Pension Income affecting Financial Aid

<p>I can't seem to find the answers to my question anywhere. My husband is a retired police officer who is now eligible to collect a monthly pension. Since he is only 52, he is also working another job. We have a son who is a freshman this year, and we reported his pension income on our FAFSA and CSS as income. So, of course, for his freshman year, we have used an entire year's pension payments for his tuition. </p>

<p>Are we making a mistake in the way we are reporting this? Should we have the pension payments go directly into an IRA or other retirement plan? If we did that, would it affect the EFC? His pension is supposed to be for our retirement, but instead it has become a college fund for only one child. </p>

<p>If anyone who has dealt with this before, please offer advice.</p>

<p>A pension is income. Once someone starts to collect a pension, it’s just like job income. Unless it is in a protected class like some social security and disability, it is reported as income. I don’t know whether you can have pension payments go directly to any other retirement plan, but it won;t matter for financial aid purposes, since any contributions to a retirement plan during those years your kid is going to college is added back as income even if you can deduct them for tax purpose. Basically, his other job would be the basis on which he could make IRA and other payments not his pension, but if the numbers all work out in the wash, how one does it depends on how the plans are administered.</p>

<p>Can he stop taking his pension and have it deferred? Would that make any difference? I know it’s unfair, but there are a lot of unfair things in the process. My poor mother has to pay taxes on her paltry government pension and my MIL who gets more, gets her Social Security check tax free. Burns me each year to write that check from an old woman who is getting less than $20K a year when more than half the taxable crowd doesn’t pay federal taxes at all, including my millionaraire MIL. But them’s the rules.</p>

<p>I would check and see if the pension payments can be deferred for a few years. I think one can do that with Social Security and with some pensions. But as a warning, that may not make much difference in terms of financial aid. That will depend upon your son’s school. Most schools do not meet full need anyways, so it would not matter much if his EFC were $20K or $60K. If he is in such a school, they may not increase his aid or give him aid at all. He would only be entitled to PELL if your family were truly low income which I doubt is the case and subsidy of some Stafford loans that he can take already. Everything else is up to the individual school and most tend to be v-e-r-y stingy with their own money. So if you stop your DH’s pension, and your income goes down this year as well as your EFC, it is no guarantee that the school will ante up. But you can give it a try.</p>

<p>Thanks. We will look into that. This is only the second year we have received it, but I’m afraid it looks like our income has always been higher. In reality, he was a city police officer for 20 years and we do not have much in savings.</p>

<p>The way the financial aid formulas are set up, income is hit very hard. You get a protection allowance for savings, and only 5.6% in excess of that is hit towards the EFC. But if you can get the income deferred for a few years, sometimes it even increases in amount, then you can see if your son’s financial aid package is better. Am warning you that it may not go up as much as you think it might. I would not volunteer the information, by the way, that you are deliberately stopping the pension flow.</p>

<p>Even if you deposited those payments into a retirement fund, those annual deposits would STILL be added back in as income - because those deposits are seen as being “optional” and a “choice.”</p>

<p>If I remember correctly, pension income has a tougher EFC formula because it doesn’t have the typical workers taxes/deductions associated with it. But, maybe I’m wrong.</p>

<p>I know this is frustrating, but as you say, your H is only 52. Most 52 year olds do not have a pension income. His income from his job and his income from his pension are providing for the home and college. Parents are “first in line” to pay for college. And, even if he didn’t have that pension income, if your child is attending a FAFSA-only school then likely your EFC would be lower BUT you wouldn’t get any more aid…since most schools do not meet need. So, you may be better off than you think. :)</p>

<p>Is your son attending an expensive school? You say that the entire pension is going towards that? Could he attend a less expensive school? Can he commute to a local state school? If he’s going away to school rather than commuting, then that’s a choice as well.</p>

<p>But as a warning, that may not make much difference in terms of financial aid. That will depend upon your son’s school. Most schools do not meet full need anyways, so it would not matter much if his EFC were $20K or $60K. If he is in such a school, they may not increase his aid or give him aid at all. He would only be entitled to PELL if your family were truly low income which I doubt is the case and subsidy of some Stafford loans that he can take already. Everything else is up to the individual school and most tend to be v-e-r-y stingy with their own money. So if you stop your DH’s pension, and your income goes down this year as well as your EFC, it is no guarantee that the school will ante up. But you can give it a try.</p>

<p>This is very true. Often, a family discovers that the school won’t give more aid just because the family did some financial gymnastics to reduce EFC. Schools aren’t required to honor EFC at all except to see if you qualify for fed aid…and to get a fed grant your EFC would have to be about 5000…that doesn’t sound possible for you.</p>

<p>Yes, that makes sense. We are paying our EFC. It’s almost exact. We didn’t work through all of the scenarios before he started receiving his pension checks. Last year we didn’t give it a second thought, but we started questioning ourselves this year.</p>

<p>Well, see if the company will hold the pension as of April first. But next year’s financial aid is going to be based on 2012 numbers with the pension in there. You won’t see what will happen until the year after when the 2013 numbers become relevant for financial aid. </p>

<p>Does this school guarantee to meet need? Look it up and see what % of need it tends to give. Does it require PROFILE as well as FAFSA? At many schools that don’t guarantee to meet need, there isn’t much money that gets coughed up when need comes up later.</p>