FAFSA Financial Aid Case Studies Fall 2019

Separated/Divorced - - Which Parent? Parents were divorced or separated as of two months before FAFSA is being filed. They haven’t lived in the same house since then. Which parent should be used on the 2020-2021 FAFSA? What tax year will be used for FAFSA? Should the IRS DRT (Data Retrieval Tool) still be used? Which parent? - one the student spent the most time with in 52 weeks before the FAFSA was filed (in this case most time in last 2 months) What tax year? - 2018 DRT? – no because they were not separated in 2018, will need to recreate their tax filing with W-2s from the reporting parent

The family income in 2018 was $100K. A Change in Income The family income in 2018 was $100K. 2019 looks like it will be under $50K in income 50% less Does the family have any recourse? In another scenario the family will make $90K in 2019 10% less   $50k - Special circumstances consideration by the school financial aid office $90k – Special circumstances consideration by the school financial aid office – doesn’t hurt to try – there is no set threshold No specific rules or regulations for special circumstances - - school’s may or may not consider

Which Assets to Report? The student is completing the 2020-2021 FAFSA. She/he is using 2018 tax returns for the student and the parents. The parents assets at the end of 2018 were $55,000. Currently parents assets are $120,000. Which amount should they report? Assets are reported on the day the FAFSA is filed, so $120,000

Does Dad Get Counted on FAFSA? Parents are “separated”…but dad lives in the garage. How does the student complete FAFSA with regard to who are the parents and which income gets used?   Both parents included – must have a different address in order to report separately

Impact of Student Assets on EFC The student has $50K in assets. If the student reports this on FAFSA how will it affect the EFC? $50k x 20% of student assets = $10,000 increase to EFC

Impact of Student Income on EFC The student made $10,840 income in 2018 How will that affect the EFC on the 2020-2021 FAFSA? $10,840 - $6,840 student income allowance = $4,000 x 50% = $2,000 increase to EFC

Good Investment Opportunity? A family is presented with an investment opportunity that requires $100K, but they only have $20K. They are thinking about taking $80k from the equity in their home. Their income in 2018 was $55K. Their son will be attending his second year at CSU Chico. He has been awarded a Cal Grant. Assets of $100k will exceed the Cal Grant asset ceiling If they do this, they will lose the Cal Grant – worth the cost of tuition at CSU Chico Evaluate investment return potential vs value of the Cal Grant

Different Types of Assets Impact EFC Differently Sara is a HS senior wanting to attend CSU Chico in the fall. Her parents (family of 4) have $200,000 in savings from an inheritance two years ago (their only assets). The family’s 2018 AGI is $25,800. EFC=$O Tim is also a HS senior at the same school and also wants to go to CSU Chico in the fall. His parents (family of 4) have a 2nd home that is used as a rental and has $200,000 in equity (their only assets). Their family’s 2018 AGI is $23,500. EFC=$1,995 Auto Zero EFC if income is below $26,000 and did not file a Schedule 1 - - - - then assets are not considered Because the assets in the second example are from a real estate investment, a Schedule 1 must be file to capture the rental income, so the Auto Zero EFC does not apply and assets are considered Be aware that some schools require additional financial information through the CSS Profile and may ask for assets in both cases

Household Size/Number in College Tom and Mary are married. They have 2 children. Sally, age 21, is graduating from college this year and going into grad school next year. Bobby will be attending his first year of college in the fall. Tom and Mary are paying about 2/3 of Mary’s mother’s expenses while she is living with them. They will also continue paying for the education for both children. Tom will also be enrolled in college next year. For FAFSA purposes: How many are in the household? How many are in college? Household – 5 – more than ½ of mother’s expenses and more than ½ of Sally’s expenses (child does not need to live with the parents) College - 2 – do not count parent as in college when filing the child’s FAFSA – In the law the number in college is defined this way: "the number of dependents in the family of the student, excluding the student’s parents, who are enrolled or accepted for enrollment, on at least a half-time basis, in a degree, certificate, or other program leading to a recognized educational credential at an institution of higher education that is an eligible institution in accordance with the provisions of section 1094 of this title and for whom the family may reasonably be expected to contribute to their postsecondary education". 

Education Savings Plans and Grandparents Grandparents want to save for the grandkids college fund. A financial planner suggests a 529 plan. He tells them that the 529 assets will not be reported on the FAFSA that their grandchild completes. True or False? Will the grandchild need to declare 529 proceeds (annual contributions) from the grandparents as income on FAFSA? If so, at what point will it no longer matter? True – grandparents assets are not reported on the FAFSA - - - only student and parents Yes – will need to declare 529 proceeds on the FAFSA Spring semester of sophomore year - - - file FAFSA in fall of junior year for their senior year - - - reach back 2 years for income which will be spring semester of freshman year and fall semester of sophomore year

Impact of Financial Aid on Student Assets One of the FAFSA questions asks for the total current balance of the student’s cash on hand, savings account and checking account. This student has $5,500 in their checking account ($3,000 of that is remaining from unspent Pell Grant proceeds). What amount does the student report? Do not count student financial aid into account balances, so, $5,500 - $3,000 = $2,500 reported

Is Their Such a Thing As Having Too Many Assets? Mom and Dad realize that their income and their daughter’s high school GPA qualify her for a Cal Grant, however, their assets are over the Cal Grant asset ceiling. If they want to qualify for the Cal Grant, what are their options? Gift it - - - Spend it - - - Pay down mortgage - - - Put it into a retirement product - - - Put it in a “protected” business, ranch or farm - - - Put it into an annuity or life insurance product

Older Brothers or Sisters Aunts or Uncles Widowed Stepparent Who Is My Parent? Student is not living with their biological parents, but is living with the following groups of people. None of them have adopted the student. Are any of them considered the parents for the purpose of the FAFSA? Foster Parents Legal Guardians Grandparents Older Brothers or Sisters Aunts or Uncles Widowed Stepparent None of them – For FAFSA, parent means your biological or adoptive parent or stepparent - - - - or a person the state has determined to be your legal parent

I’m An Independent Student, Right? Student does not live with his parents - - That makes him “independent” for the purpose of FAFSA reporting right? Student’s parents are not going to help him pay for college - - Student’s parents refuse to provide information for filling out the FAFSA - or – student has no contact with his parents. What should the student do? Is the student considered homeless? First 2 questions - - If considered a dependent student, still must answer the questions about them 3rd question – fill out the FAFSA and then get in touch with the financial aid office at the school he his planning to attend to talk through situation - -Homeless designation from (a) high school or district homeless liaison (b) director of HUD funded emergency shelter or transitional housing program (c) director of a runaway or homeless youth basic center or transitional living program - - - potential for dependency override from FA office if no contact with parents

What Financial Information to Use? Don is a student who has lived with dad and his dad’s girlfriend for the past 12 years. Dad and the girlfriend have never married. The girlfriend claims Don on her taxes. Which financial information (income & assets) does Don use to fill out his FAFSA? Dad? Girlfriend? Both? Bio dad counts as parent - - if never married, girlfriend does not count as a parent Use dad’s financial information FAFSA and IRS dependents could be different

Carr Fire Impact–Dramatic Change to Financial Situation Tim and Mary had an Adjusted Gross Income (AGI) well beyond the Cal Grant ceiling in 2016. However, their 2017 income was dramatically lower and in July 2018 they lost their home and their family business (on the same property as their home) in the Carr Fire. 2018 income will be even lower and well below the Cal Grant ceiling. Their daughter, Jan, has been accepted to a CSU school for the fall of 2018 and is headed there in 2 weeks. Based on their FAFSA filing for the 2018-2019 school year (using 2016 financial data) Jan did not qualify for any financial aid assistance. With their changed financial status, they are hoping for some financial assistance. What should they do? Do they have any recourse? Contact the CSU financial aid office and ask for special circumstances consideration and professional judgement to change their FAFSA inputs and revise her EFC Have CSU FA office contact CSAC to follow through on Cal Grant eligibility

That’s a Lot of 529 Plans Dependent student A has two siblings, B and C. A, B and C are beneficiaries of two 529 savings plans each. The mother of A, B and C owns a 529 plan for each of the children. Each account is worth $25,000. The aunt of A, B and C owns a 529 plan for each of the children. Each account is worth $10,000. What should A report in the asset questions on the FAFSA? Should the answer be reported as a student asset or a parent asset? $75,000 - - - parent asset All parent 529s get added together Aunt 529 plans to not count 529s always reported as a parent asset

Are These Retirement Assets??? Mary is an independent student who has six rental properties that have a current value after mortgages of $500,000. In order to buy these properties five years ago, Mary cashed in her 401k holdings. Mary considers these properties to be her retirement assets. Does Mary need to report these $500,000 of assets on her FAFSA? Yes, this money is not in a retirement account any longer

This Untaxed Income is Confusing Me!!! Donald is a dependent student living with his mother. Donald’s father and mother have been divorced for over ten years. For the first two years of college, Donald’s dad paid the bulk of his collegiate expenses. His father made the following payments annually to cover his educational expenses: $15,000 from a 529 Savings Plan $10,000 from a Parent PLUS Loan (government loan) $5,000 from a private parent loan How much “Other Untaxed Income” should Donald report on his FAFSA this year? Payments made by a third party on behalf of the student Answer is $20,000 - - - $15,000 from 529 plus $5,000 from the private loan Title IV financial aid (government loan) does not need to be reported as income