<p>Our debt is currently greater than our savings balance. If payments toward outstanding debt reduces the balance of our savings account can you submit these changes to FAFSA and impact the EFC? If so, what documentation would you need to avoid raising red flags?</p>
<p>My understanding is that once submitted you can only change fields related to income, but that assets, cash-on-hand and those sorts of things are as of the day you first file.</p>
<p>Now, I don’t know that for sure. When I went online to update our income figures, it looked to me as though I could change any field. I didn’t try, though, because it wasn’t an issue for me.</p>
<p>You could try and see what happens. It might raise flags, but it’s not against any rules to pay down debt before filing your FAFSA, so if the form lets you make a change in assets to reflect that… then you wouldn’t be doing anything wrong, although you may be asked about it.</p>
<p>But like I said, I have always heard people say you can only update income figures and that may be absolutely right.</p>
<p>Anyway, unless you have a very big savings account it’s probably not going to make much difference as parent assets are protected up to a certain level already, and after that level they are assessed at only 5.6%. So this may be a lot of effort for no particular benefit.</p>
<p>No. You are not supposed to change assets. They are supposed to be an accurate reflection of your assets on the day you file FAFSA. If there was an error in the data you reported and the data did not reflect the assets on the day you filed then you are supposed to correct it. But you cannot adjust the numbers in FAFSA to reflect a subsequent change in assets.</p>
<p>The time to use your assets to pay down debt is before you file FAFSA.</p>
<p>[FAFSA</a> - Free Application for Federal Student Aid](<a href=“http://www.fafsa.ed.gov/faq005.htm#faq005_3]FAFSA”>http://www.fafsa.ed.gov/faq005.htm#faq005_3)</p>
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<p>Does it matter that the dept is an equity line of credit tied to the mortgage of our primary residence? For example: $20,000 in payments toward this debt would not increase the value of the underlying asset but would reduce liquid assets by $20,000. Would this example impact EFC?</p>
<p>Your parents probably have asset protection in the $40,000 to $50,000 range anyway (depends on the age of the oldest parent)… so the $20,000 in the bank is not going to be considered an available asset to begin with – assuming there are no other significant assets on top of that that exceed the automatic asset protection. (FAFSA doesn’t differentiate between liquid and non-liquid assets.)</p>
<p>Your thinking is correct, even if your timing is off a little. There would not be anything to prevent you from adopting this strategy for next year. I have paid of current credit card balances in advance of their due date and accelerated charitable contributions to reduce assets by a small amount before completing the FAFSA. Avoiding the 5.6% (I think) contribution from assets to EFC is an excellent rate of return at the moment. If you are also eliminating interest charges by paying off current debts, the payback is even greater. There are a couple caveats, however:
- FAFSA has an asset allowance based upon a number of factors. Reducing assets below this allowance won’t lower your EFC.
- Paying off mortgage principle early would increase your home equity. Although the FAFSA doesn’t include home equity there are school that have supplemental FA apps that include it.</p>
<p>I didn’t see a lot of helpful information on the FAFSA site. For future reference what are the best websites that provide FAFSA tips and guidelines regarding debt, asset exclusion limits, income limits per family size, etc.</p>