Income used to buy Assets in FAFSA EFC?

[johnny847]

So I'm nowhere near the age where I can expect to have a kid going off to college, but I was reading the FAFSA and EFC forms today partly because I was bored, and partly because I just think it's interesting.

Anyways, I have a question for you guys - FAFSA assesses parental income and assets correct? So say I make $60k, and I use $10k of that income to buy some mutual funds in a taxable account. Then I've now increased my assets by $10k.

So does that $10k get double counted then? It' get assessed once as part of income, and then again as assets? Or is there some adjustment on these forms that I haven't found yet? Because it seems to me that FAFSA just assesses at a certain rate the entirety of the parents' net worth as part of assets, after excluding retirement accounts and the value of their home.

[madamwitty]

Disclaimer: I haven't filled out FAFSA lately (working off knowledge from 15 years ago when I went I college) but I am also planning for my kids' college in a decade. Others should feel free to correct me if I'm wrong.

I think the answer is yes - income is based on tax return, and assets are based on the date you fill in the FAFSA. So if you have money left over from your previous year's income, then the money gets "counted twice." You don't even have to buy a mutual fund, even if it is still sitting in your bank account, that counts as an asset.

If it makes you feel better, I think the "income assessment" is their way of groping toward what you might be expected to earn in the coming year. They aren't trying to double asses that money; they want you to pay some percent of what you already have, plus some percent of what you have yet to earn. (Never mind that it's a poor approximation.)

[Emilyngh]

So I'm nowhere near the age where I can expect to have a kid going off to college, but I was reading the FAFSA and EFC forms today partly because I was bored, and partly because I just think it's interesting.

Anyways, I have a question for you guys - FAFSA assesses parental income and assets correct? So say I make $60k, and I use $10k of that income to buy some mutual funds in a taxable account. Then I've now increased my assets by $10k.

So does that $10k get double counted then? It' get assessed once as part of income, and then again as assets? Or is there some adjustment on these forms that I haven't found yet? Because it seems to me that FAFSA just assesses at a certain rate the entirety of the parents' net worth as part of assets, after excluding retirement accounts and the value of their home.

Yes, kind of.   There is some asset protection (so your first 30k or so, not counting your house, doesn't count at all).   Of the assets you have over the protection level, around 6% of this is assumed available for putting towards college.   On the income side, there is an income protection level, but up to 47% of the amount after this is assumed available.   So, assuming that your household income is over a minimum, an additional dollar saved will count much less against you than an additional dollar earned. 

 If you are bothered by this and want to avoid it, put the money in retirement accounts and/or into the mortgage on your house.   If you already max these all of your retirement account options, count yourself lucky.

[johnny847]

Thanks guys.

If it makes you feel better, I think the "income assessment" is their way of groping toward what you might be expected to earn in the coming year. They aren't trying to double asses that money; they want you to pay some percent of what you already have, plus some percent of what you have yet to earn. (Never mind that it's a poor approximation.)

Haha that sort of make sense. Though as you say, it's a poor approximation.