Maximizing College Aid Eligibility by Mitigating Net Worth Impact

Nowadays, securing assistance with college costs is contingent upon navigating the lengthy and somewhat cumbersome Free Application for Federal Student Aid (FAFSA) form. This document, a prerequisite for Governmental Financial Assistance, plays a pivotal role in determining eligibility for aid under various Federal and State educational programs.

FAFSA assesses eligibility based on income and net worth, establishing how much an individual should contribute to their child's higher education. If the determined contribution is deemed too high, it renders one ineligible for assistance.

For those with limited financial means and minimal contributions to the supporting tax, financial support is likely. Conversely, those with substantial financial resources who have contributed significantly to funding assistance programs may find themselves ineligible – a minor inconvenience considering their ability to cover expenses independently.

The most affected demographic falls in the middle – individuals who have dutifully paid their fair share of taxes and responsibly saved and invested for anticipated retirement. Unfortunately, their accumulated net worth becomes a disqualifying factor for assistance.

Assistance to clients, especially those with substantial liquid net worth hindering aid eligibility, can be provided through a strategic approach:

The FAFSA instructions define net worth as the current value of includible assets minus debt. Notably, when reporting financial information, investments exclude the value of life insurance and annuities.

Consider advising clients with significant net worth tied up in low-performing assets like CDs to explore the option of transferring funds to an annuity contract or an over-funded life insurance policy (which may also address coverage gaps).

Importantly, the timing of such a financial move appears flexible. Research indicates that, according to FAFSA guidelines, an annuity or life policy is exempt as long as it is in force at the time of completing the FAFSA application. Clients should, however, conduct thorough research before making decisions. Post-graduation or when assistance is no longer required, funds can be seamlessly transferred back to preferred investment opportunities.