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The Fastweb Team
August 31, 2017
I have two daughters. One is a junior in college. The other is asenior in high school who will be going to college this fall. Theyboth have stocks given to them by my parents years ago, from whichthey get quarterly dividends of around $140 each. Every year on theFAFSA I have to put the current value of the stocks under theirstudent assets on line 41, in the amount of $11,236. They each have '); }); }); } $(document).ready(function() { apntag.anq.push(function() { apntag.showTag('FastWeb_Desktop_Native_Inarticle_Placement_Slot_1_mA5uAukpbfZmYSGolKsG-g'); }); });
only around $1,500 in income and savings. My younger child has alittle more as she hasn't spent her savings on college yet. As parents,our assets were less than the required amount and our total adjustedgross income was about $62,000. We do have 529 plans for them also, inour names. Our EFCs were 5335 and 6378. I want to know if it would bebetter to sell the stocks or keep them, in order to have less assets
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and get more aid, because it seems like we don't get much help. Theyboth got merit scholarships from their colleges. — AnnM.Selling the college junior's stocks will have no impact on hereligibility for need-based financial aid because she has already filed
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the Free Application for Federal Student Aid (FAFSA) for her senioryear in college.The FAFSA is typically filed in January through June before the startof the academic year, although it can be filed during the academicyear through the end of the following June. While the income figuresreported on the FAFSA are based on the tax year prior to the awardyear, the asset figures are based on a snapshot as of the date theFAFSA is filed. For example, the asset value of a brokerage account isusually based on the most recent account statement received before theFAFSA filing date. Unless there are unusual circ*mstances or the FAFSAis selected for verification, the FAFSA cannot be updated for changesthat occur after the FAFSA is filed. For example, the FAFSA cannot beupdated because of a subsequent change in the value of an asset.Selling the high school senior's stock holdings, on the other hand,might improve her eligibility for need-based financial aid, if theproceeds are contributed to a custodial 529 college savings plan. Acustodial 529 plan is like a regular 529 plan, except that the studentis both the account owner and beneficiary. The FAFSA treats acustodial 529 plan as though it were a parent asset, yielding amore favorable treatment. Parent assets are assessed less harshly than student assets on theFAFSA. An asset protection allowance based on the age of the olderparent shelters $40,000 to $50,000 or more of parent assets. Anyremaining parent assets are assessed on a bracketed scale that ranges from2.64% to 5.64%. Student assets are not protected by an asset protectionallowance and are assessed at a flat 20% rate. For example, shifting$11,000 in assets from the student's name into a custodial 529 planaccount will reduce the EFC by at least $1,600, which might be enoughfor her to qualify for a small Pell Grant, since her current EFC isclose to the eligibility cutoff for the Pell Grant program.
The parents could also sell the high school senior's stock holdings and spendthe money on her education. Generally, it is best to spend thestudent's assets down to zero before touching the parent's assets,since student assets are assessed more harshly than parent assets. Forexample, if $11,000 in student assets are spent on her college costsbefore the next FAFSA is filed, this will decrease the EFC by about$2,200.However, there are a few caveats:Capital Gains. If the stocks have appreciated significantly,selling the student's stocks will incur capital gains which will betreated as student income on the subsequent year's FAFSA. Studentincome above an income protection allowance is assessed at a 50%rate. The income protection allowance for a dependent student will be$6,000 in 2012-13. Depending on the amount of appreciation, thecapital gains might offset much of the improvement in aid eligibilityfrom changing the asset treatment of the stocks. But the capital gainswill affect eligibility for need-based aid only during the subsequentyear in college. The student will still benefit from increased aideligibility during the remaining years in college. (Ideally stocks andother appreciated assets should be sold at least two years prior toenrollment to prevent the capital gains from affecting eligibility forneed-based aid.)Merit Aid. Depending on the college's policies,increasing the student's eligibility for need-based aid may cause thecollege's merit-based scholarships to be reduced. Some colleges will reducetheir grants when a student receives more aid from another source. Tax Credits. The Hope Scholarship tax credit provides a taxcredit of up to $2,500 per student each year based on up to $4,000 inqualified higher education expenses, such as tuition, fees andtextbooks. The family cannot use 529 college savings plan money to payfor these qualified higher education expenses, as IRS rules do notallow the same expenses to qualify for both a tax credit and atax-free distribution from a 529 plan. Double-dipping is notallowed. So it is best to plan on paying for $4,000 in collegetuition, fees and textbooks with cash or loans in order to maximizeeligibility for the Hope Scholarship tax credit.
