Divorce and College Financial Aid
Obtaining college financial aid is confusing enough on its own.
When the student’s parents are going through a divorce or have been divorced, the financial aid process, rules, and paperwork can be harder to interpret and navigate.
Who pays for school should be talked about as specifically as possible and spelled out in the divorce settlement agreement.
Main Categories of Financial Aid
When deciding what aid to apply for, it helps to first understand there are two general categories of college financial aid methods:
- Merit-based college financial aid is based upon the achievements and academic performance of the student. The most common form of merit-based aid is scholarships that are awarded through the school or private institutions.
- Need-based college financial aid solely takes into account the ability of student and his or her family to pay the cost of college tuition. Need-based financial aid is available through both private and federal student loans and grants.
Need-based college financial aid is awarded to students based on the assets and income of the prospective student and his or her parent(s). Completing the Free Application for Federal Student Aid (FAFSA), which is described below, is essential to determine a student’s eligibility for this type of financial aid.
Merit awards are not influenced by the FAFSA.
Types of Federal Student Aid
The following federal aid types can be influenced by factors due to the parents’ divorce, separation, or separate households.
1. Grants. The most common are the Federal Pell Grant for undergraduate students and the Federal Supplemental Educational Opportunity Grant (FSEOG) for undergraduate students with exceptional financial need. Unlike student loans, grants are a need-based financial aid that does not need to be repaid upon graduation.
2. Work Study. This program grants students with financial need who wish to work in campus-related jobs the opportunity to do so. Students must interview to gain employment.
3. Student Loans. These are student loans that do not require a co-signer. They must be repaid (plus interest).
- Perkins. This is a campus-based program and may be offered to students with exceptional financial need. It will depend upon the availability of funds at the college(s) applied to.
- Direct Loans (sometimes called Direct Stafford Loans). These loans are available to undergraduate and graduate students. There are two types:
- Unsubsidized. These loans are available to all students regardless of need. Interest on these loans will accrue (accumulate) and will be capitalized. The student is responsible for paying the interest. We encourage interest payments be made while the student is in college to reduce the amount of the total principal.
- Subsidized. The U.S. Department of Education pays the interest while the student is in school at least half-time or for the first six months after the student has left school (grace period). These loans are available to students who demonstrate financial need.
4. Direct PLUS Loans. These loans are available to parents of dependent students and to graduate and professional-degree students. PLUS loans can help pay for education expenses not covered by other financial aid.
The Free Application for Federal Student Aid (FAFSA)
If you are interested in any form of need-based financial aid, completing the Free Application for Federal Student Aid (FAFSA) is essential to determine your eligibility.
By filling out the FAFSA, students will learn if they will qualify for aid from federal and college sources. The FAFSA calculates a number called the Expected Family Contribution (EFC). The EFC is an index number used by the government and college financial aid offices to determine the family need-based aid eligibility. Therefore, it is essential that this number is correct.
Keep in mind that private institutions may have an additional form to fill out. Be sure to check with prospective schools to inquire about their unique processes, e.g., the CSS/PROFILE online application or the institution’s financial aid application.
Verification is a process by which the college financial aid office may ask the student to supply supporting financial documentation such as income tax returns, W-2 statements, etc., to verify the data reported in the FAFSA.
Divorced, Separated, and Separate Household Parents
If parents of a student are separated, divorced, or living in separate households, the custodial parent’s financial information is required by the FAFSA.
Even when the parents are not divorced or legally separated but are living in separate households, a custodial parent must be identified.
Definition of “Custody” and “Parent” Using FAFSA
The FAFSA application asks who is the custodial parent. Some believe the custodial parent is determined by divorce or separation legal documents or by the tax return. None of these documents define the FAFSA custodial parent.
The FAFSA defines the custodial parent as the parent with whom the student lived with most in the past 365 days.
If (FAFSA) Custodial Parent Has Remarried at the Time of the FAFSA Submission
The FAFSA should include information for both the custodial parent and the step-parent. There is no exception. The tax return information must be reported and appropriate asset information provided.
To the extent that the parents can control the student’s living arrangements, the student might be able to qualify for more financial aid if reporting information of the parent with lower income and asset values. However, the living arrangements should be genuine.
For Parents Who Are Recently Divorced, Legally Separated, or Living in Separate Households and Have Filed a Joint Tax Return at the Time of the FAFSA Submission
The (FAFSA) custodial parent must report on the FAFSA her or his individual income and taxes paid on the joint return.
Parents who are separated but file a joint federal income tax return will not be able to use the IRS Data Retrieval Tool to transfer information from the federal income tax return to the FAFSA. Information must be entered manually. Such a FAFSA is more likely to be selected for verification.
FAFSA Changes Effective October 1, 2016
- New Launch Date of October 1, 2016. You can file your 2017-2018 FAFSA as early as October 1, 2016. This is 3 months earlier than previous years. This date gives students more time to apply and, for many colleges, aligns with application and financial aid deadlines. Current and first-time college students: Please be sure to check the college financial aid deadlines in preparation for your FAFSA submission.
- Uses Prior Prior Year (PPY) Taxes. The FAFSA will require students and parents to report income from an earlier tax year. For the 2017-2018 FAFSA, you will report your 2015 tax information. You will not update the FAFSA with your 2016 tax information.
You are encouraged to use the IRS Data Retrieval Tool (DRT) found in the financial section of the FAFSA to transfer your 2015 tax information. By using the IRS DRT, the college financial aid office is less likely to request additional income information from you (called “verification”), which streamlines the processing of your application and avoids unnecessary delays.
- If you experienced a one-time event during 2015 which overestimated the financial information being reported on the FAFSA, complete and submit the FAFSA as instructed using the financial information for 2015. Call the college financial aid office and explain your situation. Many colleges have a special circumstance form or other process you will complete. The school has the ability to make adjustments to your FAFSA.
College Financial Aid and FAFSA Support
As you can see, completing the FAFSA correctly can be a confusing, time-consuming process. Please consider having your FAFSA reviewed by an experienced college consultant to help with accuracy and completeness.
- “5 Myths About Parent Information on the FAFSA“
- “What Are Common Mistakes on the Financial Aid Application?“
- “Divorce and Paying for College” by BJ Mann
- “Discuss College Savings During Divorce Process“
- “Understanding how loan limits should affect your college search“
About the Author: Brenda Piazza is a Consultant with CAPlus® College Assistance Plus. College Assistance Plus is a college consulting company that focuses on the student’s future academically and socially, but most importantly, financially. CAPlus has educated thousands of families about the college search process. For more information, please call (585) 582-1846.
Photo credit: © Can Stock Photo / iqoncept
This blog and its materials have been prepared by BJ Mediation Services for informational purposes only and are not intended to be, are not, and should not be regarded as, legal or financial advice. Internet subscribers and online readers should not act upon this information without seeking professional counsel.