Subscribe in a reader
01.15.07 | Major changes in the 2007-2008 FAFSA form
Small businesses that are majority owned and controlled by the family no longer have to be reported as an asset. The business must have fewer than 100 employees and the household members who are included on the application must own and control more than half of the business.
Assets held in the name of a dependent student or an independent student without dependents will be assessed at a maximum rate of 20 percent, down from 35 percent in years past.
The maximum assessment rate for independent students with dependents effectively drops to 3.29 percent from 5.64 percent.
Assets held in the parent’s name will continue to be assessed at a maximum rate of 5.6 percent.
Assets held in a dependent student’s name in a qualified account do not have to be reported on the 2007-08 FAFSA — at all.
Qualified accounts include Coverdell Education Savings Accounts, Section 529 prepaid tuition plans and Section 529 college savings plans.
This change was probably the result of a legislative drafting error, says Mark Kantrowitz, a financial aid expert. Congress wrote a law saying that qualified accounts in the name of a dependent student will no longer be considered student assets. But it never said they would be treated as parent assets instead.
Parents who think their dependent children might be eligible for financial aid can take advantage of this loophole by moving money from an UGMA/UTMA account into a 529 college savings plan in the student’s name before filling out the federal application. Then they won’t have to list the account on the 2007-08 application.
If Congress changes the law, families will still benefit from this switch because the account will be likely counted as parent assets and assessed at the parent rate (maximum 5.64 percent) instead of the student rate (maximum 20 percent).
In the past, prepaid tuition plans were not reported as an asset on the federal aid application. Instead, they were treated as a “resource,” which was even worse because they offset financial aid dollar for dollar, Kantrowitz says.
The new form asks if the student has been convicted of a drug offense while receiving federal student aid, a change from previous forms which asked in general. A yes answer can still result in no financial aid.
Higher income-protection allowances for students go up slightly this year — to $3,000 from $2,200 for dependent students. For independent students, the allowances go up by $1,050 or $1,700 depending on their marital status and whether they have children. This gives you the flexibility to earn more with summer jobs.
