My son is applying to several CSS-profile schools. They all also require the FAFSA.
I am a non-custodial parent, and I have a 529 in my name, and I’m hoping I am correct about the following 3 claims:
the asset is ignored in the FAFSA form itself (since the owner is neither the student nor the custodial parent), however FAFSA will count it as student income (20% influence on EFC) when a distribution is taken
on the CSS-profile form, the asset is counted as a non-custodial parent asset, and when a distribution is taken, CSS-profile will not count it as student income, since the money was already declared as a parental asset
Schools that require both the CSS-profile as well as the FAFSA do not really look at the FAFSA-based EFC as a guide for determining aid, since they believe the CSS-profile to be more accurate
Thanks for your help and honest critique of the above three claims!
You are correct about the FAFSA treatment of a 529 account owned by a non-custodial parent. Since schools that require Profile use the data as they see fit, it’s impossible to say how a particular school will treat either the assets held in or the funds distributed from a 529 account owned by a non-custodial parent without knowing the particular school’s formula for distributing institutional need-based aid – and good luck getting helpful answers in that regard (some schools may be more forthcoming than others).
FAFSA is used to determine need relative to federal benefits: Pell Grants, guaranteed student loans, and such.
CSS Profile does not calculate and EFC, it is used to gather all the information that the school will plug into their own formula. Thus your son will have a different “need” at each of the schools using the Profile. There will even be questions on the CSS Profile that only apply to some schools, and not others (if you don’t select schools requiring certain information, you won’t be asked for it).
Thus, you third statement is mostly accurate - with CSS Profile, the school is determining how to distribute their own money, so they prefer more data. More data generally means more accuracy for their needs. FAFSA will still be used to qualify for any appropriate federal aid, as a Pell Grant would be government funded, and would reduce the amount of institutional aid necessary to meet your need.
If by “federal methodology” you are referring to the way that the FAFSA EFC calculation is done, the answer is yes. The following is from the FAFSA instructions:
Money received, or paid on your behalf, also includes distributions to you (the student beneficiary) from a 529 plan that is owned by someone other than you or your parents (such as your grandparents, aunts, uncles, and non-custodial parents). You must include these distribution amounts in question 45j.
Thanks. @BelknapPoint Seems odd. If the student stays with both parents pretty much equally, say, 49/51, it seems illogical that funds from the “non-custodial” parent – the one whom he stays with 49% of the time – that are used to pay for college would be treated as student income. I realize it has to be treated as something, so if not a parental asset, it has to be student income.
For the OP, can he change the 529 to the student’s name so that it will be treated as a student asset at 5.64%?
First of all, it’s important to remember that FAFSA and Profile, like so many other applications for various benefits, are one-size-fits-all forms, and the process cannot be made “fair” for every single applicant. To your hypothetical, the 49% non-custodial parent will be reporting nothing on FAFSA, even if this parent has huge wealth. The 529 money held by the non-custodial parent isn’t counted as a parent asset, regardless of the size of the account, and a knowledgeable family with other resources can wait until the student’s spring sophomore semester to begin using the 529 money, in which case it will never show up on a FAFSA (assuming the student/beneficiary graduates in four years).