Divorce is never easy, and paying for college is no cake walk either. Combine these two situations and things can get very complicated very quickly. If you are experiencing a separation and/or a divorce, we thought it would be helpful to give you some tips on how you might approach this major financial decision, what the rules are in the financial aid process, and, finally, how your situation affects various aspects of college financing once your child enrolls in college. Given the complexity of the topic, this will be a two-part series. In Part One, we’ll discuss your first steps and the financial aid application process.
So let’s get started!
Plan and Manage Expectations Accordingly: What are you willing and able to pay for college? This is the first question that any parent, regardless of marital status, must ask themselves, but for obvious reasons, it’s even more crucial for parents who are divorced. If at all possible, discuss ahead of time what each parent’s financial responsibilities will be. Are there differing expectations? Is one parent willing to foot the bill for an elite private college while the other thinks that an in-state public university is the only way to go? And if one parent is only willing to come up with a set amount, can the other parent afford to make up the difference?
As difficult as these conversations may be, having them before your child begins the college search will help your student put together a reasonable college list and avoid anxiety and conflict later on.
The Financial Aid Application Process: When it comes to filling out financial aid applications and whose information will be provided, put quite simply, you have to follow the instructions on the forms. It doesn’t matter what a divorce decree says or who claims the student as a dependent on their tax return. Those situations are irrelevant to the financial aid process. You have to follow the instructions on the form (oh, did I say that again?).
- The FAFSA (Free Application for Federal Student Aid): The FAFSA instructions say that if a student’s parents are divorced or separated (note that there is no distinction between divorce and separation on the FAFSA) and do not live together, then the parent section should be completed by the parent the student lived with “more” during the past 12 months. If the student did not live with one parent more than the other, then they are instructed to provide information about the parent who provided the most financial support during the past 12 months or during the most recent year that the student actually received support from a parent.
What this means is that the custodial parent for financial aid purposes is determined primarily by residency. Where did the student live the most in the 12 months prior to completing the FAFSA? Answer that question and you know whose information to provide. When you think about it, there are 365 days in the year, so even in cases of 50-50 custody, it would be hard to say that a student lived with each parent for the EXACT same period of time in a 12-month period.
Also (and this is important—the instructions are even in bold), if the custodial parent has remarried, you must also provide information about the stepparent in the household. Also note that stepchildren can be included in the household size question on the FAFSA if the parent/stepparent is providing more than half of the stepchild’s support, even if they don’t live in the home.
- 529 Plans: All 529 Plans have an owner and a beneficiary. The custodial parent is required to report all 529 Plans they own as an asset on the FAFSA, regardless of beneficiary. If the noncustodial parent is the owner of a 529 Plan that names the student as a beneficiary, it is not reported on the FAFSA as an asset because, remember, only the custodial parent’s income and assets are asked for on the form.
There is one caveat though. In the student income section of the FAFSA, the student is asked to report “money received, or paid on your behalf,” and the instructions specifically say that this “includes distributions from a 529 Plan that is owned by someone other than you or your parents (such as your grandparents, aunts, uncles and noncustodial parents).”
This statement means that in the year in which a distribution from a noncustodial parent owned 529 Plan is made, that distribution must be reported as student income on the appropriate FAFSA. The good news is that there are ways to time these distributions to avoid having to report them. The FAFSA asks for annual income from two years prior to the start of the award year (e.g., the 2019-20 FAFSA asks for 2017 calendar year income). This means that, assuming the student graduates from college in four years, any distribution made in January of the sophomore year of college or later will never have to be reported on a FAFSA form.
- The CSS Profile®: There are about 200 colleges and universities who require that students complete the CSS Profile® in order to be considered for institutional need-based aid. For this form, just like the FAFSA, only the custodial parent (and stepparent, if applicable) provides their income and asset information on the initial application.
However, many Profile® schools also require that the noncustodial parent complete their own CSS Profile® form, or in a few cases, their own institutional form. This list provides a comprehensive look at which schools require the CSS Profile®, and, of those, which ones also require the noncustodial parent to complete their own Profile®. Also carefully read each institution’s website to see if they require any additional information from the noncustodial parent.
If there is no contact with the noncustodial parent or there are other circumstances that make it difficult for them to complete the form, each college will have its own process by which you may request a waiver of any noncustodial parent information.
Join us tomorrow for Part Two of this series, when we will cover how divorced parents can manage the financing that is available for college, as well as discuss things to consider once the student is enrolled in college.