How and when to talk to school's financial aid office (about being an independent)

Paying for College
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<p>Becoming a 0 EFC full Pell recipient is closely looked at (something Kelsmom mentioned years ago). Financial aid officers have to make sure the recipient qualifies. </p>

<p>I wish @Kelsmom would chime in here. It would seem (to me) without either court ordered child support or some other documented REGULAR support payments, the FA office would laugh at a non-custodial dad claiming to provide 51% support. </p>

<p>The OP has indicated that the parents of the Mother are financially supporting the mom (she will be living at home and commuting to school), so it doesnt sound like these folks will be applying for public assistance. </p>

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<p>I Pmed Kelsmom yet I have not received a response…</p>

<p>Thanks everyone for your comments. I have read everything.</p>

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Yup.</p>

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<p>With regard to cptofthehouse’s advice with respect to magically converting your parents support to “loans” in order to secure a Pell grant, please be aware that if you enter into this arrangement with the knowledge and intention that the loans will be forgiven after graduation, you will be engaging in fraud. </p>

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<p>But also do be aware that if you enter into this arrangement without the knowledge and intention that the loans will be forgiven after graduation or eve, you will NOT be engaging in fraud.</p>

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<p>I’m still new to loans. Let me see if I get this right. My parents can borrow money for me even if I’m independent? Im confused about this</p>

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<p>Once you are independent, any money your parents, or anyone GIVES to you is to be reported as unearned income on financial aid apps. When you are not independent, since your parents income and assets are reported and taken into account, any money they give you is not reported since it’s all one common unit which is no longer the case when you are independent. If your grandparents, your aunt, your best friend, the guy on the street, anyone pays for your college expenses, that money is supposed to be reported as unearned income as well, in any case, but when it’s your parents, not so if you are DEPENDENT. They join the others as part of the independence. So if your parents pay $1000 of your college expenses or give you that money, that goes on your FAFSA as unearned income if you are independent.</p>

<p>However, loans are not income. If you borrow money from your parents, or from anyone, for that matter, they do not have to be reported. They have to be legitimate loans, and should be documented, notarized with repayment terms spelled out, Not just fly by the seat of your pants, “wink, wink” loans, but every one should go through all of the steps of a legitmate loan as that is what it has to be and if chosen for verification, you will be asked for such documentation. </p>

<p>As for your parents or anyone borrowing money for you, independent or not, yes, of course they can. What school loan options they may have are a whole other matter. But yes, if I so wanted to do so , I can borrow money for you. Nothing new about that. I’d have to find a willing lender, but I 'm sure those private loans that need a cosigner would take me as one, or your parents or anyone with the credit and willingness to be on the hook for those loans. </p>

<p>What MommJ is saying, and it is NOT a frivolous thing, is that your parents can’t be giving you money and just be calling it a loan to get around the rules. That IS fraud. Though the reality of the situation is that they can forgive the loans, as any lender can if they so choose, the intent to do so and using the guise of a loan is fraud. But to consider forgiving the loans in the future if certain things come to pass, that is not. Heck , student federal loans are forgiven under certain conditions. </p>

<p>I apologize to all for sounding so cavalier in my last post. I really was not intending to be and used exact wording so not to misquote, but it looks like I am trying to be a smart aleck. I am not not… </p>

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<p>But if they forgive the loan, that is a taxable even. If they lend $20000 and forgive it, it is taxable to the debtor in the year it is forgiven.</p>

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<p>I have been out of town (no internet). OP did PM me, and I asked if he/she was the father or mother. Reading this, it looks like OP is the father. In this case, if the baby will be born at any time during the 2014-2014 award year, it is POSSIBLE that the student might be independent. The father must be able to prove that he will support the child at least 50%. This means that HE will have to prove that HE has the money to give to the mother … and from what I am reading here, this is not the case. Money borrowed from Mom and Dad indicates that Mom and Dad are supporting him, not that he is supporting his child. Of course, another aid officer may interpret the situation differently. I would suggest talking to an aid officer at the school for guidance specific to this situation.</p>

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<p>Each parent can gift their child a certain amount. I forget the amount. Is it $10k per parent? If so, the parents can gift their child the money, and then he pays off his loan. </p>

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<p>Right! (It is currently $14k).</p>

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<p>My friend whose son found himself in a similar predicament as the OP. Mother of the child in dire financial strait, in this case, determined to keep the child, in school, son making very little money. Friend and son did lend money to son and the mother of the child through the loan period, and believe me, it was a LOAN to be repaid,for which payment is being made, now that the two young people are on their feet and earning sufficient money. If money were not repaid, if my friend and her DH passed away, the loan balance would be taken out of the son’s share of anything to be inherited. The funds were instrumental in the mother getting her degree, the child getting what was needed, friend’s son getting through those lean year–he was not in college. </p>

<p>Yes, one can gift money. THe recipient does not have the tax issues with gifts; it’s the giver and there could be tax implications with gift tax under certain circumstances but by observing annual and individual maximums, that can be circumvented LEGALLY–done all of the time under advice estate planning and tax specialists. </p>

<p>My husband’s uncle borrowed money from his mother and duly paid the interest each year as well as making sporadic payments towards the principle. He was surprised when his mother died and his share of the estate was reduced by the outstanding balance of the loan. There are consequences and ramifications to taking out a loan even from ones parents. There are stipulations and terms that often have to be made in the contract; things like repayment terms. Yes, fraud can be commited–it can always be committed–you can take assets out of accounts and hide the money under your bed the day you file FAFSA for instance. Cheating on taxes is a rampant problem. People cheat, break rules, commit fraud all of the time. However, there are also legitimate ways to take care of issues with their own risk inherent in the taking. It’s not a free ride, as things can happen after a loan is taken out. </p>

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<p>Debt forgiveness is still at taxable event, just may be a tax free end. You’d have to frame it correctly. If one is going to go through the trouble of setting up a loan that includes a reasonable interest rates, etc., then don’t blow it when forgiving the debt. If it is just ‘forgiven’, then it is not a gift.</p>

<p>Do I think most people do all this? No. I think most families just give the student the money, the student claims it is a loan, and no one is investigating or loaning or forgiving anything. Everyone is fine with doing it ‘off the books’ but it may be a problem if the student has to prove it was a real loan, or as in the case in another thread, the student has to prove he really was a California resident and paid rent every month.</p>

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<p>There is a huge difference between getting the money and claiming it is a loan when convenient, and going through the legal steps to make it a bonafide loan. As I’ve stated a number of times, there are ramifications and consequences that come with borrowing/lending money, and it’s not something to be done lightly. Whether the lender MAY forgive the loan is not of the issue. Heck, you can get federal loans forgiven under certain circumstances. </p>

<p>The bottom line about all of this, however, is what the financial aid officer at the OP’s school will do about all of this. In the case, I brought up above with my friend, and her grandchild, the mother of that child did get independent status, though she was absolutely not independent–living at home, family and baby’s father’s family providing a lot of assistance and she certainly wasn’t earning much of anything, if anything. </p>

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<p>Not Kelsmom but another FA officer here. At most schools this will be a tough sell- If the mother of this child files for financial aid as an independent student, she is stating she provides more than half of the support for that child. The unmarried father can’t state the same thing. Student would need to prove that they had the income to provide more than half. SOunds to me like the student does not really want ( or is not able) to actually support himself. We see this quite a bit at my school and it is not common that we approve the father to be independent. </p>