Category Archives: Divorce

Better EFC Strategies

I get tons of questions about strategies for reducing EFC, especially those related to the Asset Protection Allowance. And there are plenty, but sheltering assets is typically the lowest bang-for-the-buck strategy out there: Every $1,000 you shelter will only reduce your EFC by $54. And that assumes that the school will meet your full need. Here are some better options: Continue reading Better EFC Strategies

FAFSA for Divorced Parents

This is a big topic so for today I’m going to focus on general rules. Keep in mind the FAFSA rules are different from the CSS Profile rules; below is FAFSA only.

The custodial parent for the FAFSA can be different than the custodial parent in the divorce decree and/or different from who claims the student as a dependent on their tax return. The FAFSA defines the custodial parent as “The parent that you lived with most Continue reading FAFSA for Divorced Parents

FAFSA Custodial Parent

For divorced parents, figuring out who is the custodial parent for FAFSA filing purposes can be a little confusing. Actually, the rules are pretty simple: the custodial parent is the one with whom the student spends the most time. That’s not necessarily the parent named custodial parent in the divorce decree, or the one claiming the student on their tax return. Continue reading FAFSA Custodial Parent

Aid Formulas

If you’ve been reading this blog for a while, this is a bit of a refresher post.

There are three aid formulas: Federal methodology (FM), based on the FAFSA; Institutional Methodology (IM), based on the CSS PROFILE; and Consensus Methodology (CM), which uses both aid forms. Each is a different way of calculating a family’s Continue reading Aid Formulas

Why file the FAFSA

As many as 1/3 of college students don’t complete the FAFSA. There are a variety of reasons why not, ranging from fears about its complexity to the assumption that it’s not worth the time because the family is not eligible for aid and hundreds if not thousands of other reasons. The end result is that a lot of money is left on the table and many families Continue reading Why file the FAFSA

Negotiating a Financial Aid Award

For most people, college is not affordable, even with an aid package. If the aid package at your dream school is insufficient, you might be thinking of trying to negotiate a better one. While aid adjustments are generally infrequent, the worst that can happen if you ask is that they say no; the school won’t rescind the original offer. Colleges can adjust aid packages through a process called Continue reading Negotiating a Financial Aid Award

How to Fill out the FAFSA 2: Divorced Parents

Divorce is one of the biggest question areas with the FAFSA. This may be because the FAFSA presents it so simply: it just asks the parents’ marital status; if “Divorced or separated” is chosen, it asks which parent’s information is going to be used. You have to read the fine print to figure out whose info the Department of Education thinks should be reported. Because of the different rules, divorced parents who are still at least cordial with one another Continue reading How to Fill out the FAFSA 2: Divorced Parents

College Tax Credits and Divorce

Divorced parents are probably already well aware that the financial piece of planning for college is mystifying at best. With tax season upon us, divorced parents planning to claim one of the available college tax credits– American Opportunity Tax Credit or Lifetime Learning Credit– need to know that the credit is only available to the parent who claims the student as a dependent on their tax return. This is different from the FAFSA, which is completed by the custodial parent.

Keep in mind that both tax credits have income caps: the AOTC (a credit of up to $2,500 per year per student for four years) phases out between $80,000-$90,000 for single filers; the LLC (a credit up to $2,000) phases out between $52,000-$62,000 for single filers. In many cases, only the lower-earning ex-spouse is eligible for one of the credits whereas the higher-earning ex may be taking the dependent deduction, so it may take some calculation to determine the net benefit of shifting the dependent in order to get the tax credit.

Common FAFSA Mistakes

Get ready: the FAFSA is coming. The 2015-2016 FAFSA will be available in just a couple of days, on Jan. 1. Here are some common mistakes people make in completing the FAFSA:

  • Not doing it: Yes, the FAFSA takes time but no, you should not skip it, even if you don’t think you’ll be eligible for aid. Why not? Because you have to file the FAFSA in order to be eligible for federal education loans like the Stafford, Perkins or PLUS loan, which are available to all students, or parents as applicable, regardless of income.
  • Overstating assets: Retirement assets and equity in your primary residence don’t count as assets on the FAFSA so don’t include them.
  • Procrastinating: You can do the FAFSA without having filed your taxes, so don’t wait. A great deal of aid is first-come, first-served, so delaying only hurts you. Some Oregon deadlines are as follows:
    • OR Opportunity Grant: Feb. 1
    • OSAC Private scholarships: March 1
    • University of Oregon: March 1
    • Oregon State University: Feb. 28
  • Understating income: If you contributed to a tax-deferred savings plan in 2014 (401(k), traditional IRA or other plan using pre-tax dollars), you will be asked to add that contribution back to your income when filing the FAFSA.
  • Not using the IRS Data Retrieval Tool: If you use this, then once your tax return is filed you can update your FAFSA with the correct information from the IRS. You will need to provide this information, and this is the fastest, most accurate way of doing so.
  • Not having your ducks in a row before you start: Assuming your student is a dependent, you’ll need the following:
    • Parents’ and student’s SSNs
    • Student’s driver’s license number
    • Federal tax information for both parents (if married; custodial parent and stepparent if applicable if divorced) and student
    • Records of untaxed income for parents and student– child support received, nontaxable interest, etc.
    • Information on checking and savings accounts, investments including 529 Plan accounts and investment property, and business assets
  • Data entry errors: Incorrect SSNs, driver’s license numbers, blank fields, missing signatures will all delay or torpedo your application, so triple-check them.

Divorced Parents and Aid Applications

Divorced parents tend to have a number of questions about aid issues and college applications in general. Let’s start with the basics: Do both parents’ incomes count? And what about new spouses’?

As is so often the case, the answer is different depending on the aid form. The FAFSA is simple so let’s start there. The FAFSA only counts the custodial parent’s income and assets in its formula. The custodial parent is the one with whom the student lived the most in the past 12 months, regardless of who provides support. Of course, any support that the custodial parent receives from the other parent is included on the FAFSA. Note that “custodial parent” in this case is not necessarily the same as custody in divorce parlance. Although a divorce may specify equal, 50% custody, the FAFSA is looking for the parent with whom the student has his primary residence.

The CSS PROFILE, on the other hand, requests data from both parents.

What happens if a parent remarries? As applicable, the new spouse’s income and assets count too. Which is to say, if the custodial parent remarries, the spouse’s data is included on the FAFSA, but not in the case of a non-custodial parent. The CSS PROFILE would count the new spouse’s income and assets regardless of custody. Neither the schools to which your student is applying nor the federal government are party to your prenuptial agreement, so specifying in a prenup that your new spouse is not liable for college expenses does not change this.