FAFSA and cash in bank account

[Cody]

My daughter is about to fill out the FAFSA form (single mom, two children). Rarely does she have much of a balance in checking except now.

She refinanced her house and took about $10,000 cash for a much needed remodel of two bathrooms.

Looking for suggestions as to how to legally navigate this one time situation.

The money may not be used for the remodel until spring.

Thanks for any ideas.

[Jack FFR1846]

She should take out a HELOC, and then take that $10k and use it towards the mortgage. Money in equity in a primary house is looked at as zero. Money in cash is counted against you for college finance. She may want to look at other things to determine if it matters. If the family makes $200k a year (common on Bogleheads), she's getting nothing in need based aid, so it doesn't matter. Enjoy the non-subsidized Stafford loans and move on.

[Cody]

She makes about $50k per year so FAFSA will be a big deal.

[snowman]

FAFSA has "asset protection allowance". The table goes by age of older parent, and by single vs. two parent household. Anything within that amount is "protected" - i.e. it does not count towards EFC. Any amount over that is assessed at 5.75%. Not knowing anything about your D, I can only make high level guess. Let's say $10K is all she has (no other taxable investments etc.), and say $5K is protected, then only $5K is assessed resulting in about $27 increase in EFC. So nothing to worry about.

The EFC formula has 3 other pieces that have much bigger impact than parental assets - parent's income, child's income, and child's assets. Of the 3, for the vast majority of households, it's the parent's income that determines lion's share of EFC. I say don't worry about $10K in checking account. I also recommend searching/googling/renting printed book to educate yourself and/or your D on how exactly FAFSA works.

[humblecoder]

If your daughter's income is below $50K, she MAY qualify for the Simplified Needs Test method of calculating EFC. If she qualifies for this, then assets are ignored completely.

[Cody]

That makes lots of sense. And your estimate bases (not a lot of other assets) is accurate for her.

And is the $50k income gross income do you suppose?

She'll exceed that just slightly

Thanks much.

[teen persuasion]

If your daughter's income is below $50K, she MAY qualify for the Simplified Needs Test method of calculating EFC. If she qualifies for this, then assets are ignored completely.

THIS THIS THIS!

Is her AGI from the prior-prior tax year under $50k and she can meet another criteria (not file schedule 1 except for certain exceptions, or eligible for free/reduced lunches, etc)? Being eligible for SNT is huge, because it skips the asset reporting.

Google "EFC formula 2021-22" to find the pdf with the FAFSA calculations (for the charts and methodology). You can then calculate it for yourself, and see how much influence income vs assets have on the EFC.

Contributions to 401k to reduce AGI are very useful to help qualify for SNT, or auto EFC = 0, but must be done in advance due to the change to prior-prior year tax return info used.

[snowman]

Yep, totally forgot about SNT. The only issue with SNT is that 13 states still require assets reporting (my state is one of them, unfortunately). So it depends on where OP's D lives.

[snowman]

She makes about $50k per year so FAFSA will be a big deal.

She will report 2019 tax year AGI. If her AGI is just over $50K, she will not qualify for simplified formula, unfortunately. Her asset protection allowance will also be lower compared to a household with 2 parents, just how FAFSA works. Finally, she will not qualify for Pell grant either (assumptions – single parent 3 people household size, 1 in college, $50.5K parental AGI, zero student AGI, zero assets for both).

Her income basically puts her into the lower middle class donut hole - not low enough to get federal financial aid (and some state financial aid available), but not high enough to be able to pay for state school either. But - she will qualify for subsidized loans, work study program, some financial aid from the state, and if the kids are smart, lots of merit scholarships slotted for lower income households open up, in addition to regular merit scholarships available to everyone.

Just as an FYI, attached are 2 links relating to asset protection allowance.

https://guidedpath.net/fafsa-college-sa ... 2020-2021/

https://www.federalregister.gov/documen ... work-study

The first one is an article outlining brutal drop in APA in the last 3 years – in some cases the drop is as big as 90%! The second link has the table with actual values. To your original question though, all else being equal, if non of the $10K falls into APA, her EFC will increase by about $565. While this may look substantial to you, it’s unlikely it will have significant impact on actual financial aid received, if any.

[Soon2BXProgrammer]

Yep, totally forgot about SNT. The only issue with SNT is that 13 states still require assets reporting (my state is one of them, unfortunately). So it depends on where OP's D lives.

Yes, but the assets don't go into your EFC. It is only counted for state aid. The school *should* look at the EFC.

[snowman]

Yep, totally forgot about SNT. The only issue with SNT is that 13 states still require assets reporting (my state is one of them, unfortunately). So it depends on where OP's D lives.

Yes, but the assets don't go into your EFC. It is only counted for state aid. The school *should* look at the EFC.

Excellent point! And the word "should" is key! The problem is that it's open to interpretation, and in case the 2 values are out of whack, it potentially opens up another level of scrutiny. While it will not have any impact on federal financial aid, it might impact state financial aid, and any grant coming directly out of school's pocket.

[Goal33]

How hard is it to get 100 $100 dollar bills out of the bank?

[eugene67]

Throw $6,000 (or $7,000 if 50+yrs of age) into a money market account or short-term bond in a Roth IRA right now.

[teen persuasion]

She makes about $50k per year so FAFSA will be a big deal.

She will report 2019 tax year AGI. If her AGI is just over $50K, she will not qualify for simplified formula, unfortunately. Her asset protection allowance will also be lower compared to a household with 2 parents, just how FAFSA works. Finally, she will not qualify for Pell grant either (assumptions – single parent 3 people household size, 1 in college, $50.5K parental AGI, zero student AGI, zero assets for both).

Her income basically puts her into the lower middle class donut hole - not low enough to get federal financial aid (and some state financial aid available), but not high enough to be able to pay for state school either. But - she will qualify for subsidized loans, work study program, some financial aid from the state, and if the kids are smart, lots of merit scholarships slotted for lower income households open up, in addition to regular merit scholarships available to everyone.

Just as an FYI, attached are 2 links relating to asset protection allowance.

https://guidedpath.net/fafsa-college-sa ... 2020-2021/

https://www.federalregister.gov/documen ... work-study

The first one is an article outlining brutal drop in APA in the last 3 years – in some cases the drop is as big as 90%! The second link has the table with actual values. To your original question though, all else being equal, if non of the $10K falls into APA, her EFC will increase by about $565. While this may look substantial to you, it’s unlikely it will have significant impact on actual financial aid received, if any.

If income is *just* above $50k, they should get at least partial PELL grants. Income would have to be above $62k -ish to get EFC out of PELL range, for assumed details. I'd guesstimate roughly $3800+ EFC, which might be ~$2400 PELL.

In that range, the progressive rate applied to Available Income and Assets is 25%, not the top rate of 47%. Only 12% of assets are included in Available Assets at most, so $10k * .12 * .25 = $300 likely reduction increase in EFC from reporting the extra assets.

[Keenobserver]

If your daughter's income is below $50K, she MAY qualify for the Simplified Needs Test method of calculating EFC. If she qualifies for this, then assets are ignored completely.

What if child doesnt live with parents and parents will not filing child as dependent? How does FASFA look at such a situation?

[LilyFleur]

Wow, if she has to remodel, hopefully she gets it done soon so the money is gone for the next year's FAFSA. (Contractors are very busy right now.) I was a single mom filling out FAFSA a few years ago, and I made sure I had paid my property taxes and credit cards, etc. right before I filled out FAFSA. It wasn't hard to get my available cash down to around $200.

I took out a HELOC to help my son on room and board, even though he was taking out a $5,000 student loan every year. His tuition was covered by a Cal Grant, but his university was in Berkeley so living costs were expensive. It would be good for your daughter to plan out the budget for college. She may need that $10,000 to avoid taking out pricey Parent Plus loans. If her college student lives at home, costs will be lower.

[teen persuasion]

If your daughter's income is below $50K, she MAY qualify for the Simplified Needs Test method of calculating EFC. If she qualifies for this, then assets are ignored completely.

What if child doesnt live with parents and parents will not filing child as dependent? How does FASFA look at such a situation?

FAFSA's definition of dependent is NOT the same as the IRS's definition of dependent.

To be considered an independent student, the student would need to be one of: married, a grad student, over age 24, in the military, have dependents of their own...

[snowman]

If income is *just* above $50k, they should get at least partial PELL grants. Income would have to be above $62k -ish to get EFC out of PELL range, for assumed details. I'd guesstimate roughly $3800+ EFC, which might be ~$2400 PELL.

You are correct, TP, my apologies for careless mistake! I have a FAFSA modeling spreadsheet where I put in 50.5K AGI for parents income. Unfortunately, I did not update "Father's (or Mother's) income earned from work" value. Leaving it at zero resulted in EFC of $6K and no Pell grant. Making it same as AGI results in EFC of $3,835, exactly as you pointed out.

[Keenobserver]

If your daughter's income is below $50K, she MAY qualify for the Simplified Needs Test method of calculating EFC. If she qualifies for this, then assets are ignored completely.

What if child doesnt live with parents and parents will not filing child as dependent? How does FASFA look at such a situation?

FAFSA's definition of dependent is NOT the same as the IRS's definition of dependent.

To be considered an independent student, the student would need to be one of: married, a grad student, over age 24, in the military, have dependents of their own...

Appreciate it. So what are the biggest factors that determine FAFSA?
Parent' s bank account ?
Property under parent name?
Im guessing 401k and taxable stoc accounts dont count?
what else?

[Soon2BXProgrammer]

Appreciate it. So what are the biggest factors that determine FAFSA?
Parent' s bank account ?
Property under parent name?
Im guessing 401k and taxable stoc accounts dont count?
what else?

Order of impacts (above limits/exclusions) (if i recall correctly) :
student income
student assets
parent income
parent assets (non retirement and non primary home equity and not cars/boats/etc)

I suggest everyone curious about the FAFSA process to walk through:
https://ifap.ed.gov/sites/default/files ... aGuide.pdf

[NotWhoYouThink]

Appreciate it. So what are the biggest factors that determine FAFSA?
Parent' s bank account ?
Property under parent name?
Im guessing 401k and taxable stoc accounts dont count?
what else?

Order of impacts (above limits/exclusions) (if i recall correctly) :
student income
student assets
parent income
parent assets (non retirement and non primary home equity and not cars/boats/etc)

I suggest everyone curious about the FAFSA process to walk through:
https://ifap.ed.gov/sites/default/files ... aGuide.pdf

This is a good summary of what determines the FAFSA Expected Family Contribution (EFC).

The things that determine whether the student receives financial aid (in this context, aid means need-based grant money, and does not include loans or merit based scholarships) are:

Quality of the student (better students get into colleges with more funding, and are first in line for any funding available)
Choice of colleges applied to (some colleges provide a lot of financial aid, some almost none)
CSS Profile (a form much more detailed than FAFSA for exploring family finances)
EFC

Excellent students above the poverty line can often get more merit aid than need-based aid, making FAFSA moot. Except maybe that students may qualify for subsidized rather than unsubsidized federal loans, saving a bit on interest for the $26K or so in federal loans available to students over the first 4 years of college.

[Soon2BXProgrammer]

Appreciate it. So what are the biggest factors that determine FAFSA?
Parent' s bank account ?
Property under parent name?
Im guessing 401k and taxable stoc accounts dont count?
what else?

Order of impacts (above limits/exclusions) (if i recall correctly) :
student income
student assets
parent income
parent assets (non retirement and non primary home equity and not cars/boats/etc)

I suggest everyone curious about the FAFSA process to walk through:
https://ifap.ed.gov/sites/default/files ... aGuide.pdf

This is a good summary of what determines the FAFSA Expected Family Contribution (EFC).

The things that determine whether the student receives financial aid (in this context, aid means need-based grant money, and does not include loans or merit based scholarships) are:

Quality of the student (better students get into colleges with more funding, and are first in line for any funding available)
Choice of colleges applied to (some colleges provide a lot of financial aid, some almost none)
CSS Profile (a form much more detailed than FAFSA for exploring family finances)
EFC

Excellent students above the poverty line can often get more merit aid than need-based aid, making FAFSA moot. Except maybe that students may qualify for subsidized rather than unsubsidized federal loans, saving a bit on interest for the $26K or so in federal loans available to students over the first 4 years of college.

i typically try to recommend to people the best $500-1000 they can spend is to meet with an advisor that has access to https://collegeaidpro.com/ (and has lots of college planning experience)
They have so much data about actual financial award packages based on test scores, academics, etc. that people can get a lot better idea what they will pay... They also know if schools only give need based or merit or etc.. And they can help game out a reasonable strategy.

A question they might be able to answer for someone is.. if Johnny got another 2 points on the ACT, what does that do to a potential Merit aid package? then that helps parents decide is it worth tutoring/studying/etc to push on test scores to move the needle on the package. If someone needs 4 points to move to the next aid tier.. well that might not happen with extra studying... unless the first test was just atrocious.