Loading ...

Nobody gets help with college costs nowadays unless they first fill out a lengthy and bothersome form known as the FAFSA (the acronym stands for Free Application for Federal Student Aid, just in case it ever pops up when you choose the Governmental Financial Assistance category on Double Jeopardy).  The information entered therein drives all consideration for aid under all Federal and many State educational programs.

FAFSA has certain eligibility criteria that determine, based on your income and net worth, how much you should be contributing to your child’s higher education.  If the amount they determine you can pay is too high it renders you ineligible for assistance.

If you are poor and haven’t paid much of the tax that supports the assistance programs, then you’ll probably get financial support.  If you are rich and paid a great deal of the tax to fund the programs, then you probably won’t get any aid – but no big deal because you’ve got enough to pay the piper anyway.

The people that get hammered are those in the middle who have paid their fair share of the tax and, in addition, have been responsible enough to save, invest, and accumulate against the day of their anticipated retirement – only to find that the net worth that their sound economic behavior has created disqualifies them for assistance.

Here is where you can help your clients, especially those with liquid net worth considerable enough that it proscribes or prohibits assistance:

The instructions for completion of the FAFSA form direct that in reporting financial information, “Net worth means current value [of includible assets] minus debt.”

For example, a commercial building worth $300,000 with a $100,000 mortgage would add $200,000 to the net worth calculation. But more important – when adding the value of investments the instructions state that, “Investments do not include . . . the value of life insurance . . . [or] annuities . . .”

How many clients do you have with considerable amounts of net worth in low-performing assets like CDs?

And now the value of those assets are creating a roadblock to financial aid.  One simple solution to recommend is the transfer of funds to an annuity contract or an over-funded life insurance policy (they may not have adequate coverage anyway).

The timing of a purchase doesn’t appear to be an issue.  In researching this strategy calls to the FAFSA information line drew the response that an annuity or life policy was exempt so long as it was in force at the time of the completion of the FAFSA application.  Needless to say, a client should do his or her own spadework in this regard before making a decision.  Once the child is graduated or no longer in need of assistance, funds can be transferred back into the investment opportunities of choice.

Call us to learn about the best product opportunities available for clients who are prospects for this FAFSA Net Worth Minimization Strategy.

Note: The deadline for the 2020-2021 FAFSA is midnight, Central Time, June 30, 2021. The earlier you file, the more grant money you are likely to receive (up to twice as much).