by It’s a miserable year to apply for financial aid.
Millions of families likely won’t receive a final price tag for college until at least April, due to a series of delays by the Department of Education in implementing the new FAFSA financial aid form. Students with parents who do not have a Social Security number I still can’t complete the online form.
But if you’re applying for help and you have grandparents who want to help, you might be lucky.
Under the old rules, the FAFSA, or Free Application for Federal Student Aid, asked about “tax-free income” and “money received or paid on your behalf.” That was your cue to reveal the help of a grandfather.
That aid was a kind of benefit, and the aid formula included it when calculating how much he could pay. Once most schools get their FAFSA data from the federal government, they determine how much of their own aid they will give you, if any, in addition to any Pell Grants or subsidized loans from the federal government.
But now, thanks to a law 2020 that came into effect this year, those questions about money and income they left. That means that in most schools, a grandparent’s help will no longer count against you.
In other words, what experts once called the grandparent trap” has now become the “grandfather escape.” It’s unclear how many families will benefit from the change, although a profit of several thousand dollars a year is possible.
At first glance, the change seems radically unfair. If you have family money, someone should know so you don’t get grants or scholarships you don’t need, right?
But public policies are often complicated. The 2020 law was part of an effort to simplify the FAFSA. The more questions the form asked, the less likely people were to finish it or even start it. For low-income families, in particular, that could prevent students from starting college.
And those who answered those questions could enter incorrect numbers if they didn’t fully understand what the queries were about. Unusual entries on the FAFSA can trigger intrusive audits that delay aid. The new FAFSA, by contrast, uses data transferred directly from the Internal Revenue Service, greatly reducing the chance for errors.
Bryce McKibbenwho worked on FAFSA simplification legislation as a Senate staffer and now works on education policy and advocacy in the hope center at Temple University, reminded me of another point. With most major federal benefits for individuals, there are opportunities for family members and others to give money to program beneficiaries without disclosing it.
Additionally, a few hundred schools use a second form, known as CSS Profile, which may ask about grandparent and other contributions and then take that into account when distributing assistance. The College Board, which offers the form to schools, maintains a mostly complete list of the participating institutions on their website. Double-check the list for accuracy and keep in mind that schools may stop (or start) requiring the form at any time.
People who enjoy bending the rules of financial systems are probably salivating right now. What if parents save money and then transfer it to grandparents? Aid formulas evaluate parents’ assets when determining eligibility, so this sophisticated footwork could protect a lot of your money.
But realistically, how often will this happen, given human nature?
“No one has ever told me again that they did this,” he said. Billie Jo Weis, vice president of client services at My College Planning Team, which provides educational consulting. “They would have to give up legal rights to the money.”
Almost any public policy change will have losers, winners, and people who manage to go from losers to winners. But the bet here is that people in the latter category won’t get much new help because of the change. Meanwhile, low-income families who previously received no money under the old FAFSA system would earn much more.
If you’re a relatively new grandparent, godparent, aunt, or uncle, you have no idea what kind of teenager a toddler will be. So what’s the best way to help?
A good strategy is to open a 529 college savings plan. It grows tax-free over time, and you don’t pay any when you use the money for school, as long as it goes toward eligible educational expenses. Furthermore, in more than 30 statesYou get a state tax exemption when you make deposits.
It doesn’t take much to be of real help. If you can manage $50 a month and the money grows 5 percent each year, you’ll end up with about $17,000 after 18 years.
Even if the recipient does not qualify for any need-based aid, it is still a great help. Or you can find a way to give away a lot of money. That way, a college student who needs it more than you can find a way to attend.
