Divorce and Separation Can Affect Financial Aid

on January 5, 2017

If parents are divorced, who files for financial aid?

 

What are the rules for filing the Free Application for Federal Student Aid (FAFSA) if parents are separated?

 

How is financial aid impacted if one or both parents have remarried?

 

These are just a few of the many financial aid questions that face families of divorce and separation.

 

Applying for financial aid can be complicated enough without dealing with current or past marital discord, but knowing the rules – as well as strategies for divorced and separated households - can make the college financial aid process more manageable and less costly.

 

If this situation applies to you, here are some key rules regarding financial aid for divorced/separated households, as well as strategies you may want to try.

 

Reality No. 1:

 

Marital Status Can Impact Financial Aid.

 

Divorce can definitely affect a child’s eligibility for financial aid. In some cases, a student can be eligible for more financial assistance when parents are divorced or separated. In other cases, their marital status could have little impact or hurt chances for aid.

 

How divorce and separation are treated depends largely on what financial aid applications must be submitted.

 

Most families only have to submit the FAFSA, while a minority of families will also have to complete the CSS/Financial Aid PROFILE.

 

Reality No. 2:

 

The Potential Benefits of Filing the FAFSA.

 

Anyone seeking need-based financial aid must file the FAFSA, which is a requirement to be eligible for federal and state aid and, in most cases, grants from the colleges themselves.

 

Families can get a better deal if a college relies solely on the FAFSA. Here’s why:  The FAFSA only requires the custodial parent to file the FAFSA. 

 

This can represent a huge benefit for a family where one parent makes significantly more money than the other.

 

Example:

  • Dad is a freelance film producer. Income: $45,000
  • Mom is a law firm partner. Income: $250,000

If the father is the custodial parent – it’s possible despite his lower income -- then only the father would file the FAFSA.

 

The FAFSA-only colleges would never know about the mother’s financial strength.  Instead, the institutions would base aid eligibility on the father’s lower income and assets.

 

Reality No. 3:

 

Don’t assume you know who the custodial parent is.

 

When determining which parent is the custodial parent, these two factors are NOT relevant:

  • The parent who claims the child on the tax return.
  • The parent who pays child support.

The person qualifying as the custodial parent is the one with whom the child has lived the majority of a 12-month period ending on the day the FAFSA is filed.

 

Let’s say the FAFSA was to be submitted on Oct. 1, 2017. The parent responsible for the FAFSA would have been the one where the child physically lived for more than six months going back to Oct. 1, 2016.

 

So if the student in the previous household example stayed with the dad for six months and a day, the father would be the custodial parent. And the teenager would be eligible for more financial aid.

 

Reality No. 4:

 

CSS/Financial Aid PROFILE has tougher aid rules.

 

The PROFILE, which is a service of the College Board, is used by about 200 colleges and universities (almost all private) to determine who gets their own in-house money.

 

There is no uniform rule for which divorced /separated parents must file the PROFILE.

 

Some PROFILE institutions will consider only the income and assets of the two biological parents. Some will consider only the custodial parent and, if remarried, the new spouse.

 

Many PROFILE institutions will want the non-custodial parent to complete a document called the Noncustodial PROFILE, which is a smaller version of the regular aid application.

 

TIP:

 

To identify PROFILE schools, head to the PROFILE’s website and click the link entitled, Participating Colleges, Universities and Scholarship Programs.

 

Check the column with this heading: Noncustodial PROFILE. Each institution will indicate whether it requires this document.

 

Here are a few of the PROFILE institutions that don’t require the noncustodial PROFILE:

  • Bucknell University
  • College of Wooster
  • Cooper Union Science & Arts
  • Elon University
  • Gettysburg College
  • Holy Cross College
  • Oberlin College
  • Rensselaer Polytechnic Institute
  • Saint Lawrence University
  • Vanderbilt University

Reality No. 5:

 

Divorce and separation are treated the same.

 

Parents don’t have to be legally separated to be treated the same as divorced couples for financial aid purposes. An informal separation is treated the same as a legal separation on the FAFSA.

 

Separated parents, however, can’t be living in the same house. The same goes for divorced parents. If parents share a residence, they both must include their income and assets on the FAFSA.

 

Realty No. 6:

 

The parents’ marital status matters on the filing date.

 

On the FAFSA and the PROFILE, you need to state your marital status as of the date you submit these financial applications. Let’s say you were married when you filed the FAFSA, but a month later you and your spouse separate. You can’t go back and change your marital status on the aid document.

 

What you could do, however, is ask a college for a professional judgment, which would allow the college to take this new marital status into account when assessing need eligibility.

 

Reality No. 7:

 

Remarrying can lower aid chances.

 

When a custodial parent remarries, the new spouse must report his or her income and assets on the FAFSA. 

 

Example:

 

The child’s divorced parents are both teachers and make modest salaries. Their son was valedictorian of his class and a National Merit finalist. He was interested in elite PROFILE schools such as the Ivies, Stanford and MIT that require filing the Noncustodial PROFILE. All the schools on the list provide generous need-based aid, but no merit scholarships.

 

A few months before applying for financial aid, the teenager’s mom remarried a wealthy man.  The marriage eliminated the family’s chances of receiving need-based aid.

 

If the wedding had been scheduled after the aid applications had been filed, the students might have qualified for tens of thousands of dollars in need-based aid.

 

Tip:

 

A prenuptial agreement does not allow the new partner to withhold his or her financial information on the aid application.

 

Reality No. 8:

 

Always check with the college.

 

The only way for parents to know for sure how a college handles divorce and separation is to call the institution’s financial aid office and ask.  

 

Lynn O’Shaughnessy is a best-selling author, speaker and journalist. Her book, The College Solution: A Guide for Everyone Looking for the Right School at the Right Price, is available on Amazon.com.

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