FAFSA & Student Aid Issue - Where do I put $10,000?

[Future Lazy]

Hi Forum,

I was talking to my younger BIL this evening. He is 21 years old, a full time college student in his junior year, with a part time job, who has about $15,000 in static assets (not actively saving money). During the 2016-2017 school year, he only had about $5000 in assets to list on the FAFSA, and received a strong student aid package. This year, filing a 17-18 FAFSA with $15,000 in assets, his student aid for his senior year would be cut significantly. He figures he needs to "get rid of" about $10,000 to maintain his student aid package of $19,000 for his final year of undergraduate college.

He was considering spending the $10,000 to get rid of it, which he knows is a terrible idea, but doesn't really know what else to do with the money besides put it in a suitcase under his bed. Which means, of course, if the house burns down or someone steals it, no more $10,000.

OPTIONS:
(a) Buy a car/buy stuff (Boo!)
(b) Put it in a suitcase under the bed (Boo!)
(c) Put it in a retirement account (IRA limit of $5500, still $4500 left over with nowhere to go)
(d) Start a Family Business (BIL + My Husband) with less than 100 full time employees, store it in a bank account for the business (Maybe?)
(e) ???

Would appreciate any suggestions!
Kayla

[GreenShirt]

I went through college recently but wasn't as serious about this then as your BIL seems to be.

(a) Would that change his static assets at all or just rearrange them? IE, $10k in extra money vs $10k in superfluous items. Aren't they both assets?
(b) Same as (a), isn't it still an asset if it's hiding under the bed?

There's also
(e) Paying back student loans, if any

I would do a combination of (c) (retirement account) and (e) (payback student loans). Though I'm neither a legal nor a tax expert, these seem to be the most straightforward options.

[Future Lazy]

Fortunately, he doesn't have any student loans to pay down. That would have been my #1 piece of advice, if he did.

While, technically, buying a car or a bunch of stuff wouldn't really change his static assets (other than by depreciation), it would according to the FAFSA. The FAFSA wants to know about your money with a paper trail - bank accounts, investments, real estate, etc. It's not counting for the value of your TV, car, clothing, etc. On the same note, yes, it is still technically an asset if it is under the bed, but it's not an asset the FAFSA is looking for to determine your student aid package. Plus, family could steal the money, which is the major concern with Suitcase Full Of Cash scenario. Likewise, BIL is interested in buying a house once he has more credit and a higher income, and wants to save the money for that - or other important milestones, like his graduate degree. Keeping it liquid will give him an advantage after graduation.

Final scenario is a family member who is fiscally responsible (probably us) could hold the money for him for a year. Kind of reluctant to do this if there's a more independent way he could do it by himself.

[slb59]

Are you 100% sure this is going to be an issue? My husband is in graduate school, and we got a letter in the mail that FAFSA for 2017-2018 is open right now using 2015's tax return. This is the first year it's open so soon, since they are trying to get students earlier information about their aid packages (and colleges information about their students), and the result is that this year's income and assets will not matter until next year when he'll already be graduated.

This is theoretically bad for us since my husband had an extra side hustle last year he lost this year, but then we've always been offered the same amount in loans across two different schools and three different income levels.

I guess I would just make sure this really will be the issue he thinks it is before taking any drastic action.

[teen persuasion]

Looking at the actual FAFSA formulas, the student's assets are assessed at 20%.  So an increase of $10k in assets would increase his EFC by $2k.  Can he not use those assets toward the increased EFC?  He'd still have $8k afterwards.

To the previous poster asking about timing: income is based on prior-prior year's tax info, but assets are reported as of the day you file.  So timing is important.  If we had to report assets, I would definitely consider when to file, and prepay large upcoming bills or contribute to IRAs to reduce assets below protection levels if possible.

 We qualify for the Simplified Needs Test, so don't need to report assets.  If parents' AGI is below $50k and they meet another test (file 1040A or EZ, Medicaid, free/reduced lunch, WIC, etc.) no one's assets need to be reported.  OP, any chance the parents qualify for SNT?

[teen persuasion]

Link to find EFC formulas (sorry it's ugly - my tablet wants to auto open pdfs, so it's the best I can do from here):  https://www.google.com/url?sa=t&source=web&rct=j&url=https://studentaid.ed.gov/sa/sites/default/files/2017-18-efc-formula.pdf&ved=0ahUKEwipm9OBsqjQAhWE1IMKHcvdB_gQFggaMAA&usg=AFQjCNFOh1Tidi6edwihCrFFQeSh34r9fw

[DutchGirl]

I would put $5500 in a Roth IRA, only to start that early.

Leaves him with probably $4500 and $800 lower support this year than last year. Perhaps put the $4500 in an IRA in January to make things better for 2018.

[teen persuasion]

I would put $5500 in a Roth IRA, only to start that early.

Leaves him with probably $4500 and $800 lower support this year than last year. Perhaps put the $4500 in an IRA in January to make things better for 2018.

What is the student's income this year?  He can only contribute up to his earnings if they are less than $5500.  Contributing for 2017 won't make any sense for financial aid if this is for his final year (different if doing grad school).  He would need earned income next year to contribute for next year.

[Future Lazy]

... If parents' AGI is below $50k and they meet another test (file 1040A or EZ, Medicaid, free/reduced lunch, WIC, etc.) no one's assets need to be reported.  OP, any chance the parents qualify for SNT?

Both parents are dead, so BIL is essentially emancipated.

I would put $5500 in a Roth IRA, only to start that early.

Leaves him with probably $4500 and $800 lower support this year than last year. Perhaps put the $4500 in an IRA in January to make things better for 2018.

This is probably the best strategy... Unless it's important to him that he has access to that money in the next few years to home down payment or something like that.

Right now, holding $15,000 means $3000 in expected family contribution (EFC), putting $5500 in a Roth IRA would still leave him holding ~$9500, with an EFC of $1900.

Other advice is to be grateful for his no loans and large student aid funds thanks to dead parents, and suck it up and pay. :')

[NoStacheOhio]

... If parents' AGI is below $50k and they meet another test (file 1040A or EZ, Medicaid, free/reduced lunch, WIC, etc.) no one's assets need to be reported.  OP, any chance the parents qualify for SNT?

Both parents are dead, so BIL is essentially emancipated.

I would put $5500 in a Roth IRA, only to start that early.

Leaves him with probably $4500 and $800 lower support this year than last year. Perhaps put the $4500 in an IRA in January to make things better for 2018.

This is probably the best strategy... Unless it's important to him that he has access to that money in the next few years to home down payment or something like that.

Right now, holding $15,000 means $3000 in expected family contribution (EFC), putting $5500 in a Roth IRA would still leave him holding ~$9500, with an EFC of $1900.

Other advice is to be grateful for his no loans and large student aid funds thanks to dead parents, and suck it up and pay. :')

He can still use the money for a down payment

[mskyle]

When are the assets measured? Could he put $5500 in an IRA this year and another $5500 on January 1st?

[BigHaus89]

I vote for the IRA if possible. Otherwise, him "gifting" you the $10k to hold on to until a later date when his finances aren't under the microscope would be my advice.

[teen persuasion]

... If parents' AGI is below $50k and they meet another test (file 1040A or EZ, Medicaid, free/reduced lunch, WIC, etc.) no one's assets need to be reported.  OP, any chance the parents qualify for SNT?

Both parents are dead, so BIL is essentially emancipated.

Ok, then is his AGI below $50k AND he meets one of the other tests (does he HAVE to file 1040, or could he file A)?  SNT is still available to independent students, although the Auto EFC = 0 is not.