Sending your child to college is always a stressful time. Parents want what is best for their kids, but college is very expensive nowadays. Plus it’s getting harder to be admitted; even the State colleges are rejecting more students than ever before. Now add in the emotional and financial stress of a divorce. Plans for college can easily derail if you don’t have someone guiding you along the way.
Here are some tips to consider if you’re divorcing, or already divorced, if you’re sending your child to college.
1. Who is the Custodial Parent according to the Free Application for Federal Student Aid (FAFSA)?
Regardless of marital status, if both parents live under the same roof, both of your incomes and assets must be recorded on your child’s FAFSA. And both incomes and assets will be used to determine financial aid eligibility. It won’t matter if you’re divorced or never married; if both parents live together, then both incomes and assets will be counted.
But when unmarried or divorced parents live at separate residences, only the custodial parent provides their incomes and assets on the FAFSA. For the 2022-2023 academic year, the FAFSA defines the custodial parent as the one the child lives with more of the time. Where they lay their head down to sleep the majority of the nights is the first deciding factor. This primary factor in determining the custodial parent has nothing to do with financial support. Now in the off chance that a child equally splits their time between both parents, the FAFSA then looks to who provides the most financial support to be the custodial parent.
But this upcoming 2022-2023 school year is scheduled to the final year allowing “savvy” parents to exploit the definition of a custodial parent. By savvy, I mean divorced parents would make sure their child spent most nights with the parent who had less income and assets. That way the child qualified for more financial aid.
However, Congress has scheduled for the 2023-2024 school year to redefine the custodial parent based who provides the most financial assistance, which factors in child support, proportional share of household expenses, and fair market rental value of housing. Based on my years of experience, the parent who is providing the most financial assistance is almost always the same parent who claims the child on their tax return as a dependent.
Keep in mind, the FAFSA looks back to the prior-prior year. So when the custodial parent definition changes for the 2023-2024 academic year, the FAFSA will be looking at your 2022 tax returns.
Regardless of the rule changes, if the custodial parent remarries, the FAFSA will be asking about the new spouse’s income and assets to determine financial aid eligibility. And it does not matter if there is a prenuptial agreement stating the new spouse isn’t going to financially support your child. The FAFSA is going to base the financial aid award on the new spouse’s income and assets no matter what.
Or let’s say the custodial parent does not remarry, but has a new significant other living with them. In this situation, the income and assets of the significant other are not reported on the FAFSA… unless they are living in a State that considers them to be common-law spouses. Common-law spouses to the custodial parent are required to provide their income and assets on the FAFSA. Assuming this is not a common-law spouse situation, if the significant other helps pay rent or utilities, etc, that financial support is to be listed as other non-taxable income.
2. Some schools may ask for the non-custodial parent’s information anyway.
Some schools, usually the private schools that also require a CSS Profile application be filled out to be considered for the school’s own free money, will ask for the non-custodial parent’s information regardless. Schools that are generous with giving out their own money typically ask for more information than the FAFSA provides. These schools will take into consideration additional types of income and assets that the FAFSA does not when it comes to determining how much of their own money they will provide.
Also, if the non-custodial parent should remarry, the schools will be asking about the new spouse’s income and assets as well. Refer back to what I said about what happens when the custodial parent remarries.
3. Research your child’s potential colleges.
I’ve alluded to how schools may have different rules when it comes to financial aid. Once you have whittled the list of schools down to about 10 or so, do your research to verify which application forms they require besides the FAFSA. Some colleges put together helpful websites, or handy FAQ’s, that should guide you through what you need to do. But if not, then call them and speak to an actual counselor in the financial aid department (some schools hire college students or temporary workers to answer the calls and you don’t want that).
As early as possible, you need to find out what each school’s net cost is projected to be. Net cost is the school’s estimated cost of attendance minus any free money that your child qualifies for. The net cost is what you will be paying as a family, either through loans, depleting assets, or with your existing cash flow.
Be strategic in picking schools. You need to understand how each school will respond to any money moves you make during or after a divorce. Every household has a different situation regarding income, assets, number of kids, size of the family, etc. It’s important to know how each school will apply these factors when determining their final cost.
4. Upfront communication with your child is very important.
Before your child gets too excited about a particular school, make sure you have the hard talk about money first. I probably say this in every post, but college is expensive. If 4 years, or more likely 5 or 6 years of college is going to cost $100,000, but the expected salary for their first job is only $75,000, you will be in a financial disaster.
Use a financial advisor to determine what you can realistically afford to pay towards college without loans. And then determine how much loan debt you realistically can afford to take on based on the projected salary you will have. For a quick glance on your most common loan options for college, be sure to go back and read An Outline of the Best College Loan Options.
5. Formulate a plan that allows you to be flexible and provides a buffer for surprises.
Lastly, remember that the financial aid application process has to be done every year your child attends college. Changes can happen from year to year. Maybe the custodial parent gets married. Maybe child support ends. Maybe a second child is going to be in college at the same time. Or maybe you earned a big bonus.
The amount of financial aid awarded the first year is not guaranteed. Every year when you apply for financial aid, the school will calculate their new costs, then calculate how much financial aid you qualify for, and you’ll have a new net cost each year. Typically if the factors that determine financial aid eligibility don’t change, then you can anticipate similar net costs each year. But even so, you need to build in a buffer and anticipate the “what-if” scenarios.
As always, if you have any questions or would like help planning for college, please don’t hesitate to contact the in-house college planner at MAC Insurance & Financial Services. We’re here to help you succeed!