Hi. Short story. My son is a freshman in college. He was injured in 2015 at work, he suffered an amputation of a finger. He will be receiving a measly settlement of 19,000 this year. So this will have to be reported on his FAFSA for his senior year in college (as untaxed income for 2017). Our EFC is 01888. This settlement will hurt his aid terribly and upsets me dearly because it is not fair for many reasons. But my bigger concern is what to do with that income prior to the year we have to claim it as untaxed income. For instance next year when we file and he has a portion of this 19000 in a savings account-we are using some to pay off his student loans. Is there a way we can invest it that it will not affect him until the year it is reported?
Hoping someone else will chime in @kelsmom maybe. Or @BelknapPoint or @mommdc or @Madison85
I’m not positive a workmans comp settlement is considered income. Hoping someone can clarify this.
In terms if where to put the money? If you are going to use it for college,costs…how about a 529. At least then it would be assessed for fafsa purposes at the parent rate of 5.6% for fafsa purposes.
Is his school a FAFSA only school? Or do they require CSS profile?
I am not sure how the worker’s compensation is treated either, but if it is a one-time settlement for an injury, the school might do a professional judgment.
So your son is getting a $4,000 Pell grant now?
@kelsmom, can you help?
Also, does he have to take the settlement as a lump sum?
Hello. Our efc was a little higher last year as he had worked the whole summer and fall of 2014. He was injured in 2015 so did not work much that year. He got approx 4300 for pell and another federal grant for this current year. He also gets a 8800 grant from the university. Even with those and his academic and admissions scholarships he still owes close to 11000 in loans a year. I sent an email to the financial aid office requesting a call to discuss it when it becomes an issue. I am hoping they will do a professional judgement. Or my other hopes is that he either transfers out to a different school or starts to get athletic money to offset. He is a member of the wrestling team. No athletic money due to something w his grant and academic money. So he was allotted 2000 in an “admissions award” when we said it was too expensive.
Because it is a one time smaller award we were told it will be in a check issued approx one month after I finalize the paperwork. Which I need to submit prior to June of this year. Or he will get nothing but the medical bills paid.
I do not know anything about a CSS. If it requires additional paperwork then no. I only did fasfa paperwork.
I believe his pell was 3300 and the other was 1000. I’m not at home to look at his paperwork right now and my heads spinning trying to do this and to get his settlement taken care of. Beyond this award there is more paperwork and things to be filed but those will take years to settle and investigate.
Can you comment about the possibility of athletic scholarships and other grants/scholarships?
IF he oils get the athletic this won’t be an issue. But as of right now there has not been any money offered besides what he has. But if he starts next year I want to discuss athletic scholarships. If this makes any sense. Lol. So my concern is still what to do about this pathetic settlement.
It sounds like the settlement is for the injury, not for lost wages. If so, it would not be income and shouldn’t be taxable (payment for pain and suffering is not taxable as income, but any amount paid for lost wages would be). Assuming it is not income, it would be an asset only if it is in his account when the next FAFSA is filed. If you repay student loans before filing FAFSA, then it wouldn’t be an asset.
Whoever is helping you with the settlement (lawyer? worker’s comp rep) should be able to structure the settlement to indicate it is not for lost wages. They might be able to put it into an annuity. You are going to need to request professional judgment for the school to only consider the payments from the annuity rather than the entire amount. I think paying the current students loans with it a better idea.
As for the athletic scholarship, you need to know if he’s getting other need based financial aid from the institution. If his statistics are high enough, he can get merit aid (like other students with similar stats are receiving), he can get the Pell grant and an SEOG, federal loans, and any state grants. You’d have to know what the extra $1000 was (federal aid? state aid? school aid?) and under what condition they waived the $2000. It may be that if he gets athletic money, he’d lose the grant and merit aid (won’t lose the Pell or SEOG). You have to ask the athletic and FA departments.
Thank you very much @twoinanddone
For this settlement we do not have an attorney. Our friend at workers comp walked us thru the paperwork because an attorney would take 1/3 of it and as a mamma I was not about to let an attorney get 6000 for writing one sentence asking for this award. We will be meeting attorneys next week to discuss other claims he can fight for due to the “illegal” employment.
Correct this is not for wage loss. This is just an automatic award for the loss of use (of his finger) any wage replacement was reported on his current/last years FASFA for 2015 income. It only amounted to 465.00 so I wasn’t concerned about that.
I do believe that most of that will be used to pay of his current student loans as that is what I told him is the most logical use for it. He isn’t thrilled but will be happy when he graduates nearly debt free.
And as far as athletic scholarships go I am not too worried about if he gets it or not. I doubt he will because he has 20800 per year in aid from the institute. 10,000 merit. 8800 school grant. 2000 admissions award (school paid). Yes that is what we were told he would lose his other school based aid and that is when they offered his 2000 admissions award.
It may not make any difference if the formula used for your situation is Simplified Needs Test - in that case, assets are ignored. That is the first thing to consider, because if the SNT formula is used, assets are ignored. I think you are correct to lay the groundwork now to make sure this does not become an issue for the future. You can put the money in a 529 in the parent’s name or use it to pay off loans before the FAFSA is filed. If the school says they will use PJ to do something that would be favorable, get it in writing. If it is considered income, that can be removed from the formula with PJ, if the school agrees to do so … and if SNT is used, it won’t count (if not, the 529/loan payoff idea may need to be considered).
I briefly skimmed the SNT last night and I do not believe we are eligible. 
Our AGI was 53000. I do think that we will use 10,000 of it to pay off his loans from this current year. Maybe take another 5,000 and pay it on his tuition for next year or the summer course he needs to take, so he only has 5500 in loans for sophmore year?..The other I told him he could use for his car and a summer trip (I think the kid deserves something enjoyable for what he went thru-its not like he will ever forget about it. Slight reminder every time he goes to pick anything up with his left hand or tie his shoes or button his shirts.