Special Topics - The Offer & Other Financial Matters - Paying for College Without Going Broke - Princeton Review, Kalman Chany

Paying for College Without Going Broke, 2017 Edition - Princeton Review, Kalman Chany (2016)

Part IV. The Offer & Other Financial Matters

Chapter 9. Special Topics


The breakup of a marriage is always painful, and some parents are understandably reluctant to share their pain with strangers. We know of one set of parents who went through four years of need analysis forms without ever telling the college that they were divorced. Unfortunately, by not telling the schools about the divorce, those parents lost out on a great deal of financial aid, and put themselves through unnecessary hardships in paying for college.

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No matter how painful or bizarre your personal situation is, the FAOs have heard worse, and you will find that being upfront about such problems as refusal by a former spouse to pay alimony or to supply needed financial aid data to the schools, will make the financial aid process easier. While the FAOs are quite expert at understanding the convoluted and intricate family relationships that arise out of divorce or separation, you will find that the aid formula itself tries to fit these complex relationships into a few simple categories. The result is completely baffling to most parents.

Who Are the Custodial Parents?

The formula doesn’t really care who the biological parents of a student are. Ultimately, the formula wants to know only whom the student lived with most during the first base income year. This parent, called the “custodial parent,” gets the honor of completing the standardized need analysis form. And according to federal guidelines, it is this parent whose financial information will be used to determine the parents’ contribution to college.

Soap Opera Digest

Let’s say that Mr. and Mrs. Jackson separated two years ago. Their only daughter Jill lives now with Mr. Jackson, and will be attending college next year. While some standardized aid forms may ask a few vague questions about Mrs. Jackson, as far as the federal financial aid formula is concerned, Mr. Jackson is the sole custodial parent and the only parent whose income and assets can be requested and analyzed by the processor. This counts as a family of two under the aid formula.

Let’s say that Mr. Jackson gets a divorce from Mrs. Jackson and then marries another woman, Francine. The aid formula will now want to look at the assets and income of Mr. Jackson and the assets and income of his new wife as well. The instructions to the need analysis form will tell Mr. Jackson to provide information about himself as well as Francine, even if he just married her last week. Francine’s income and assets will be assessed just as heavily as Mr. Jackson’s, even if she didn’t meet Jill until the day of the wedding, and even if they signed a prenuptial agreement stating that she would not be responsible for Jill’s college expenses. This is now a family of three in the eyes of the FAOs.

What if Mr. Jackson’s new wife has a 10-year-old child of her own, Denise, from a previous marriage, who will also come to live with Mr. Jackson? Now there is a family of four. Neither of the previous spouses will be considered for assessment by the federal formula. When it comes time for Denise’s college education, Mr. Jackson’s assets and income will be assessed just as heavily as Francine’s.

Let’s suppose that Mr. Jackson also had a son, James, from a much earlier marriage. The son has never lived with him, but Mr. Jackson provides for more than half his support. Even though the son has never lived with him, James is considered part of Mr. Jackson’s “household” by the federal guidelines because Mr. Jackson provides for more than half his support. We now have a family of five for aid purposes.

If James were attending college at least half-time in a degree or certificate program, he would also be included as part of the number of “household” members attending “college, graduate/professional school, or other post-secondary school.” This would help to reduce the Jackson’s family contribution for Jill’s college expenses.

By the way, when James (who lives with his mother, Mr. Jackson’s long-ago ex) goes to college, his mother will be considered the custodial parent on his aid application. In effect, James can be claimed as a member of both of his natural parents’ households, depending on whose aid application is being completed.

By now you may be asking why Denise (you remember Denise—Mr. Jackson’s stepchild) was included as part of his household without regard to who provides the majority of her support. Since Denise would not be considered an independent student if she were to apply for federal student aid, she is automatically part of Mr. Jackson’s household in the federal formula—whether or not Denise actually completes a FAFSA form for that academic year, and even whether or not she lives in the household. Even if Denise’s natural father were providing all of Denise’s support, Denise would still be considered a part of the Jackson’s household. While this criteria applies to “other children” for the purposes of household size in the federal formula, it does not apply to the institutional formula. Of course, any child support received by Francine would have to be included as untaxed income on Jill’s aid applications.

Number of Exemptions

As you know from reading the rest of this book, the more family members you can list on the need analysis form, the lower your family contribution will be. This number will not necessarily coincide with the number of tax exemptions you claim. Let’s say you have a son who lives with you, but who receives more than half support from your ex. This other parent is entitled to take the son’s income tax exemption, and you are not. You will have one more member of your family than you have exemptions. The colleges are used to this situation. You may have to explain, and possibly provide documentation, but they will understand. The same situation might occur if, as part of a divorce agreement, your ex is allowed to claim the son as a tax deduction, even though the son lives with you.

In either case, when it is time for college, you’ll list your son as part of your household, and your ex will not be assessed by the federal financial aid formula.

A Quick Summary

Because parents find all this so confusing, and because the information they receive over the telephone from the college aid offices is often contradictory or misleading, we’re going to summarize the key points:

1.The parent with whom the child resided most during the 12 months prior to completing the aid application is considered the “custodial parent.” The custodial parent is not necessarily the parent who was initially awarded custody in the divorce agreement.

2.Siblings (including stepsiblings and half-siblings) can be considered part of the custodial parents’ household provided they

a. get more than half support from the custodial parent(s)/ custodial stepparent or

b. cannot be considered independent students under federal aid guidelines. (Option b does not apply in the institutional methodology.)

3.A stepparent who resides with the custodial parent will be treated by the aid formula as if he/she were the natural parent.

4.It currently doesn’t matter who claims a child as a tax exemption; the number of family members is based on the rules above.

Read the instructions carefully when you complete the aid forms. If a college challenges your application by trying to disallow some members of your household, don’t automatically assume that they are right and you are wrong. When you speak to the FAO, refer to the section in the instructions to the aid form on which you based your decision.

Will an Ex-Husband or Ex-Wife’s Assets and Income Ever Be Used to Determine the Family Contribution?

Parents are always concerned that the colleges will look at at the other natural parent’s income and assets and decide that the student is ineligible for aid, even if the ex-spouse refuses to help pay for college.

The vast majority of colleges will never even ask to see income or asset information from a noncustodial parent. The FAFSA has no questions about the noncustodial parent at all. While the PROFILE form asks a few questions about the noncustodial parent, the processor does not take this information into account in providing the Expected Family Contribution, and most colleges will not take the matter any further. (Of course, if you received alimony or child support from your ex, this will appear as part of your income.)

However, a few colleges do require that you fill out their own supplemental forms. Some schools that use the PROFILE form will require that a noncustodial parent’s information be supplied by the parent with whom the student spent the least time. The colleges that ask for this information tend to be the most selective, including all the Ivy League schools. If your child applies to one of these schools, you may find that your ex-wife’s or ex-husband’s income and assets will indeed have a bearing on how much a college ultimately decides your family contribution ought to be.

Even if this is the case, you should not lose heart. Some types of aid must, by law, be awarded without reference to the noncustodial parent. These include the Pell Grant, the Stafford loan, and some forms of state aid.

Starting with the 2005-2006 PROFILE, some schools will require an online Noncustodial PROFILE (NCP). Details about this online form will be provided at some point after you register for the PROFILE. Other schools may still choose to accept or require the traditional paper Noncustodial Parent’s Statement and/or their own noncustodial parent form which, following completion, should then be sent directly to the financial aid office of any school that requires it.

To find out if you need to submit any of these supplemental forms, consult the college’s own financial aid instructions.

What If the Ex-Husband or Ex-Wife Refuses to Fill Out the Form?

The schools that require financial information about former spouses will not process your application for aid until you have supplied all the information they requested. If your ex refuses to supply the information you need to apply for aid, you have two options.

First, try to use reason. Your ex may be worried that merely by filling out the form, he/she is accepting legal responsibility for paying for college. Point out to your former spouse that on the form they are to complete, there is a question that asks, “How much are you willing to pay?” By writing down “0” the parent expresses a clear desire to be left out of this responsibility.

It is also worth noting that even if a college decides to assess a noncustodial parent’s income or assets, this does not mean that the noncustodial parent will ever get a bill from the college. Yes, the family contribution will probably be larger, but the bill for tuition will go, as always, to the student’s custodial parent. There is no legal obligation for the ex-husband or ex-wife to help pay for college unless an agreement was signed beforehand.

The second option, if the ex-spouse refuses to cooperate, is to get a waiver from the colleges. The FAOs can decide at their discretion not to assess a noncustodial parent if it is really clear that that individual can never be persuaded to help. You are going to have to make a strong case to get colleges to give you that waiver. This is the time to pull out all the dirty laundry—alcoholism, physical or mental abuse, chemical dependency, abandonment, chronic unemployment, and so on. Send the FAO a letter presenting your case, and include any documentation from agencies or third parties (such as an attorney, guidance counselor, or member of the clergy) that supports your case. Follow up with a phone call, and do this as soon as possible after you’ve decided to apply. Any information you supply will be confidential and will not go farther than the financial aid office. This will not jeopardize your child’s chances for admission. It may, however, get you the aid you need to send your child to the school.

Is There an Agreement Specifying a Contribution from an Ex?

You may find this question included on your need analysis form. Be very careful how you answer it. If there is an agreement, and you have every reason to expect that your ex will honor that agreement, then say yes and give the figure. However, if there is a disagreement as to what your ex originally agreed to provide, then it would be calamitous to say yes. The colleges will assess your ability to pay based in part on this figure. If your ex then refused to pay, you would be in bad shape. If you are not sure you can count on your ex-spouse to provide the promised money, then write “no” on the form and write a letter explaining the situation to the various colleges.

The Noncustodial Parent’s Information

You should NEVER send this data to a school unless it is required. Read the individual college’s financial aid instructions carefully. Some always require it, while others want it only if you’ve recently divorced or separated, or if your ex has claimed the child as a tax deduction in the past few years. The information on this form should agree with that on any other forms that have already been sent in—the need analysis form and tax returns. If you and your ex still have assets held in common, make sure that your proportionate shares of these assets as reported on your need analysis forms add up to the whole. Alimony and child support figures should also agree.


A stepparent’s income and assets will be assessed by the FAOs just as severely as if he/she were the natural parent—even if there is a prenuptial agreement to the contrary. This being the case, it may make sense to postpone marriage plans until after your child is out of the base income years. A couple that decided just to live together while their children were in college might easily save enough money to take a round-the-world honeymoon cruise when it was all over.

Note: a few colleges give you the option of using the financial information of either your former spouse or your new spouse to determine eligibility for the school’s own grant money.

The Difference Between Being Divorced, Legally Separated, or Just Separated

For financial aid purposes, there is absolutely no difference. If you are not legally separated, you may be asked to provide documentation to show that you no longer live together.

If You Are in the Process of Separating or Getting a Divorce

We have actually known of cases in which a couple separated or divorced in order to get more financial aid. This is taking the pursuit of free money way too far. We know of another couple that pretended to separate to qualify for more aid. Aside from the moral implications (you have to wonder what kind of warped view of life the children will bring away from that experience), this is also illegal.

However, if your situation has become impossible, and there is absolutely no choice but to separate, then you should try to take financial aid into account as you consider your legal options. An agreement by the soon-to-be ex-spouse to provide for your child’s education could be an expensive mistake.

Let’s say that a father formally agrees to pay $10,000 per college year for his daughter’s education. Many colleges will say thank you very much and decrease their aid packages by $10,000. If this is an amicable separation, it might be better if no agreement were made on paper. The father could then voluntarily gift money during the year, thus preventing any loss of aid eligibility. If the separation is not amicable, and the mother is afraid she will never see the money unless there is an agreement in writing, it would be infinitely better if the father made one lump-sum payment to the mother toward college. In this way, the money becomes part of her overall assets, which can be assessed at up to only 5.65% a year.

Avoid Acrimony

A couple in the midst of splitting up is not always in the most rational frame of mind. It is essential, however, that you try to keep your heads clear, and prevent the education of your children from becoming one more brickbat to hurl back and forth.

Cooperation is the most important part of the process. We have seen parents childishly miss financial aid deadlines just to spite their former spouse. The person who really loses out when this happens, of course, is the child.


The process of applying for financial aid as a transfer student or a graduate student is very similar to applying for aid as a freshman in college. However, there are a few differences that should be discussed:

✵ Deadlines for transfer and graduate students are often different from the deadlines for regular undergrads. Check your applications carefully for the specific deadlines.

✵ If you have previously attended any colleges, you may need a financial aid transcript sent from each one of them to the schools you are applying to, especially if you are transferring during the middle of the academic year. A financial aid transcript is not the same thing as a transcript of your academic record (which you will probably need as well). You will have to send financial aid transcripts even if you received no financial aid from the previous schools.

The colleges want to look at these records in part to see what kind of a deal you were getting at your previous school, and in part to see how much you’ve already borrowed, for there are aggregate limits to certain types of aid. For example, an undergraduate can receive a total of only $27,500 in Perkins loans.

The best way to go about getting financial aid transcripts is to pick up blank copies from the school to which you are applying, which come already addressed, ready to be sent back to the school. You can then mail these forms to the schools you previously attended. You’ll have to keep on top of the process to make sure the transcripts are sent. The records offices at colleges are often worse than the motor vehicle bureau.

✵ Some colleges have separate aid policies for transfer students. Often, priority is given to students who began as freshmen. This is particularly true if a student transfers in the middle of the year; the FAOs will have already committed the bulk of their funds for that school year.

✵ It may help if you have some kind of bargaining chip—for example, if there is another school that is also interested in you. Your previous school won’t be much of a bargaining chip since you have probably already given them a compelling reason for why you wanted to leave.

✵ It will certainly help if you’ve maintained a high grade point average. In particular, students who are transferring to a “designer label” college from a less well-known school will need good grades and good recommendations.

Graduate and Professional School Financial Aid Tips

Graduate and professional school aid is parceled out in much the same way as college aid but the ratio of grants to loans to work-study is unfortunately very different. Grant money has dried up in the past ten years.

Student loans, on the other hand, are somewhat easier to come by in graduate school. (For example, if you are attending law school, you can borrow up to the full cost of attendance without much trouble—which is pretty scary when you think about it.) For most students, the cap on Stafford loans rises to $20,500 per year in graduate school, though certain health profession students may be able to borrow even higher amounts. If you still need additional funds, you can borrow them using the federal GradPLUS loan or private educational loans.

The paperwork you will be asked to fill out varies widely. All schools require the FAFSA, but many schools will also require the PROFILE form or some other aid form, which asks questions similar to the PROFILE form.

Fortunately, all graduate school students will find they now meet the federal government’s independent student test. If you are a graduate student, you are independent by definition for federal aid purposes—even if your parents still claim you as a dependent on their tax returns and you still live at home.

However, a few of the very selective schools will insist on seeing parent information anyway. The Harvard Law School FAOs, for example, require parents’ financial data even if the student is 40 years old and the parents have long since retired to the Sun Belt. Though the schools may refuse to give you any of their own money, you can still qualify for Stafford loans since you meet the federal regulations for independent status.

If the school requires parental information on the PROFILE form, you will have to find out if they want parental information on the FAFSA as well. If any one of them requires parental information on the FAFSA, you will have to complete the green and purple sections of the 2017-2018 FAFSA.

If you are planning on law school, medical school, or business school, taking on large amounts of debt is, although unpleasant, at least feasible. However, if you are planning on, say, a PhD in philosophy, you should be very cautious about borrowing large amounts of money. An alternative to borrowing is to find grant money that is not administered by the financial aid office—in graduate school, some fellowships are administered by department heads instead. In addition, students sometimes find opportunities to teach or work on professors’ grant projects.


While financial aid is based on your need, it is always wise to remember that it is also based to some extent on what the colleges need. If you fit a category a particular college is looking for, your package is going to be much better than if you don’t.

Preferential packaging comes in many forms. Perhaps the FAO will decide that your expected family contribution, as computed by the need analysis computer, is a bit high. Perhaps you will be offered an athletic scholarship or a non-need-based grant.

Whatever the school chooses to call it, you are being offered a preferential package—more grant or scholarship money, less loans and work-study.

No Time for Modesty

In many cases, these are not scholarships or grants for which you can apply. The schools themselves select the recipients, with a keen eye toward enticing high-caliber students to their programs. It is therefore crucial that the student sell herself in her application. This is no time for modesty. For example, a promising student violinist should make sure that one of her application essays is about the challenge of mastering a difficult instrument. This should be backed up by recommendations from music teachers, reviews of her performances that have appeared in newspapers, and a listing of any awards she has won. If a student is offered one or more of these merit-based grants or scholarships, it is important to find out if these awards are one-time only or whether they are renewable, based on performance. If renewable, just how good does the student’s performance have to be in order to get the same package next year?


Colleges are particularly likely to increase their offer if they really wanted you in the first place. Students with excellent academic records are in an especially strong position to bargain. See Part Four, “The Offer,” for more details.

Financial Aid for the Academically Gifted

Some awards come directly as a result of test scores. The National Merit Scholarship Program gives out about 1,800 nonrenewable scholarships and 2,800 renewable college-sponsored scholarships to students who score extremely well on the PSAT/NMSQT. Based on their performance on the SAT or the ACT, 120 students are designated Presidential Scholars.

At schools where all aid is based on need, a National Merit finalist will not necessarily get one penny of aid unless “need” is demonstrated. Other schools, however, automatically give National Merit finalists a four-year free ride—a full scholarship.

Some awards come as a result of the student’s performance in college. These kick in during the sophomore year—an example is the Harry S. Truman Scholarship.

Merit grants based on academic performance in high school are becoming more widespread as time goes on. We believe this trend will continue as colleges begin to compete in earnest for the best students. However, most of the money awarded to students with high academic performance is less easy to see. It comes in the form of preferential packaging.


In general, it is up to the student to tell the colleges why the student is special through his or her application.

Athletes, however, should get in touch with the athletic department directly. When you go to visit the school, make it a point to meet the coach of the team you are interested in. Do not assume that a school is not interested in you merely because you have not been approached by a scout during the year. Get your coach to write letters to the schools you are interested in. Don’t sell yourself short either—an average football player might not get a scholarship at Notre Dame, but the same applicant at Columbia might get a preferential package. Even if the school does not award athletic scholarships per se (Columbia, like the rest of the Ivy League, does not), many FAOs bend the numbers to come up with a lower family contribution for an athlete the school particularly wants.

Remember, too, that football is not the only sport in college. Schools also need swimmers, tennis players, long-distance runners, and the like.


Minority students now represent the fastest growing demographic on campuses across the country. While many college administrators welcome the prospect of a more diverse student body, this trend poses a challenge for the colleges, since historically many minority students have required financial aid.

While there are significant scholarship and other financial aid programs earmarked specifically for minority students, many schools now find themselves in a quandary. How do they attract and retain what they project to be an increased number of qualified students needing financial aid at time when endowments are declining with the stock markets, fundraising campaigns are not meeting their goals due to a weak economy and financial aid budgets are already stretched tight?

Because of this anticipated increased demand for aid, it will be more important than ever for applicants to meet financial aid deadlines, to build a strong academic record in high school, and to maintain good grades in college to ensure continued funding.

Fortunately, at most schools, once on campus, students will find resources and support services designed to help them stay in school—ranging from mentors to work-study programs. The colleges have made it very clear that they remain committed to retaining the students they admit—and many will go to extraordinary lengths to keep them. As with most facets of college life, however, students who take the initiative will be more likely to get help.

Historically Black Colleges and Universities (HBCUs) and Hispanic-Serving Institutions (HSIs) are also experiencing challenges meeting their financial needs. A number of these institutions are among the finest schools in the country. But minority students with high need applying to these schools need to be aware that many of them don’t have the financial aid resources of other schools with larger endowments. In some cases, a minority student with high need may find that he or she will get a larger aid package elsewhere. As we mentioned earlier on this page, this page, and this page, it is important for all students to apply to at least one financial safety school.


Many colleges will go out of their way for the children of alumni. If the student’s parents’ circumstances are such that they cannot pay the entire cost of college, they should not be embarrassed to ask for help. At many schools it will be forthcoming.


As we have already mentioned, the tax benefits of running your own business or farm are considerable: you are allowed to write off legitimate expenses, put relatives on your payroll, and possibly claim a percentage of your home for business use. The financial aid benefits are even better: your business or farm assets are assessed at a much lower rate than personal assets. This is because the colleges recognize a business’s need for working capital. Thus a business’s net worth (assets minus liabilities) of $50,000 will draw roughly the same assessment as a $20,000 personal asset—or even a zero assessment if it is a “family business” (see this page-this page).

If you have been planning to start your own business, now might be a good time!

The Four Types of Business—C Corporation, S Corporation, General Partnership, Sole Proprietor

A C corporation’s profits are taxed at the corporate rate. C corporations must file an IRS 1120 corporate income tax return. The profits from a C corporation owned by a parent should not be included on the standardized financial aid forms, but the assets and liabilities may need to be listed. The owner of an S corporation (short for subchapter S) files an 1120S corporate income tax return, but also reports profits and losses on his own personal income tax return on schedule E. On the aid forms, the owner may have to report assets and liabilities as well as profits (or losses). A parent who is part of a general partnership reports profits and losses to the IRS on schedule E of the 1040. For aid purposes, she reports net profits (or losses) and possibly assets and liabilities on the need analysis form.

A sole proprietor reports profits and losses to the IRS on schedule C of the 1040. Again, profits (or losses) and possibly assets and liabilities must also be reported on the need analysis form. A farmer is treated like a sole proprietor but reports profits and losses to the IRS on schedule F of the 1040. On the FAFSA form, farmers who live primarily on their farm and who can claim on schedule F of their 1040 that they “materially participated in the farm’s operation” (defined as a “family farm”) should not include the value of the family farm under assets and liabilities.

Keep in mind that whatever business arrangement you have, you should never report your gross revenues on the standardized aid forms. Your net income (or net loss) is what counts—gross receipts less your deductible business expenses.

Financial Aid Strategies for Business and Farm Owners

Before the first base income year begins, it would make sense to accelerate billings, and take in as much cash as possible in advance. Try to defer expenses into the base income year. The idea, of course, is to minimize your income and maximize your expenses for the snapshot the college financial offices will be taking of your business. During the base income year itself, you might decide finally to do that remodeling or expansion you’ve been thinking about. In the last base income year, you will want to reverse the process you began before the first base income year: accelerate expenses and defer income, until after the colleges have taken their last snapshot.

Starting a Business or Farm

The beginning years of a business are very often slow. Many businesses lose money in their first couple of years, until they develop their niche and find a market. Parents who dream of starting their own company often feel that they should wait until after the kids are done with college before they take on the risk of an entrepreneurial enterprise. If you always dreamed of starting your own business, but have decided to wait until after the children are done with college, think again.

The perfect time to start a business is just before your child starts college. Consider: you’ll have high start-up costs (which will reduce your assets) and low sales (which will reduce your income) for the first couple of years. If you time it right, these years will coincide exactly with the base income years, which means you will be eligible for substantially increased amounts of financial aid. Any business assets will also be assessed at a lower rate than personal assets. Like many businesses, yours may well start to be profitable within four years—just as your child is finishing college.

In effect, the college will be subsidizing the start-up costs of your business. This strategy is obviously not for everyone. A business must be run with the intention of showing a profit or risk running afoul of the IRS. If you are merely indulging in a hobby, your farm or business losses may be disallowed. In addition, most schools that use the institutional methodology will disallow losses when determining eligibility for the school’s own funds.

Any new business contains an element of risk, which should be carefully considered before you start. On the other hand, if you wait until your children are done with college, you may not have enough money left to start up a lemonade stand.

Estimating Your Company’s Assets and Liabilities on the Aid Form

Owners of businesses sometimes overstate the value of their assets by including intangibles such as goodwill and location. These are important elements if you were to sell the company, but irrelevant to the need analysis formula. You are being asked to list only the total value of cash, receivables, inventory, investments, and your fixed assets (such as machinery, land, and buildings).

If your net worth is negative, you will list “0” on the FAFSA for that question. On other forms you should list the total debts even if they exceed the total assets, but you will find that most colleges will not subtract a negative net worth from your total assets.

The Business/Farm Supplement

Many schools require the owner of a business or farm to fill out a paper version of the College Board’s Business/Farm Supplement. Since this statement is not analyzed by a central processor you can send signed photocopies of the completed form to any school that requests it. The form more or less mimics the IRS forms you will probably be sending the colleges anyway. Some other schools may insist on your completing their own business supplement even though such forms will look very similar to the College Board’s version. If you are not the sole owner, be careful to distinguish between questions that ask for the business’s total income, assets, and liabilities, and questions that ask for your proportionate share of the business’s income, assets, and liabilities.

High expenses during the base income years will help to maximize financial aid. However, large business purchases cannot be deducted all at once under IRS rules. There are several different methods to depreciate your fixed assets. During the college years, accelerated depreciation probably makes the most sense, especially during the critical first base income year. As always, however, you should consult with your accountant, and perhaps a financial aid consultant as well.

If You Own a Significant Percentage of the Stock of a Small Company

A parent who owns more than 5% of the stock in a small company could report this asset on the standardized need analysis form under “other investment,” but it would be much more beneficial to report it under “business and farm.” If you own a significant part of a small company, accountants argue that you can be said to be a part-owner of the company. Most colleges will go along with this. The advantage, of course, is that the value of the stock will be assessed less heavily as a business asset than it would have been as a personal asset.

Selling Your Business or Farm

A huge capital gain from the sale of your business or farm will probably wipe out any chance for financial aid. On the other hand, if you are receiving a huge capital gain, you don’t need aid. If possible, delay the sale until you are out of the base income years, but if the offer is good enough, take it and enjoy the feeling of never having to look at a need analysis form ever again. Oh, yes, and expect a call almost immediately from the fundraisers at your child’s college. It’s amazing how fast good news travels.

Putting Your Child on the Payroll

This is a good tax move, since it shifts income to the child, who may pay tax at a reduced rate. From a financial aid standpoint, however, increasing your child’s income can backfire. Each year up to 50% of the child’s income gets assessed by the FAOs. Once the income reaches a certain amount (see this page), it may disqualify your family from receiving aid, or at least reduce the amount you receive.

If you are not eligible for aid, by all means consider putting your child on the payroll. A self-employed parent who hires a son or daughter does not even have to pay social security taxes on the child’s earnings until the child turns 18.


If you have been terminated, or laid off, or if you have received notice that you will be terminated, or laid off, or if you are a self-employed person who cannot make a living due to harsh economic conditions, then you should be sure to point this out to the FAO.

Many schools can use what is called “professional judgment” to increase aid for the child of a recently unemployed worker. Instead of using the base income year (when you may have been gainfully employed) they can elect to look at your projected income for next year. Since you are now unemployed, your projection will be understandably bleak. Your child’s college will probably want to see some sort of documentation (e.g., termination letter from your employer, unemployment benefits certification, etc.). Taking these extra steps could be worth thousands of dollars in aid. You should also be sure to answer “Yes” to FAFSA question 84 if you qualify as a dislocated worker.

How Do You Let the Colleges Know Your Projection for Next Year?

You will be asked on the PROFILE form to project your income for the coming year. Project conservatively. You may be out of work for a while, so assume the worst-case scenario. Do not project based on a tentative job offer; if it doesn’t come through, you will be making much less than the colleges will think based on your over-optimistic projections.

If all the schools to which you are applying require the PROFILE form, then the schools will get your projected income from the College Board’s analysis. Just remember to mention your work status in the “Explanations/Special Circumstances” section of the form.

Contrary to what the PROFILE instructions say, you should not list any deferred compensation—401(k), or 403(b)—or contributions to IRAs or Keoghs as part of your untaxed income in Section PR and PF. Do, however, list your gross wages, including any deferred compensation as part of your projected income from work.

The reason you should not include these items as untaxed income is that by doing so you would be overstating your income. For example, let’s take married parents with projected gross wages of $30,000 (and no other income) who made a $4,000 deductible IRA contribution. If this couple followed the instructions, they would be listing a total income of $34,000 ($30,000 income earned from work, plus $4,000 untaxed income). Obviously, they should only be reporting their total income—$30,000.

If your child is applying to schools that do not require the PROFILE form, then you should send them a separate letter detailing your changed employment status and a projection of next year’s income. When listing your projections, you should break them down into separate categories: father’s income from work (if any), mother’s income from work (if any), income from unemployment benefits, and all other taxable and untaxable income.

In fact, it wouldn’t be such a bad idea to send copies of this letter even to the schools that require the PROFILE form, since the FAOs at these schools sometimes miss comments written in the “Explanations/Special Circumstances” section of the form.

If You Lose Your Job While Your Child Is in College

Call or write a letter to the FAO explaining what happened as soon as possible, and include some form of documentation. It will probably be impossible for the FAO to revise your aid package for the current semester, but this will give them warning that you will be needing more aid next semester.


If you are a nonworking parent who has been financially abandoned by a spouse, if you’ve had an accident that cost you a lot of money in unreimbursed medical expenses, if you lost your second job, if you received a pay cut or reduction in overtime, if you recently separated from your spouse, if your business lost its major client, if you became disabled, or had a major casualty or theft loss, you should be sure to notify the FAO immediately—even if the school year has already begun. Many schools have emergency aid funds for just these situations.


If a student is judged to be independent, the need analysis companies assess only the student’s income and assets. The income and assets of the parents do not even have to be listed on the form. Obviously, this can have a tremendous impact on financial aid. Most students have limited resources, and so the aid packages from the colleges have to increase dramatically if they are to meet the student’s entire “need.”

Parents often erroneously believe that by not claiming the student as a dependent on taxes, their child will be considered independent for aid purposes—but this is not the case.

It is in the school’s interest to decide that a student is not independent, since independent students need so much more aid. In fact, a student is presumed to be dependent unless he meets certain criteria. The rules change from year to year (in general going from stringent to more stringent). For the 2017-2018 academic year, you are considered independent for federal aid purposes if:

A.You were born before January 1, 1994.

B.You are a veteran of the U.S. Armed Services or you are currently serving on active duty in the U.S. Armed Forces for purposes other than training.

C.When you are age 13 or older: both of your parents are deceased, You are/were in foster care, you are/were an orphan or a ward/dependent of the court, or you were a ward/dependent of the court until age 18.

D.You have children who will receive more than half their support from you between July 1, 2017 and June 30, 2018 OR you have dependents (other than your children or spouse) who live with you and receive more than half of their support from you, now and through June 30, 2018.

E.You are a graduate or professional school student in 2017-2018.

F.You are married.

G.As of the day you complete the FAFSA, you are an emancipated minor or you are in legal guardianship as determined by a court in your state of legal residence.

H.At any time on or after July 1, 2016 your high school or school district homeless liaison determine that you are an unaccompanied youth who is homeless, the director of an emergency shelter program funded by HUD determined you were an unaccompanied youth who was homeless, or the director of a runaway or homeless youth basic center or transitional living program determine that you were an unaccompanied youth who was homeless or self supporting and at risk of being homeless.

With the exception of certain health profession students whom we discuss in Part Three (Filling Out the Forms), meeting any one of these conditions makes you an independent student for federal aid purposes. However, the schools themselves may have their own, even tougher rules. A few schools (these tend to be the most expensive private colleges) state flat out that if the student is under 22 years old, he is automatically dependent unless both parents are dead.

These schools and others may insist that the parents fill out the parents’ information section of the PROFILE form and/or the FAFSA, even if the student meets the federal rules for independence. To find out if this is the case at the schools you are interested in, consult the individual school bulletins. This will also give you an early clue as to whether a school uses the federal definition of independence, or a more rigid definition of their own.

If you don’t meet the rules for independence, but have special circumstances, the FAOs have the authority to grant independent status on a case-by-case basis. To convince schools to do this requires extensive documentation. If the student has been abandoned by his parents, letters from a social service agency, court papers, or letters from a guidance counselor or member of the clergy acquainted with the situation may tip the scales.

If You Meet the Federal Requirements, but Not the School’s Requirements

A student can meet the federal requirements for independence without meeting the school’s own requirements. In this case, an undergraduate student may qualify for Pell Grants, Stafford loans, and possibly some state aid based on his status as an independent student. The school’s own grant money, however, will be awarded based on his status as a dependent student, taking his parents’ income and assets into account.

Independence and Graduate School

Graduate schools generally have more flexible rules about independence, and anyway, graduate students are usually no longer minors. Some graduate schools (particularly law schools and medical schools) will continue to ask for parents’ financial information in awarding their own money. Even if the school will not grant independent status, virtually all students will meet the federal guidelines and be eligible for federal aid. The borrowing limits on the Stafford loans rise in graduate school, making these very worthwhile. Graduate students can borrow up to $20,500 per year and even more for certain health profession students. Graduate and professional school students are also able to borrow additional funds under the federally-sponsored GradPLUS Loan Program. This program allows such students to borrow the difference between the Cost of Attendance and any other financial aid (including loans) that have been received. Terms for the GradPLUS are somewhat similar to the PLUS loan for parents.


Establishing residency in another state is probably worthwhile only if the school you want to attend is a public university with lower in-state rates. The difference between in-state and out-of-state rates can be more than $25,000. It is true that in-state residents also may qualify for additional state grant aid available for students who attend public or private colleges, but this will generally be less than $4,000 a year—sometimes a lot less. In addition, most private colleges that meet a student’s entire need will replace any money you might have gotten from the state anyway with their own funds. In this case, changing your state of residence is not worth the trouble.

Whether you will be able to pull this off at all is another story. Each state has its own residency requirements and, within those requirements, different rules that govern your eligibility for state grants and your eligibility for in-state tuition rates at a public university. These days, the requirements are usually very tough and they are getting tougher. There are some states, Michigan for example, where a student cannot be considered an in-state resident unless her parents pay taxes and maintain a primary residence in that state. Period. To find out about residency requirements for a school in a particular state, consult the financial aid office at that school.

Planning Ahead

If you decide you need to do this, you should begin investigating residency requirements even before you apply to schools. Write to the individual state universities to ask about their rules, and set about fulfilling them before the student arrives at college. If the parents live in different states, it might be worth considering with which parent the child should spend the base income year.


Some colleges allow students to apply early and find out early whether or not they have been accepted. You are allowed to apply early decision to only one school, because your application binds both you and the school. If they decide to admit you, you are committed to attend. The schools like early decision because it helps them to increase their “yield”—the percentage of students they accept who ultimately decide to attend. An early decision candidate must apply by as early as mid-October and will find out if he has been accepted, rejected, or deferred as early as the first week of December.

Early decision applicants may also need to apply early for aid. You should be sure to consult the college’s admissions literature for early decision financial aid filing requirements. Provided that you meet your deadlines, you should receive an aid package in the same envelope with your acceptance letter.

Early action is an admissions option in which you are notified early of your acceptance but are not bound to attend the school. You have until the normal deadline in May to decide whether to attend. The financial aid package, however, will usually not arrive in your mailbox until April and at many (but not all) schools you usually file for aid as if you were a regular applicant. (Note: some colleges refer to this option as non-binding early decision.)

Early notification is offered by many colleges that use rolling admissions. As the admissions committee makes its decisions, it mails out acceptance letters. Generally, you still have until the normal deadline to let the colleges know if you are accepting their offer. You apply for aid as if you were a regular applicant. Financial aid packages may arrive with acceptances or they may come later.

Some of these schools may try to put pressure on you by giving you an early deadline to decide if you are coming. If they are just asking you to accept the financial aid package, that’s fine. An acceptance of the aid package does not commit you to attend the school. However, if they are trying to force you to accept their offer of admission before you’ve heard from your other schools, stall. Call the school and ask for an extension. Make sure you get the name and title of the person you speak to on the phone, and send a “we spoke and you agreed” letter via certified mail to confirm.

What Are the Financial Aid Implications of These Programs?

Early decision: For a high-need or moderate-need family, early decision is a big gamble, because you are effectively giving up your bargaining position. By committing to the school before you know what kind of aid package you will receive, you lose control of the process. It is a bit like agreeing to buy a house without knowing how much it costs. If the school has a good reputation for meeting a family’s need in full, then this may be acceptable. However, even if the aid package they offer meets your need completely, you may not like the proportion of loans to grants. The school will have little incentive to improve the aid package since the child is already committed to attending.

If the aid you are offered is insufficient, there is a way to get out of the agreement, but this will leave you with little time to apply to other schools. We recommend that any student who applies to one school early decision should have completely filled out the applications to several other schools in the meantime. If the student is rejected or deferred by the early decision school—or if the aid package is insufficient—then there will still be time to apply to other colleges.

Early action: Even if a student is accepted early action, the student should probably still apply to several comparable schools. If one of these schools accepts the student as well, this will provide bargaining leverage with the FAOs, particularly if the second school’s aid package is superior.

Early notification: The only financial aid implications of early notification occur if you are being squeezed. If a college is putting pressure on you to accept an offer of admission before you have heard from other schools, the college is also taking away your potential to negotiate an improved aid package. Fight back by asking for an extension.

The Early Read

Some schools say that, as a courtesy, they will figure out your Expected Family Contribution for you early in the fall if you submit your financial data to them—even if you aren’t applying to their school. On the face of it, this seems like an offer too good to pass up.

However, you should understand that by letting them perform this early read, you are giving up complete control over the aid process. Your financial data is now set in stone, and if your child applies to that school, there won’t be much you can do to change it (in any of the ways we have set forth in this book). We think you are better off figuring out your EFC for yourself using our worksheets, or hiring a financial aid consultant (see Chapter Eleven). Letting the colleges figure out your EFC is a bit like letting the IRS figure your taxes.


People who go back to school later in life often say they get more out of the experience the second time. We’ve found that from a financial aid standpoint, things are actually just about the same. Returnees still have to apply for aid and demonstrate need just like any incoming freshman. They are awarded aid in the same fashion.

The major difference is that they were probably employed at a full-time job during the base income year. If an older student is returning to school full-time, he should point out to the FAOs that there is no way he can earn as much money while he is in school. The first base income year is just not very representative in this case. Older students are probably independent by now, but they should not be surprised if some schools ask for their parents’ financial information. Old habits die hard.

Two strategies for older students that should not be overlooked:

1.Let your company pay for it. Many companies have programs that pick up the cost of adult education.

2.Life credits! Some colleges will give you free credits for your life experience. We can’t think of a better form of financial aid than that.


For students who are not U.S. citizens or eligible noncitizens (see instructions in the standardized need analysis forms), financial aid possibilities are severely limited. No federal aid is given to nonresident aliens. However, the schools themselves are free to give their own grants and scholarships.

You should check with the individual schools to find out their filing requirements. Many colleges require that you complete special aid forms designed solely for international students—even if the student is a U.S. citizen or eligible noncitizen. Some of these colleges will also require a certificate of finance (which is issued by the family’s bank certifying how much money the family has) and proof of earnings.

Because you are dealing with the vagaries of two separate postal systems, you should begin the application process as early as possible.

Note: Beginning with the 2010-2011 version, the CSS/PROFILE will have special questions for international students so many schools may now require international students to complete the PROFILE form as well.


The standardized need analysis form is not equipped to deal with foreign currency, so you will have to convert to U.S. dollars, using the exchange rate in effect on the day you fill out the form. There are special instructions in the forms that apply if you fit this category. Some colleges will ask to see your actual tax return, and they will insist that it be translated into English. Believe it or not, there is someone in your country’s tax service whose job it is to do this, though it may take a while for you to find him.

Note: The filing of a foreign tax return by the custodial parent(s) will automatically make a dependent student ineligible for the Simplified Needs Test or Automatic Zero-EFC (see this page-this page).


There are two general types of study abroad programs:

1. Programs run by your own college

2. Programs run by someone else

In the former case, there is usually no problem getting your school to give you the same aid package you would normally receive. While some of these programs are a bit more expensive than a year on campus, the cost is usually not that much greater.

In the latter case, you may have more difficulty. At some schools you may be eligible only for federal aid. To avoid an unpleasant surprise, call on your FAO to find out what the aid consequences of a year abroad in another school’s program would be.


A word to the guidance counselors, financial planners, stockbrokers, accountants, tax advisors, and tax preparers who may read this book:

We spoke recently to a broker from one of the big firms who said, “We don’t take financial aid into account in our investment advice because…well, frankly, we assume that none of our clients are eligible.”

This is dangerous thinking. These days lots of people are eligible for financial aid, including (we happen to know) two of his clients. While no one can be an expert at everything, we think it would be a good thing if brokers, accountants, tax advisors, tax lawyers, and counselors knew a bit more about financial aid strategy, or were willing to admit to their client when they didn’t know.

Our intent here was to give the parent and child an understanding of the aid process and some idea of the possibilities for controlling that process. If you can use this as a resource tool as well, we are just as happy. We would caution you, however, that this book is by no means encyclopedic, and the rules change almost constantly. To be truly on top of the situation you would have to subscribe to industry newsletters, read the Federal Register, attend the conventions, develop your own contacts at the colleges, and then take what those contacts tell you with a large measure of salt.

Or you could just hire a consultant to train you to become a financial aid consultant and to keep you abreast of the latest developments. For more details on such training, refer to the “About the Authors” section which follows the Glossary at the back of this book.