FASFA Questions For Widow Friend

[Loren Ver]

Hello,

I have a widow friend that has some concerns about her teen son that will be filling out a FAFSA in the not too distant future and that is well outside my wheelhouse.  So I thought I'd pass the questions along to people more knowledgeable than I.

Thank you in advance for you help. 

So the concerns revolve around what types of money will impact the son's ability to get financial aid when he applies to college (he is a high school junior now). 

The Mom has no income and recently paid off house and is living off of a life insurance policy.   Hopefully it will remain this way. 

The monies in question:
Deceased husbands 401k ($400k range) that we rolled into an IRA under the mother's name (I am thinking no, but wanted to double check)

The inheritance money ($500k before paying off house etc) that is in checking and savings accounts at the bank under the mother's name

Any inheritance money I might get the mother to move into a brokerage account and invest

The son's 529 plan ($30k range)

Money from the social security office the son should be getting due to his father's death (son has autism; last I checked they were waiting on the high school to send paperwork).  This money should end when the son graduates high school - i believe.  The money did not qualify for any caregiver type SS money.

Inheritance money the son gets when he turns 18(?).  I can't remember the amount, nothing extravagant, inline with the other values a middle class family with one breadwinner would have. 

Mostly the mom is concerned that the only money she has to live on for the rest of her life is going to make it hard for her son to get the money he should be able to get to go to college.  I don't have the knowledge to tell her one way or the other if that is true or not.  It doesn't sound correct to me, but it wouldn't be the first time something on the FAFSA was broken towards a group of people. 

Thanks again for your help and if you have any advice of the paperwork itself, feel free to pass it my way, I'm sure I'll be helping her fill it out when the time comes.

Loren

[Tigerpine]

Here's a good place to start:
https://studentaid.gov/aid-estimator/

This is actually from the popup help where the estimator above asks for your family assets:

What are assets?
Assets include
money in cash, savings, and checking accounts;
businesses;
investment farms; and
other investments, such as real estate (other than the home in which you live), Uniform Gifts to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts for which you are the owner, stocks, bonds, certificates of deposit, etc.

Assets do not include
the home in which you live;
UGMA and UTMA accounts for which you are the custodian, but not the owner;
the value of life insurance;
ABLE accounts; and
retirement plans (401[k] plans, pension funds, annuities, non-education IRAs, Keogh plans, etc.)

Add the account balances of the assets. If the total is negative, enter zero as the total current balance.

Do not add student financial aid into the account balances.

[Tigerpine]

Also, in terms of income, it asks for AGI (Adjusted Gross Income) if she filed taxes in the previous year, and earned income if she did not.

[Zamboni]

I'm not a financial aid officer, but I'm afraid your friend's large amount of cash / regular savings account will be counted as ability to pay in the formula. In addition, any money the student themselves has is pretty much almost counted as 100% of that can be put towards college the next year. So the inheritance going directly to him will sting, but he's 18, so I think it may be unreasonable for her to try to withhold it from him as he will be an adult (and it would be theft to not let him have it. . . ) They may be filling out the FAFSA before he receives the inheritance, so it would behoove them to do that as early in the year as they can, perhaps while he is still 17, I suppose so they can truthfully leave it off since it isn't his money yet.

It seems like she should speak with a flat fee-based financial planner. Not sure of your friend's age, but primary dwelling and retirement plans definitely shelter money from being considered as part of ability to pay for college. Sounds like she should fully fund a Roth IRA for last year and for this year regardless of what happens with her son's college. She also might want to pay off her house if that is an option. The question is, how cash poor does she want to be? Because if she has no liquid assets, then it will be difficult for her to even buy food . . . but her son may be considered highest need for college. Any liquid assets will likely be considered as ability to pay. Especially at the bigger schools, they seem to just follow a formula, although one can appeal. If her tax returns show she has very low income last year / this year / next year, then that will work in his favor in terms of aid. Some of the schools just go primarily by that.

The 529 won't hurt too much as they will spread that over the 4 years, most likely.

I will also note that some schools now send a secondary, more prying FA application. I've had to disclose the value of my home, the size of my mortgage / equity in my home, any other source of money (ie Grandparents who will pay) etc on those. Some schools definitely do their due diligence more than others. Unless she has some sort of major disability that prevents her from working, they aren't going to buy the "but this is all the money I have because I don't work" argument that she can't put it towards college.

[seattlecyclone]

There is a new FAFSA formula that looks like it's scheduled to roll out by the time this kid begins college. While taxable assets are generally counted for the FAFSA, there is a low-income exception/loophole.

If a single parent is not required to file a federal tax return or has an AGI is below 225% of the federal poverty level the student qualifies for a maximum-size Pell Grant. Such students also have their Student Aid Index (successor to the former Expected Family Contribution) set to zero regardless of any other assets the student or parent may have. I believe this AGI amount would be roughly $41k for a two-person family based on the 2022 poverty levels. If the mother is under this amount or can arrange her affairs to remain under this amount that could be very advantageous.

See https://fsapartners.ed.gov/sites/default/files/2022-11/202425DraftStudentAidIndexSAIandPellGrantEligibilityGuide.pdf for more information about the new formula.

[Loren Ver]

With the calculator the expected family contribution does take a pretty rough hit from the assets, but it isn't too terrible since the house and the 401k/IRA don't count.  So paying off the house helped there.

If the updated FAFSA does come up, it might help them even more. 

She does not want to be cash light and the recent down turn has her nervous about the investments.  I have her not looking and luckily she listens to me and is spending time on things she can influence like enjoying time with her son before he heads off.

Thanks again!

[Zamboni]

I'm going to assume your friend is a homemaker in her 40's. Please feel welcome to correct me if I'm wrong.

She must be still in a state of shock and mourning, and that's really rough. You are a good friend for helping her not make any drastic moves right now.

I understand not wanting to work right now so she can spend time with her son. Is the plan that he will go to a local college and live at home? Or will he live on campus somewhere else? Pros and cons with each option given that he has autism. Cost of attendance will be different for those options, though, which will be reflected in the FA calculation each school makes.

I'm not sure everyone understands that the FAFSA is a central form, but school financial aid offices each make their own decisions about how much aid to offer. Students sometimes get drastically different amounts of aid from different schools. The "retail price" is so high now that some private schools even give every student "merit-based" aid, which has nothing to do with their need calculation and is sometimes money on top of the need-based aid.

One thing I would tell my friend is to not let him get sucked into taking student loans. That should be absolutely drilled into his head. I've had friends on full scholarships (tuition, fees, room, board, and books all covered) and their FA office still approved them for additional loans, then hounded them when they didn't take them out! I guess the additional loans are supposed to cover stuff like travel and toothpaste, but still I think it's obnoxious the way they follow up with "why haven't you signed this loan paperwork yet?" Not all schools do this, by the way . . . but some do!

[AMandM]

Another possible resource for her son, if he's a good student, might be Questbridge, which connects low-income, disadvantaged, and first-generation college students with colleges that agree to full or very generous grants if the student is accepted. www.questbridge.org 
Two of my daughters applied to college through Questbridge and were given nearly full grants.
Although the mother's assets may be higher than the typical QB applicant, the circumstances of losing his father could lead them to consider him.

[Loren Ver]

Thank you for the additional help and resources.  I'll look into questbridge.  If not for this, it is a great backpocket resource for other people I might run into :).

She is a homemaker in her mid-50s and her son is a little older than a typical junior since he spent some time in a special school learning basic skills early in life.  The husband died a little over a year ago and the mom is still recovering from long covid. 

There isn't a plan on where he wants to go or what he even wants to major in which are also causing her some concerns (though this is very much son's personality).  His choice seems to be where is friends want to go as long as the school doesn't require standardized tests (good grades, bad at tests).  She isn't sure how well he will do in a college environment where there isn't as much structure and help. Because of this I have recommend looking seriously into our local community college (which is really good- my DH went there) as a good way to test the waters before a very expensive experiment.  Son can always dive into the deeper end later. 

But for the most part, as a non-parent, I am letting the parent, school, mentors, and people that know about children and young adults handle the raising of the young person.  My role is to help figure out how to keep the mom financially solvent and to be a good listener when she needs a friend.  Also to keep an eye open for any shenanigans anyone might be pushing on her, so thanks for the heads up on the loan pusher!

[Dee18]

As Zamboanga said, each school makes its own decisions about aid.  The student and/or his mother should be sure to communicate to any financial aid office considering her son the specific circumstances.

[secondcor521]

There is a new FAFSA formula that looks like it's scheduled to roll out by the time this kid begins college. While taxable assets are generally counted for the FAFSA, there is a low-income exception/loophole.

If a single parent is not required to file a federal tax return or has an AGI is below 225% of the federal poverty level the student qualifies for a maximum-size Pell Grant. Such students also have their Student Aid Index (successor to the former Expected Family Contribution) set to zero regardless of any other assets the student or parent may have. I believe this AGI amount would be roughly $41k for a two-person family based on the 2022 poverty levels. If the mother is under this amount or can arrange her affairs to remain under this amount that could be very advantageous.

See https://fsapartners.ed.gov/sites/default/files/2022-11/202425DraftStudentAidIndexSAIandPellGrantEligibilityGuide.pdf for more information about the new formula.

This is an excellent answer to which you should pay attention.

I will add that the 225% of FPL is based on the family size.  If there are other siblings or dependents of the widowed mother, then that should increase the dollar amount under which her AGI would need to remain.

The other important thing to understand is that under the new rules, there are multiple ways to avoid asset reporting.  You can read the actual text of the law by searching for "EXEMPT FROM ASSET REPORTING" at https://www.congress.gov/bill/116th-congress/house-bill/133/text.  What you should find in 479(b)(2)(D), for example, is that they would be exempt from asset reporting if either the widowed mother or the son received any means tested government benefit, which might be likely in this case.  There are others, as well.

These additional ways to be exempt from asset reporting are only alluded to in the link from @seattlecyclone above.  I think it says something about some additional ways to be exempt.

HTH.

[Loren Ver]

Thank you for the more specific information.  The widow and the son are the only family members as of now, and she currently as no intentions on remarrying. 

So looking at the law, she will be bringing in less than $60,000, not filing most of the schedule alphabet, and is on medicaid which I believe counts as a means tested government benefit. 

So we need to make sure she doesn't generate enough ordinary dividends or interest to need a schedule B.

Loren

[secondcor521]

Thank you for the more specific information.  The widow and the son are the only family members as of now, and she currently as no intentions on remarrying. 

So looking at the law, she will be bringing in less than $60,000, not filing most of the schedule alphabet, and is on medicaid which I believe counts as a means tested government benefit. 

So we need to make sure she doesn't generate enough ordinary dividends or interest to need a schedule B.

Loren

Please double check the law for yourself, but if she or the child is on Medicaid, then she and the child are exempt from asset reporting regardless of anything else, including her income and whether or not she files a schedule B.  It is "or", not "and".  See the language in 479 where it says "Eligible applicants.--In this subsection, the term `eligible applicant' means an applicant who meets at least one of the following criteria"

And yes, Medicaid counts as a means-tested government benefit.

[Loren Ver]

Thank you for the more specific information.  The widow and the son are the only family members as of now, and she currently as no intentions on remarrying. 

So looking at the law, she will be bringing in less than $60,000, not filing most of the schedule alphabet, and is on medicaid which I believe counts as a means tested government benefit. 

So we need to make sure she doesn't generate enough ordinary dividends or interest to need a schedule B.

Loren

Please double check the law for yourself, but if she or the child is on Medicaid, then she and the child are exempt from asset reporting regardless of anything else, including her income and whether or not she files a schedule B.  It is "or", not "and".  See the language in 479 where it says "Eligible applicants.--In this subsection, the term `eligible applicant' means an applicant who meets at least one of the following criteria"

And yes, Medicaid counts as a means-tested government benefit.

Ohh, excellent catch!  I'll fine tooth the language when my brain is fresh.  I must say, I no longer spend much time reading these kinds of documents now that I am retired, and before I retired, we had a team that went through them before they got to my team so I got the "hey scientist do this" version of them :).

There is a reason I always come here for help.

<3

Loren

[Indio]

@Loren Ver

FAFSA is a necessity if her son is planning on going to a state school. If it's private school, that requires completing both FAFSA and a different set of forms called CSS that does take into account the full financial situation of mother and son.

[Loren Ver]

@Loren Ver

FAFSA is a necessity if her son is planning on going to a state school. If it's private school, that requires completing both FAFSA and a different set of forms called CSS that does take into account the full financial situation of mother and son.

I've never heard of a CSS, thank you for the heads up in case he decides to go private.

[ltt]

@Loren Ver

FAFSA is a necessity if her son is planning on going to a state school. If it's private school, that requires completing both FAFSA and a different set of forms called CSS that does take into account the full financial situation of mother and son.

I have never heard of such a thing, and we've had 3 kids go through college.  If you are paying cash, there's simply no need to fill out the FAFSA form, unless the child is receiving a scholarship from the school or plan on taking loans, then the school may have some requirement.

Our first son went to a private university; we filled out the FAFSA.  Our taxable account/savings were such that only loans were available; however, he received merit scholarships from the school, so was required to fill out the FAFSA.

Our second son, special needs, went to a community college.  We paid cash; no FAFSA filled out.

Our third child, daughter, special needs, started at a community college.  We paid cash, no FAFSA filled out for the community college.  She then transferred to a four-year state university.  We did the FAFSA last year, however; taxable account/savings were such that only loans were offered.  (I kind of wanted to see if we were eligible for assistance as we still had one child at home.) And we are talking much, much less than what your friend has in her savings/brokerage account.  Next year will be our daughter's senior year; we will not be filling out the FAFSA.

Fourth child will start at a community college in the Fall.  We won't be filling out the FAFSA. 

The FAFSA, in some cases, is just a waste of time and energy to fill out.  We've seen this with friends' kids also.

I want to add some other points also.  I don't think I read what state the family is located in, but there are many colleges and community colleges which offer free tuition.  I know in our state, that if the family makes less than around $60k or so, tuition is free to one of our four-year state colleges.  You might want to have her look into what schools in the state offer reduced or free tuition and what the requirements are.

Also, two of our children who are special needs started at community colleges.  What I have noticed is that community colleges tend to be more pro-active in regard to students with disabilities.  One of the community colleges had a requirement that they met once a week with the student to go over things and see how things were going.  I really feel that had a definite impact on their college experience.  When our daughter transferred to a four-year college, yes, they did her accommodation plan, but the disability services office just seems more removed at the larger state school--maybe not as personal.  So, I wholeheartedly agree with starting smaller if possible.

[ltt]

Thank you for the more specific information.  The widow and the son are the only family members as of now, and she currently as no intentions on remarrying. 

So looking at the law, she will be bringing in less than $60,000, not filing most of the schedule alphabet, and is on medicaid which I believe counts as a means tested government benefit. 

So we need to make sure she doesn't generate enough ordinary dividends or interest to need a schedule B.

Loren

Wait, wait, wait.  She is on Medicaid.  How will the inheritance impact her benefits??  I believe, but don't know for sure, that the inheritance has to be reported to Medicaid.  I'm no Medicaid expert by any means, but am assuming she is now over the $2,000 in assets.

[yachi]

Wait, wait, wait.  She is on Medicaid.  How will the inheritance impact her benefits??  I believe, but don't know for sure, that the inheritance has to be reported to Medicaid.  I'm no Medicaid expert by any means, but am assuming she is now over the $2,000 in assets.

The asset test changed due to the Affordable Care Act.  There's some information here: https://www.medicaid.gov/medicaid/eligibility/index.html

"The Affordable Care Act established a new methodology for determining income eligibility for Medicaid, which is based on Modified Adjusted Gross Income (MAGI)....The MAGI-based methodology does not allow for income disregards that vary by state or by eligibility group and does not allow for an asset or resource test."

But something similar remains for certain Medicaid benefits.  For example, for Nursing home care, states can recover benefits paid from a Medicaid enrollee's estate.

[Spiffy]

We work at a private university and get free tuition, so will not be seeking federal aid, but before we could even start the application process, we had to do the FAFSA and the new CCS profile on the College Board website. CCS is a real doozy, asking things like when we bought our house, how much we paid, how much it is worth now and how much is left to pay off. Its all just a giant data grab and if I could, I would decline to fill them out.

[lhamo]

Thank you for the more specific information.  The widow and the son are the only family members as of now, and she currently as no intentions on remarrying. 

So looking at the law, she will be bringing in less than $60,000, not filing most of the schedule alphabet, and is on medicaid which I believe counts as a means tested government benefit. 

So we need to make sure she doesn't generate enough ordinary dividends or interest to need a schedule B.

Loren

Wait, wait, wait.  She is on Medicaid.  How will the inheritance impact her benefits??  I believe, but don't know for sure, that the inheritance has to be reported to Medicaid.  I'm no Medicaid expert by any means, but am assuming she is now over the $2,000 in assets.

Inheritances are not considered income for Medicaid purposes under ACA expansion in most states.

Neither are one-time capital gains.  We had a capital gain of over $1 million in 2017 and it did not kick us off Medicaid.

Please have her check to see if her city or state offers any special financial aid programs for community college attendance.  Here in Seattle, any graduate of our high schools can apply for a program called Seattle Promise, which provides full tuition scholarships to the local community colleges for up to two years.  And Washington state has a pretty good scholarship program for lower income families -- basically full tuition for up to four years if you qualify for a Pell grant. DD's EFC is $0 regardless of our assets (since our taxable income is below the threshold for streamlined FAFSA) so we are expecting a full ride at the UW if she is admitted.  She just got a letter from Colorado State showing she qualifies for a Pell Grant there.

[secondcor521]

@Loren Ver

FAFSA is a necessity if her son is planning on going to a state school. If it's private school, that requires completing both FAFSA and a different set of forms called CSS that does take into account the full financial situation of mother and son.

I have never heard of such a thing, and we've had 3 kids go through college.  If you are paying cash, there's simply no need to fill out the FAFSA form, unless the child is receiving a scholarship from the school or plan on taking loans, then the school may have some requirement.

Our first son went to a private university; we filled out the FAFSA.  Our taxable account/savings were such that only loans were available; however, he received merit scholarships from the school, so was required to fill out the FAFSA.

Our second son, special needs, went to a community college.  We paid cash; no FAFSA filled out.

Our third child, daughter, special needs, started at a community college.  We paid cash, no FAFSA filled out for the community college.  She then transferred to a four-year state university.  We did the FAFSA last year, however; taxable account/savings were such that only loans were offered.  (I kind of wanted to see if we were eligible for assistance as we still had one child at home.) And we are talking much, much less than what your friend has in her savings/brokerage account.  Next year will be our daughter's senior year; we will not be filling out the FAFSA.

Fourth child will start at a community college in the Fall.  We won't be filling out the FAFSA. 

The FAFSA, in some cases, is just a waste of time and energy to fill out.  We've seen this with friends' kids also.

Just because it was a waste of time in your and your friends' cases and you haven't heard of CSS Profile doesn't mean that those two things are universally true.

Although most people with lots of assets won't get FAFSA-based aid, there are rules which allow families to skip asset reporting.  Under the current FAFSA rules, it's called the Simplified Needs Test.  A similar but more expansive set of rules exist under the new FAFSA simplification rules.  OP's friend's kid probably qualifies under these rules, so would likely get full aid even with a large inheritance.

CSS Profile is a separate aid system used mostly by competitive liberal arts colleges like Bowdoin.  If you're not applying to that kind of school, then there won't be any need to be aware of the system or to fill out the application.

[Loren Ver]

Thank you all for the additional information.  I know my home state back in the day gave free ride for in state schools or large scholarships, but I've never heard of this start doing that from any of my friends that have kids, but I will do some digging.  If it is true, that might help with some of the indecision.  Also, I would hope the high school guidance councilors would be pointing these types of things out to the students and parents.... 

Loren

[secondcor521]

Also, I would hope the high school guidance councilors would be pointing these types of things out to the students and parents.... 

High school guidance counselors vary from abysmal to great.  But even the great ones are typically overwhelmed by the amount of information on colleges, financial aid, scholarship programs, tax implications, and the sheer number of students they serve.  For the best outcome, the parents or an interested acquaintance (or an ambitious high school student) need to advocate, investigate, ask questions, and learn for themselves.