Parents on Financial Aid Forms?
By The Fastweb Team
August 30, 2017
If a student lives with a grandparent, is there any way the student can use the grandparent’s income tax information on her FAFSA? I have lived with my grandmother for all 17 years of my life. My parents currently pay a small amount of child support to her, but that is the only financial support that I receive from them. My grandmother has claimed me on her income tax for all 17 years. I was never legally adopted, but my grandmother is listed on all school records, doctor records, and so on. Is there any way that I may use her information, so that I can receive financial aid? My parents will not pay for my education, so it is vital that I receive aid. If my parents provide a notorized letter stating my grandmother is my legal guardian, will I then be able to use her? — R.P.
Grandparents cannot substitute for the parents on the Free Application for Federal Student Aid (FAFSA) unless the grandparents have adopted the student. Even if the grandparents are legal guardians for the student, they do not count as parents for federal student aid purposes.
The Higher Education Opportunity Act of 2008 (P.L. 110-315) changed the requirements for a student to be considered an independent student effective August 14, 2008. If the student is currently in a legal guardianship, or was in a legal guardianship immediately prior to attaining the age of majority, the student will be considered to be an independent student. An independent student is not required to report parent financial information on the FAFSA. Note, however, that the legal guardianship must have been determined by a court of competent jurisdiction in the student’s state of legal residence at the time the legal guarandianship was adjudicated. A notarized letter from the student’s parents is not sufficient.
Alternately, the student can ask his or her college for a dependency override. The college financial aid administrator will not grant a dependency override merely because the parents refuse to contribute to the student’s education, refuse to complete the FAFSA or verification and/or do not claim the student as a dependent on their income tax returns, even if the student is financially self-sufficient. However, such circumstances are not necessary for a dependency override. Instead, the college financial aid administrator may grant a dependency override in unusual circumstances, such as an abusive family environment, institutionalization/incarceration of both parents or abandonment by both parents. Most financial aid administrators consider abandonment to have occurred when the student does not receive financial support or significant communication from his or her parents for a long time, generally for at least a year. (A birthday card is not considered to be significant communication.)
Any financial support a student receives from his or her grandparents is considered untaxed income to the student and should be reported as such on the FAFSA.
Due to a layoff and subsequent underemployment, our current credit profile includes an account that is more than 90 days delinquent. We are currently working with the lender on a loan modification. What options are available for the student’s grandparents to substitute for the parents for signing or co-signing for financial aid? — S.R.
An undergraduate student’s parents will be ineligible for the Parent PLUS loan if they have an adverse credit history. An adverse credit history includes a current delinquency of 90 or more days on any debt or a 5-year look-back for derogatory elements of the credit history, such as bankruptcy or foreclosure. An adverse credit history does not otherwise affect eligibility for federal student aid.
If the student’s parents have been denied a Parent PLUS loan, the student will become eligible for the same unsubsidized Stafford loan limits available to independent students. These loan limits are $4,000 per year higher than the normal limits for dependent students during the freshman and sophomore years and $5,000 per year higher during the junior and senior years.
Alternately, there are two main methods for regaining eligibility for the Parent PLUS loan. If the only reason the parents are ineligible is due to a 90-day delinquency, the parents can regain eligibility by bringing the delinquent account current. They can also regain eligibility by getting a creditworthy endorser to cosign the loans. This cosigner cannot be the student, but it can be the student’s grandparents.
(Grandparents are not considered to be parents for federal student aid purposes unless they have adopted the student. Thus, while the grandparents can cosign the parent’s Parent PLUS loan, they cannot borrow from the Parent PLUS loan program on their own.)
Similarly, grandparents can cosign a private student loan, provided that they satisfy the credit underwriting criteria. Note that lenders of private student loans are increasingly considering debt-to-income ratios when evaluating creditworthiness of a cosigner. If the grandparents are retired, on limited income and do not have financial resources sufficient to repay the debt, they might not qualify as creditworthy cosigners on the private student loan.
Note that a cosigner is a co-borrower, equally obligated to repay the debt. If the student is delinquent or defaults, it will show up on the cosigner’s credit history in addition to the student’s credit history, ruining the credit scores of both borrowers.
Some lenders are now offering private education loans that can be borrowed by a parent or grandparent without involving the student as a borrower. The parent or grandparent is solely responsible for repaying the loan. Eligibility is based on the borrower’s credit history and other criteria.
See also FinAid’s Tips for Grandparents on Helping Grandchildren Pay for College.
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