I am a little upset at what happened to my son’s financial aid for the 2019/20 school year and would like to get some thoughts as to options/opinions about the situation. My son is doing a semester abroad this Spring. I have called the school multiple times since the beginning of Dec 2019 to make sure they have all the information necessary for financial aid and all was good. I had to front the program payment on Dec 15 as the aid wouldn’t be disbursed till early Jan. They have assured me multiple times that they have all the information. I was surprised that they said there will be no modifications to his award as the semester abroad is cheaper. I was told that the aid is all set and ready to be disbursed. It did not happen when it was supposed to happen at the beginning of Jan. In fact, just yesterday it finally all went through and I was quite surprised as to what did get changed. One thing to note is this is a meets full need school.
They redid the aid for the whole year, not just for the Spring semester. This in itself seemed odd to me.
They removed his subsidized gov’t loan for both semesters. I guess I understand this one since the need changed for the year and it probably has some gov’t rules associated with it.
My son has an outside scholarship of a few thousand dollars. It has been split between the two semesters. They went back and applied more of the scholarship to the Fall semester and less for the Spring Semester. I did not think they had the option to do that.
My son was given a $5,000 scholarship from the school when I was comparing schools when he first applied a couple of years ago. I was told it was not need based and he would get it every semester ($2,500/semester). They took it away for the Spring semester.
My son also won a $1,000 non-need based award for his study abroad. They lowered it to $250.
I do understand the concept of what they did. They shifted money around to match the need according to the school. They needed to go back to the Fall semester to make it all work. Just didn’t realize they could retroactively do these things.
Any thoughts/comments would be appreciated.
UPDATE: One other comment. The modifications made by the school above messed up my use of 529 plan money. I had withdrawn the exact amount I could for the withdrawals to be qualified. With the changes, I will now have unqualified withdrawals.
Is the semester abroad run by or directly coordinated with the school, or is it a program independent from your son’s school and the school’s involvement basically comes down to approving the semester and accepting the credits toward his graduation requirements? There are huge administrative differences as far as the school is concerned between these two two types of semester abroad programs.
With the scholarship that you had planned on being split evenly between the two semesters being restructured now to count more towards the fall, I can see how it would look like you had more 2019 529 distributions than qualified expenses. Was some of the non-scholarship money that had originally covered fall expenses moved to the spring as a result? If so, I would consider this a refund from the college that was then repurposed for spring expenses. Money is fungible; you might be able to desgignate any fall “refund” as coming from a 2019 529 distribution and under 529 rules you could then return it to the 529 account in a timely manner as a recontribution and avoid any tax or penalty due to an unqualified distribution.
It is certainly not run by the school, but not sure of the exact relationship between the school and the program. I had to pay the program separately from the school. I also had to submit to his current school all the information about costs of the semester abroad including tuition, room and board, airfare and many other other things. His financial aid at the school is computed using the cost of the study abroad program.
As to what happened to the non-scholarship money that had originally covered fall expenses, most of it was in the form of subsidized loans that went away. There was some money that was refunded too. Looks like I have 60 days to put back any refunded money, so that is an option for some of the money. I had thought it had to be in the same year, so thanks for the reference.
Another thought I had was to not use the AOTC this year. It is nice that a 4-year education spans 5 tax years in essence allowing you to miscalculate one year and still use the full 4-years of AOTC.
If you can make the numbers work, base his 2020 AOTC on the fall semester expenses and payments later this year. That way, you are not giving up a tax year when you might otherwise be able to claim the AOTC or Lifetime Learning Credit. Four academic years over five tax years – use four of those tax years for claiming the AOTC (the better of the two credits) and use the other tax year for claiming the LLC.
My daughter’s study abroad program was, I thought, run through her school. The schools sends professors, the courses have the same name as those taught on campus, no separate application, etc. No. It is run by a private company. The school processed all FA and made sure it was in our bank account 2 weeks before classes started on campus because we had to pay this private company before the students could travel. She got to use her regular scholarships, loans, federal grants, etc., but it was all put into her bank account and we then had to pay the private company separately.
One big surprise came the following year when the cost of the program was NOT included in the 1098-T. After multiple (multiple) calls to the school and to the program in Connecticut I learned that NONE of the costs of the program were considered tuition. It was all considered program fees for transportation, classrooms, instruction, lodging, insurance. NOTHING for tuition. The $10k was all broken down for the millions of fees, but not one was tuition. The company would NOT issue a 1098-T
I decided not to take the AOTC for that tax year and as you said just used her 5th year of school for the 4th year of AOTC.
One explanation might be that the outside scholarships or even school grants are restricted to tuition and not allowed to be used for study abroad. In order to use the entire $5000, it may have been necessary to apply the full amount to fall tuition, remove the loans used for fall tuition, and then cancel the loans. My other daughter (didn’t study abroad) had several grants that could only be used for tuition so the FA office always applied those first.
If the loans were actually cancelled, that’s good for you (and son).
I’m on the cusp of being being able to use the LLC. My AGI has been somewhere in the phaseout range. But it’s a good thing to keep in the back of my head. I think I understand your point - if I want to use 5 years of getting something back, then I would need to use something in 2019. I have some stuff to figure out here. Maybe using a good chunk of the AOTC in 2019 and using a little LLC the 5th year is better than skipping AOTC in 2019, using the last AOTC the 5th year and skipping the little LLC I would be eligible for. Certainly a math problem I can compute. My guess is they will be pretty close, in which case I will choose whatever is simpler.
Not exactly sure what you meant when you said “base his 2020 AOTC on the fall semester expenses…”.
When you said that “Another thought I had was to not use the AOTC this year,” I assumed you were talking about tax year 2020 (“this year”), when perhaps you were talking about claiming the AOTC on your 2019 taxes, which you will file “this year.”
If it’s a 2020 tax year issue, you still have the fall semester later this year to figure things out.
The school had to make the changes to fall retroactively to keep things within COA. They can apply it between semesters in whatever way works best to keep from exceeding COA. It can get complicated in these situations. However, it seems like you got incorrect information when you asked about aid & the semester abroad. That would irk me. You can’t change things, but maybe you should share your experience with the financial aid director. Maybe better training is needed.
Thanks all. I think kelsmom nailed what I thought was the main problem. Had I known the direction the aid was going in 2019 (I had a number of calls with them), then I could’ve planned the 529 and AOTC better. I felt alot of this came out of left field. Granted some of it is my not understanding the process (retroactively taking away loans and reapportioning scholarships), but if I had known that was going to happen, I could’ve planned differently. I have a call tomorrow with them and will bring up this point.
There is one other thing I am considering here. I know the general rule (?) of using 529 withdrawal money in the same year as the payment, I have heard of some people questioning it. I am considering, giving the situation, to still claim all the 529 withdrawals as qualified and take the AOTC. My defense, if audited, would be to explain this mess. I would be matching all the 529 withdrawals with payments, just some of the 2019 withdrawals would be matched against 2020 payments (although billed in 2019). Still thinking through this one.
I hope you will be talking to someone who understands aid inside out. It is possible that things might be able to be moved around in a manner beneficial for you. Maybe not, but maybe …
If you have time to repay the 2019 withdrawl (you said you have 60 days under your plan), I’d do that and then just re-withdraw it in 2020.
I also thought you could withdraw the amount the student received in scholarships without penalty. Your son received scholarships in 2019 so match the extra amounts with scholarships and then take the AOTC for amounts you actually paid OOP.
But as I said, be sure the amount you paid for his study abroad is really QEE. Ours wasn’t so no AOTC for that year.
I spoke to the school on Monday. They explained alot of why the scholarships was moved around and why some things were done retroactively. I voiced a mild complaint that some of the reduced awards were supposed to be merit-based, but was told merit and need based aid affect eachother and that they sometimes need to reduce merit aid to make things work. Sounds like I have no choice here.
I did offer feedback that by giving me wrong information at times and not figuring this out in 2019 caused me 529 headaches that could’ve been avoided. He said he appreciated the feedback and will pass it on.
There is only around $500 being refunded. Whether I re-contribute that amount or they end up shifting the scholarship around to eliminate the refund, it is only a small piece here. I am waiting to hear back. I will re-contribute it if they do not shift the scholarship around. Still not sure of the logistics of doing this as it spans multiple years.
At this point I am left with about $2,500 paid to the school more than 529 withdrawals. I believe my options are the following for 2019:
a) Do not take the AOTC and just have $2,500 paid out of pocket. I would then use the AOTC the next 2 years. So total loss here is getting the AOTC money later and not using as much 529 as I can (I may have 529 left over at the end).
b) Take the AOTC using the $2,500 (that would leave $375 I’d be missing out on the max AOTC).
c) Take the AOTC for the full $4,000 and claim $1,500 of my 529 withdrawals made in 2019 were actually used in the first week of 2020.
If you decide on c, follow up with the financial aid office by email, outlining your understanding of what happened. Make sure to get an acknowledgement, and retain the email string for documentation in case of audit.
Just a side comment. There are colleges that do have their own study abroad programs- their creations, their admins, other arrangements. Eg, both of mine did semesters like this, where the cost of tuition and RB matched (was included in, was same as,) the cost of a semester on campus. In one case, flights, local transpo, side trips, etc, were totally included. In another, there was a little extra for flight, which fin aid went ahead and gave a small extra grant toward. The college’s FA policies held.
But when one looked at an outside program (not run by the college, a separate venture, from the get-go,) she would have paid for the program itself, all transportation, RB, and more. The home college, which would be losing a student for that semester, charged a “place holding” fee. (Our was small, but a friend’s college charged more than $10k.)
FA can’t cover the “cost” of an outside program the same way as for it’s own “enrichment” opps. It seems OP’s child had enough merit and/or outside aid to accrue some benefits. But not all families can count on this.
I don’t think that spanning two different calendar years makes any difference with a 529 recontribution of refunded money. Just adhere to the 60 day window (the clock starts when the refunded amount is available to you), and thoroughly document everything so that you can back up your case if the IRS has questions.
UPDATE: I finally got a response back from my son’s school. They decided not to change anything. In brief, that means if I do nothing, I will have a $1,115 unqualified withdrawal from my 529 (the amount was not as bad as I thought earlier). That amount is exactly how much they reduced his scholarship for 2019. I was told $1,115 will show up on his next year’s 1098-t in box 4 (Adjustments made for a prior year). In reading about box 4, any amount there does not affect that years return but rather may affect the previous year’s return as far as taking an education credit. So, here is my plan to mitigate that:
I plan to re-contribute the $511 refunded to me for 2019. I got it back last month, so I will need to do that relatively soon to be within the 60-day rule. Anything special about doing a re-contribution or is it really just a normal contribution that I characterize myself as a re-contribution?
The remaining $604 I plan to use as normal 529 withdrawals that were made in 2019 but were actually used in the first week of 2020. Worst case here is I am audited and it is determined I can’t do that (I have not heard of any case like that). I will then need to pay taxes/penalty on the gains (maybe $200), so not a big deal.
I suggest you notify the plan administrator that the $511 deposit is a recontribution because the school made a refund of qualified education expenses that were treated as paid by a QTP distribution. The plan administrator probably will not care; my experience has been that it’s up to the account owner/custodian to keep track of all the financials and tax consequences involved with a recontribution.
Thanks. I did call them (NYs plan). They said I can do it online as a regular deposit. They suggested I keep statements from the school and/or bank showing the refund. They also said if I wanted to mail in a check, I can write in the memo what it is for. I made the deposit online today. Thanks again.