<p>My son has a trust fund, let's say it is $10,000, that will go to him at age 18 (this June). We reported the value of the fund when we applied for financial aid. The student contribution portion of the aid offers we have received include an additional $2000 on top of the expected summer contribution, clearly a 20% asset assessment.</p>
<p>It is my understanding that the $10,000 distribution will be counted as unearned income for him next year, and he will be expected to contribute 20% of that, for another $2,000. He is planning on putting it into savings, where he will be assessed another $2,000 on the same money as an asset.</p>
<p>So, if I figured that correctly, the school will expect that 60% percent ($6000) of that trust fund will be used for school in his first two years. Can someone check my logic? Thanks much!</p>
<p>20% of a students assets go to the EFC on FAFSA. So if none of the $10,000 is actually spent then the impact every year on the FAFSA EFC will be $2000.</p>
<p>Income is not treated the same as assets. Students have a certain amount of income protection. 50% of anything over the income protection amount goes to the EFC. I think the income protection allowance is $5250 for the 2011-2012 school year. So if the student has no other income, and the 10,000 has to be reported as income (I’m not sure if it does have to be reported as income), the impact on the EFC would be 2375.</p>
<p>If the trust fund is reported as an asset, it is not going to be considered income when he draws on it or his accessibility to the money changes. It would be like owning a stock worth $10K or having a bank account of $10K and then charging the amounts withdrawn as income when the student draws on them or spends the money. Doesn’t work that way for anyone. The only assets that are considered income when withdrawn are those that are in protected status and not considered assets until they are distributed or become accessible to the student. If grandmom had a $10K fund sitting there, designated for a student and gives it to him, that would income AND assets. The OP was wise to report the fund and it is now on record as an asset and will be treated as such. It would be wise for the student to pay down the amount so he is not assessed that 20% each year on it. If the student pays home expenses, the parent can perhaps set up an account in their names and that would only be hit at about 5.^%.</p>
<p>To follow up on the comment about using all of the money the first year: One of the schools that accepted my daughter states that a student’s asset will be considered 100% available for college and the student will be expected to pay 25% of that asset each year, presumably whether or not it actually exists.</p>
<p>Ok, not trying to commit fraud here, just trying to understand…</p>
<p>My kid got a lump sum distribution from Social Security of about 10K. His school is FAFSA only for sophomore through senior years. His social security payment will not be taxable because his earnings are below the threshold. </p>
<p>FAFSA says that you don’t report untaxed SS payments, so it doesn’t have to be reported as income. If he were to spend the $10K before filing next year’s FAFSA, it wouldn’t be there as an asset either, correct?</p>
<p>What if I were to have him pay his tuition himself before filing FAFSA, and then I were to reimburse him the money? Right now on the payment plan I pay about $2500 a month, so instead of doing that I could write the checks to him for four months.</p>
<p>Would this break any rules? (Please don’t get mad at me for asking – I am not interested in committing fraud, but if this is a legitimate strategy it would be very helpful!)</p>
<p>Any specific requirement a college puts on their students is going to hold despite FAFSA and usual procedures. Colleges can give out their own money using any formula they please, and if they want to hold an asset hostage for 4 years if it belongs to a student and assess it 25% a year, they can. If that is an unusual situation that made it more expensive for me, I would be hard put to send my kid to that school. It would have to be a true first choice. It would certainly figure in the decision making if it made a substantial financial difference.</p>
<p>I don’t have a problem with it. Just to clarify, though, will the you paying him back part not be a problem because the school won’t look at his assets after the first year?</p>
<p>Not if the school uses the methodology that Megdog described. So what do they do, just keep that asset on record for the next 3 yrears? I’ve never heard of that. Not saying it can’t be done, but I am curious what school does something like that.</p>
<p>I would prefer to not say the school, but I will quote from its “A Guide to Financial Aid for Students and Parents”: </p>
<p>Your Student Contribution and Other Resources
…
Students with savings or other assets will be expected to contribute all of them to meet their educational costs over the years in which they attend [the college]. Each year’s expectation will equal one-fourth of the amount you reported on your aid applications.<br>
…
What if I run out of savings?
Please note that our calculation divides assets for a first-year student over all four years of college attendance. You may choose to use all your assets in your first year if you wish, but we will not adjust the asset expectation for the following years.</p>
<p>A very good reason to make sure the student’s accounts are spent when the applying to colleges. Sheesh. EFC, Every Friggin’ Cent is looking pretty good when looking at some of these PROFILE schools. I thought I was kidding when I said they dig for the silver in your teeth.</p>
<p>Wow, that’s pretty harsh. There could be any number of reasons why a student might want to allocate his savings differently over the 4 years. If he uses all of his savings in year 1, he’s expected to come up with 25% of some phantom number in years 2-4. It’s difficult enough to plan investments and do any kind of asset allocation to support 4 years of college, and now this on top if it all. :(</p>
<p>Even moving the trust distribution to a 529 won’t help in this situation.</p>
<p>@megdog - I understand you not wanting to name the school. That’s a pretty nasty policy. Still, wouldn’t it be great if people could see the policies of all of the different schools before their kids applied. </p>
<p>I swear, when Kid2 is applying for colleges in four years we will be going about it entirely differently. When we’re going on the college admission tours I’ll be the one asking questions about “what percent of kids have their need fully met without loans” etc. (Kid2 will be mortified!)
I am so sick of college admissions officers brushing off questions about financial matters. Would you buy a house or a car without understanding what the costs will be before you sign the papers?</p>