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EFC Course Free

 

EFC Rules Are Opportunities

Just Like Tic-tac-toe

 

  • Focus One Square At A Time
  • Score Your Win With Lowest EFC Possible

 

EFC and FAFSA

 

   ►    See FAFSA Parts Broken Down 

       ►   Learn The Rules  For Each Part

       ►   Lower Your EFC When Possible

 

EFC Untaxed Income and Benefits

 

Module 1 : Additions To Financial Aid Income 

 

Questions and Answers - Sample of Course Info

 

Click Image for resource slide that list "some rules" for this part of FAFSA. 

 

Question: I contribute to a 401 (k) and my employer matches what I put in up to 3%. Does my 401 (K) contribution affect my EFC?

Answer: Yes it does. Contributions to a retirement plan in the base year (year before you file your FAFSA) are added to your Adjusted Gross Income in the EFC formula. 

Ongoing contributions during college also count when you update your FAFSA. 

In addition, payments to any tax deferred-accout pension and savings plans, whether paid directly or withheld from earnings are additions to financial aid income. For withholding from earnings, you can check your W-2 Form (Box 12, codes D,E, F, G, H, & S. These amounts are assessed. 

However, your employer's contribution does not count toward your AGI. 

 

 Eample: Both parents contribute to an IRA, $4,000    each. The total of $8,000 would be considered an "untaxed benefit and would be added back to the adjusted gross income ("AGI") in the  EFC computations. 

 

WARNING: There are other "traps", for example withdrawals from Coverdell Education Savings Accounts  ("CESA")  whether taxable or not will increase your AGI as well as conversions or rollovers from a regular IRA to a ROTH IRA. 

Strategy TIP: For a Roth conversion that possibly distorts your EFC, the Department of Education allows for the Financial Aid Officer to use "Professional Judgment" to adjust your income caused by the conversion as a "special circumstance". You must file an appeal after receiving your award letter. The FAO evalutates each appeal on a case-by-case basis. 

 

Question: I bought a life insurance policy when my child was young. Can I withdraw some of the cash value to help pay for college?

Answer: Yes, but with an adverse affect. Withdrawals from retirement, pension, life insurance plans are added to your Income for Financial Aid purposes. Rather than withdraw from a life insurance policy, you should consider taking "loans" which do not count toward financial aid income. 

 

Question: I inherited municipal bonds that pay me tax free interest income. Do I have to report that when computing my EFC?

Answer: Any tax-exempt interest you receive is fully assessed and must be reported for EFC purposes, but not income tax purposes. 

 

 

Question: My children receive DIC benefits from the VA, what if anything does that mean toward my EFC?

Answer: Non-educational benefits from the VA are assessed as income, added to your adjusted gross income. 

 

Question: My husband was hurt on the job, and we received a lump sum worker's compensation benefit as a result of the injury. Since this is a benefit from a work related incident, this will not count toward my EFC will it?

Answer: Unfortunately yes. All Worker Compensation awards are assessed as financial aid income. 

Strategy TIP: This might qualify as a "special circumstance" in the appeal process considered by a Financial Aid Officer at the college/s you are applying toward. Once you receive your financial award you should appeal. You should indicate "that the one-time lump sum payment" must be used for the future support needs of your family. 

 

Question: I have some Series EE Savings bonds and I am considering cashing them in to help out with college. What would such a transaction mean to my possibility for financial aid? 

Answer: Good question, you "interest" earned on the bonds is assessed when it is spent on qualified education expenses. The principal however is not assessed when youo cash them in. For tax purposes, the interest earned is tax free. 

Strategy TIP: If you are considering this financial move, and you can wait until the senior year of college, then the interest would not be assessed because you are no longer qualifying for financial aid. This can also work for some other financial transactions so keep it in mind in your college planning. 

 

Question: We sold our house because we moved as a result of a job transfer. It appears we have a $50,000 gain (net proceeds less cost basis) according to our tax person. I know that this is tax free as a result of IRC Section 121, but I read that sometimes tax exclusion transactions might not always be free from being assessed on the EFC calculation. Can you give me some advice. 

Answer: Sure, you are absolutely right to be checking about the affect on your EFC in such a financial transaction. You're also right, it is tax free but unfortunately it does not escape the EFC calculation. The $50,000 gain is assessed and reported on your FAFSA form. 

Strategy TIP: Here is another example that requires you to appeal your financial award. Such a transaction clearly distorts the family's income on the EFC, and does not clearly reflect the family's ability to pay for college. You have a very good argument especially when you purchased another house that might require part of the gain as your down payment. 

 

Question: I live in Ohio but work much of the time in Florida. My company provides me an apartment in Florida as a benefit of my job. How does this benefit affect my EFC, or does it? 

Answer: Assuming your company is not reporting the benefit as a taxable benefit to you, the rental value of the apartment would be reported on your FAFSA as an addition to your adjusted gross income. This will increase your EFC. 

 

Question: My daughter's grandparents provide her a small apartment they have refinished above their garage. She does not pay them any rent. Do I have to report this and if so, what do I report on the FAFSA and where. 

Answer: No, it does not count as an "untaxed benefit". However, clarification is in order. It has to do with money exchanging hands.

Warning: If the grandparents were to pay the student's rent or a utility bill as examples, then this cash payment would be considered untaxed income and reported on the FAFSA (EFC computation if you are projecting prior to filing).