A divorce or separation can have a dramatic impact on your child’s eligibility for financial aid, and here’s why – some colleges will only consider the income and assets of the custodial parent, while others will include both the custodial and non-custodial parents.

Since increased assets and income will increase your Expected Family Contribution or EFC, it’s important to plan ahead before applying to schools.

Custodial Parent

So, who is the custodial parent?

The custodial parent is defined as:

The parent with whom the child lived the most during the previous 12 months.

If both parents had equal custody, then the custodial parent is the one who provided the most financial support during the past 12 months

College Application – FAFSA vs CSS

Once you determine the custodial parent, the next question is which aid application the college will require. If the college requires just the FAFSA, then only include the custodial parent’s income and asset information on the application, along with any child support received.  This could result in substantially more need-based financial aid if the custodial parent is the parent with a lower income.

If the college also requires the CSS Profile, then most likely both parents’ financials will be required – custodial and non-custodial parent. The result can be thousands of dollars in aid at one school and absolutely nothing at another.

Remarriage  

If the custodial parent ends up remarrying as of the date the FAFSA is filed, then the income and assets of the step-parent must be reported, as well. This is regardless of what a prenuptial agreement might say.  Other factors, such as the number of children in college at once, can impact your eligibility for aid, so talk with someone familiar with the aid process when putting a college plan together.

I’ve been a financial planner for almost 15 years and I’m still amazed at the lack of advice people are receiving from their financial advisors when it comes to paying for college. Understanding divorce and its impact on financial aid is just one example of this.

Some families will invest close to $300,000 in their child’s education and substantially more if they have more children or obtain advanced degrees. Proactive college planning is a must if you want to save money on college, protect your retirement assets, and help your children graduate with minimal student loans. Start planning now!

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