Schools determine the amount of financial aid students receive based on the information they provide on the Free Application for Federal Student Aid. Students meeting the criteria of a dependent student must disclose financial information for themselves and their parents. Students deemed independent for financial aid purposes are required to disclose only their personal finances. Not all financial aid is awarded based on financial need. But for aid that is, schools rely on the financial information provided on the FAFSA, and students certify the information they are providing is accurate.
Questions 40 through 42 on the FAFSA ask for the student's asset information. Question 40 asks for the current balances of cash, savings and checking accounts. This information should be accurate for the date the FAFSA is completed and would not include any money that came from financial aid. Question 41 asks for the value of a student's investments, including any property, trust funds, stocks, money market funds or 529 college savings plans owned by the student. Question 42 asks for the current net worth of any business the student owns.
Impact on Financial Aid
Financial aid funds are limited, and schools do their best to administer limited funds to the most students. Students who have assets or savings that could be used to help pay for their education may not receive as much assistance as those who do not have assets or savings. This may tempt some students to hide or avoid disclosing certain assets in hopes of receiving more financial aid. However, honesty is the best approach, as the consequences can be severe for knowingly providing false information. Students who do not have financial need can still be considered for merit-based financial aid.
Savings owned by a parent, including a 529 account, are not evaluated the same as when the asset is owned by the student. While it may be tempting to put assets in the student's or child's name because of tax savings, the student will be expected to contribute more of their savings to their education than the parent will. The reduction in financial aid that results may be more costly than the tax savings. Even better, by putting savings into a custodial 529 account, you may protect the savings from being considered an asset on the FAFSA.
Students do not automatically provide documentation to support the financial aid information they provide on the FAFSA. However, many students are randomly audited and are asked to verify information by the school's financial aid department. Additionally, if financial aid administrators have any reason to suspect the information on the FAFSA is incorrect or a discrepancy is suspected, the school is required to investigate before dispersing aid. This means students could be required to provide information on their bank accounts before receiving financial aid. Students who receive federal financial aid based on incorrect information have to repay the aid and can face fines and prison time.
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