Fafsa

[ocowner]

Question regarding reporting of assets: What checks and balances system is there in place to know what assets are actually held versus what is reported? Are there time thresholds on dates of ownership or "moving" an asset (such as putting cash onto a mortgage balance, sale of stock to buy a large item such as a car, or simply "cashing out" a savings account until after the form is filed, then putting it back in the bank). It doesn't ask for account information, only the amounts. This is my first time filing it and it sure seems like a very subjective way of determining what assets are out there.

 

[Luanne]

This is my first year filling it out as well. I don't know how they can verify assets. I guess it's the honor system.

 

[Mosca]

Another one here. I've already filled out one disclosure form, the CSS profile; for many of the assets, my most recent statement was from the end of September. I took those numbers and multiplied by .8 . I figure by the time someone looks at the stuff next month, that's where it will be, if not lower. A couple thousand here and there isn't the difference. They're looking at orders of magnitude.

I called one school's office of financial aid for guidance, and from what I gather, it's the honor system with heavy penalties for outright fraud; they hold all the cards regarding the student's progress, after all.

 

[wackymother]

I asked my DH about this, because he's the one who does our taxes and our FAFSA. He says yes, it's an honor system, and you have to sign a statement that says you're telling the truth before you file. It's a federal form and the penalties for misrepresentation are steep.

 

[gorevs9]

I asked my DH about this, because he's the one who does our taxes and our FAFSA. He says yes, it's an honor system, and you have to sign a statement that says you're telling the truth before you file. It's a federal form and the penalties for misrepresentation are steep.

A school can request copies of tax returns. Any good auditor can probably detect any discrepancies.

After fillings out the FAFSA for the past seven years, I know just enough to be dangerous.
After you fill out the reams of paper or spend hours online, there’s a basic formula used to compute the EFC (Estimated Family Contribution).

They use the age of the oldest parent when determining “adjustments” to the EFC.
Based on this age, FAFSA allows some much $$ for “living expenses” which would include house payments, car payments, etc. Adjustments are also made depending how close one is to retirement age (again the oldest parent).

Starting with the parents income, those adjustments are made, which results in an “Adjusted Income” (much like the AGI for taxes). Then the formula takes a certain % of the “adjusted income”.

Similar calculations are done with savings and retirement funds. I don’t think you have to include your primary residence as an asset.

Mortgage or car payments have no effect on FAFSA, except to reduce your savings. Mortgage “allocations” are used in those adjustment calculations I mentioned previously. So don’t think mortgaging your house “to the hilt” is going to help. In fact, if you take a second mortgage out on your house and then put the $$ in the bank, that extra $$ is going to factor into the overall equation.

On another note, the % used for student savings and income are even higher. I can’t recall the numbers (so don’t quote me) but it might be something like 25% of savings and 50% of income (or vice versa). So if your child had $10K in the bank, the FAFSA would compute up to $5000 to be used for college.

Since FAFSA uses a smaller % of the Parents savings, it is better to move the child’s savings to the parent’s accounts (I would discuss any tax ramifications). For example if the parent has $30,000 is savings and the child has $5,000, then FAFSA may compute 10% of 30,000 + 50% of 5,000 for an EFC of $5500. If the child moves the $5,000 to the parents account, then the computation may be 10% of $35,000.

As I said, I can’t remember the exact percentages, but the exact computations are available.

For the final kicker...just because tuition is $20,000 and your EFC is $10,000, it doesn't mean the college will kick in the other $10K.

On the plus side, if your child gets into grad school, FAFSA no longer requires the Parents financial information (though the school might request it).

 

[Present]

Your student may also be selected for "verification"...

Your student may also be selected for "verification" before any funds are dispersed. Verification means they ask for proof of whatever it is they decide to audit...and you need to produce it. Have had the pleasure at least twice

 

[wackymother]

A school can request copies of tax returns. Any good auditor can probably detect any discrepancies.

Yes, and a lot of schools DO request copies of tax returns.

 

[Ann-Marie]

We have always been asked for copies of tax returns. As far as the students asset's, they take a hit more than the parents. My daughter made $10,000 in income last year. After the school asked us to provide a copy of her tax return, they immediately took away $5,000 in financial aid. She was being penalized for being a good kid. This year, she is not working. Also, prior to college, the student can opt to "loan" their savings to a sibling for the time that they are in college. After college, that sibling can give the student back their money. Works well!

 

[gorevs9]

We have always been asked for copies of tax returns. As far as the students asset's, they take a hit more than the parents. My daughter made $10,000 in income last year. After the school asked us to provide a copy of her tax return, they immediately took away $5,000 in financial aid. She was being penalized for being a good kid.

The ironic thing is since a % is taken out of both income AND savings, if a student works, earns $10K and then SAVES it, he/she gets hit twice. Once for the income and once for the savings.

 

[Luanne]

So, if my dd didn't work and earn any money, and has no savings she should be in good shape?

 

[ocowner]

So, is a joint account with a child to be reported as the child's asset, or the parent's?

 

[Ann-Marie]

So, is a joint account with a child to be reported as the child's asset, or the parent's?

If you have a joint account, it has to have a parent's social security number as primary so that the parent can claim the income.