Parents: Beware These Financial Aid Stumbling Blocks

Not looking at all angles could result in less financial aid.

Danger: banana peels

As the parent of a high school or college student, you have got to be very careful in all of the financial decisions you make. You want to do what is right for your family and save for your retirement, but you also need to be sure you don’t accidentally take an action that could lower your child’s eligibility for college financial aid. The FAFSA is online now for the 2016-17 academic year, and there will be another one available beginning October 1, 2016, for the 2017-18 academic year.

Information provided on this form will be used by colleges to determine your child’s eligibility for financial assistance. Here are some stumbling blocks that parents don’t realize can affect the outcome of those decisions.

Be Aware of These Possible Stumbling Blocks

  • Stepparent’s Income: Many divorced and remarried parents fail to take their new partner’s income into account when calculating financial aid. They believe that only the biological parent’s income will need to be reported. But, if a dependent child lives with a parent who has remarried, the stepparent’s income must also be reported on the FAFSA. An even bigger surprise is that the CSS/Profile might ask for financial information on all four parents and stepparents. Parents may wish to consider remarrying until after their child graduates.
  • Selling a Family Home: Liquid assets are considered in the financial aid calculation, but the family home is exempted. If a family decides to sell, downsize, or move into an apartment, any surplus cash could be construed as being available to use to pay for college expenses. This would reduce the amount of aid available. If you are selling a home, try to do it after completing the FAFSA. Pay down credit card debt with this amount, or talk to your financial advisor about investing surplus cash into a retirement fund.
  • Influx of Cash: You may receive an inheritance or one-time gift that will make it look like you have a lot more cash available than you usually do. Even taking out a home equity loan to pay off college expenses could upset the financial aid cart. Some parents try to reduce the amount of cash on hand by buying a vacation home or fancy car, but neither of these strategies is effective. Try to time these amounts, if possible, so that they come in smaller increments that can be used immediately to pay current college expenses. You don’t want to have a large amount of cash on hand the next time you file a FAFSA. This is especially important this year, because of the October 1 availability date.
  • Retirement: You have worked long and hard and are ready to reap your rewards, but beware of any cash benefits you might receive. You might get money from stock options, separation pay, or unused vacation and sick time. Even though your income might be lower, these factors could still make your total financial picture look stronger than it really is.
  • Negative Events: Any negative event such as a medical emergency, loss of employment, or natural disaster, should be reported immediately to the college’s financial aid office for further consideration.

If you have a student who is anywhere between being a high school junior through an upcoming college senior, you need to think long and hard about your financial decisions. Talk to a professional college financial aid advisor who can take you through the available options to make sure you don’t take steps which could put your student’s financial aid package in jeopardy.