<p>I have been running numbers on the Finaid FAFSA calculator. I thought we were going to be eligible for a Pell grant until I realised we had to report the Social Security payments my daughter received this year (based on a parent drawing federal pension - yes we're old). As this is considered her income they take a big chunk towards the student EFC which knocks her out of Pell grant eligibility plus another grant based on that eligibility. Trouble is the income goes away in March when she turns 18. She is in line for some merit money but it is going to be a struggle to pay and we were hoping for the Pell (not full but every little helps) and also that she would be eligible for federal work study. Yes there is a question in here somewhere:
1. As we can show that that income is no longer in existance long before she starts college will college financial aid offices adjust the EFC accordingly? Can they even adjust it when it is Federal grant money we are talking about?
2. I keep reading about the all important 'base year' - and this is it. If she is ineligible for the Pell and/or work study the 1st year can she become eligible for subsequent years when this income is no longer there?
Evry time I think I have this figured out it seems to become more complicated so any help is appreciated.</p>
<p>I think the finaid counselors have some latitude of discretion to make adjustments........read some of the examples on this link:
<a href="http://www.finaid.org/educators/pj/casestudies.phtml%5B/url%5D">http://www.finaid.org/educators/pj/casestudies.phtml</a></p>
<p>You could check with one or two of your likely schools and see if they have an opinion on it.</p>
<p>Although SS benefits received for minor children are treated as income to the minor for federal income tax purposes, SS benefits are treated as income to the parent(s) for FAFSA purposes. Depending on your other income for 2006, SS benefits could be taxable/untaxable. If the benefits are treated as untaxable, you would report them on parent schedule A of FAFSA. If taxable, the benefits will be included as part of your AGI as reported on your federal tax return. </p>
<p>As to FAFSA and federal aid programs only (Pell grants, Stafford loans, work study), a critical factor will be what is reported on the parents federal tax return (adjusted gross income, or AGI). If the parents AGI is under 20K and the parents file a short tax form (1040A, 1040EZ), then the SS benefits will be ignored. If the parent's AGI is over 20K, then I believe that the SS benefits will be assessed like other parental income.</p>
<p>However, an aid package can include both federal money and the schools own money. As to the schools own money, an aid officer has more discretion as to how to factor in the SS benefits. You could point out to an aid officer that the SS benefits have stopped when your D turns 18. </p>
<p>Good luck.</p>
<ol>
<li><p>It is possible for FA administrators to use "proffessional judgment" to recalculate EFC, making the student Pell eligible. Calmom has written of that happening for her D, and I have seen that happen with students i work with. It's up to the individual FA office how and when they do that, though.</p></li>
<li><p>This year is your base year for the first year of college; each subsequent year will be based on the next year, so when the payments end, they will drop out of consideration; it's just that there's a year lag.</p></li>
</ol>
<p>Thank you all for your help. Looks like we need to talk to the Financial Aid people at school. One question fpr Jugulator - I had heard befor that Social Security payments to the child count as being to the parents for FAFSA purposes. But when I look at the FAFSA instructions it states quite clearly that payments to the student should be shown as untaxed income for the student. So I am a little confused. I am wondering if there is a difference between certain types of benefits.</p>
<p>Swimcatsmom:</p>
<p>The following link helps explain how to complete FAFSA. This website is pretty much gospel for completing FAFSA. </p>
<p><a href="http://www.ifap.ed.gov/IFAPWebApp/index.jsp%5B/url%5D">http://www.ifap.ed.gov/IFAPWebApp/index.jsp</a></p>
<p>Under publications, click on FAFSAS and Renewal FAFSAS.
Click on completing FAFSA I assume you want the English version. (I apologize if my assumption is wrong).</p>
<p>Near the top click on the application questions. Click on questions 40-42. </p>
<p>Although these questions deal with student income, read the section about SS. It states in part if Social Security benefits were paid to your parents on your behalf (because you were under 18 years old at the time), those benefits are reported in the parent column as your parents' income, not your income. </p>
<p>I apologize for having you click on various links. I could have skipped the earlier links and had you go right to the link regarding questions 40-42, but I believe the link I provided above is the most useful for FAFSA in general. </p>
<p>I think I answered your question? Hope it helps. Good luck.</p>
<p>As a follow up, I am making some assumptions, but if correct, they may be helpful to you.</p>
<p>Although SS benefits are income to the minor for federal income tax purposes, are any of the SS benefits received by your D taxable? I assume your D is single. To quickly determine the taxability of Ds SS benefits, take one half of the SS benefits D received and add to all other income D received. Is the total greater than 25K? Ill assume no. If this is correct, then none of the SS benefits are taxable. In fact, if my assumption/conclusion is correct, the SS benefits that D received will not even show up on Ds income tax return, assuming she even files. If the above is true, then as Ive stated before, the SS benefits should be reported as untaxable parental income (parent schedule A FAFSA).</p>
<p>But SS considers the parent a fiduciary for the minor child. In other words, the parent is responsible for using the SS benefits for the minor child, and not on themselves. The money is the childs. There is a form SS uses where SS asks the parent to account for how the parent spent the money received for the minor child. SS allows a parent pretty broad discretion on how to spend the money. </p>
<p>The point is that if any of the benefits remain on the day you file FAFSA, it should be counted as a students asset. This is not good for financial aid purposes.</p>
<p>If SS asks, you should be to document how you spent the money for D. Besides the basics (food, rent, etc.,) SS benefits could be used to pay application fees, buy a computer, and even purchase a car. If any is left, I would try to spend it down so that on the day you file FAFSA, as little as possible remains. Do get me wrong; Im not saying go crazy about spending the money. But as a financial aid strategy, you should try you have as little of that money as possible in the student asset column on the day you file FAFSA. </p>
<p>Again, I hope it helps. Good luck.</p>
<p>Thank you so much for all your help Jugulator. I went to the links you gave me and they explained the situation to me. (though like I said in my original post - every time I think I understand I come across some new and realise I really don't!) We still will be in the situation where the income will no longer be there after March and I guess we will have to talk to the Financial Aid officer at the school about that to see if any adjustments are possible. You seem like a real expert in this area so do you mind if I ask one more question. Our adjusted Gross Income is below the threshold where we would qualify for an automatic zero EFC if we filed a 1040EZ. We would do so except in the previous year we had a little higher income so claimed deductions. Unfortunately my husband overpaid our estimated State taxes so got a tax refund which, as far as I can understand, means we are not eligible to do the 1040EZ. So even though the income figures will be exactly the same our EFC changes because we have to file a 1040. Is that correct - it seems really weird to me. (by the way I am English speaking but not originally from the US - the US tax system seems very complicated to me! I don't want to do anything wrong with all these forms!)</p>
<p>Swimcatsmom:</p>
<p>I am not an expert. My knowledge is based on personal experience as my kid is now a college junior and did receive SS benefits as minor.</p>
<p>I am not an accountant. When you state, in part, that you would file a short form except in the previous year we had a little higher income so claimed deductions. Its not clear to me what year you are talking about. When you say in the previous year, do you mean tax year 2005? If yes, (I am assuming your D will apply to college in 2007), FAFSA would not be concerned with tax year 2005. </p>
<p>For college year 2007/2008, FAFSA is only concerned with tax year 2006. If you are referring to tax year 2006, then yes I believe that if you are claiming deductions, you have to file a long form. But ask yourself if the tax savings of filing a long form and taking deductions outweighs the benefits of filing a short form, not taking deductions, and getting an automatic zero EFC which would open the door to a lot of federal aid. I would strongly urge you to talk to an accountant and see how much you will save in taxes and then compare that versus potentially receiving the max Pell grant of $4050, the interest saved with subsidized Stafford loans, federal work study which wouldn't be counted by FAFSA as income against D, etc.</p>
<p>And yes, the US tax system is overly complicated (FAFSA as well). Again, good luck.</p>
<p>I apologize. In post #7 above, where I wrote "Do get me wrong", I meant don't get me wrong. Sorry.</p>
<p>Hi again Jugulator. For the 2005 tax year we did the long form tax return as we itemised deductions. For 2006 tax year we are not itemising deductions but because we received a refund of overpaid State income taxes from 2005 we are ineligible to file short form for 2006 (from my understanding of reading the forms). You are right that the very little tax savings from itemising deductions would be more than offset by getting the zero EFC and getting the full Pell grant. Seems like such an odd quirk in the system to me.
The links you posted earlier are so helpful - I had looked at the FAFSA pages but they do not explain things nearly as clearly as those pages. Thank you so much.</p>