EFC Non Assessable Income | Assets

Non-Assessable Income / Assets – Game of Rules

Income and assets that are non-assessable do not count in the EFC | CSS Profile Financial Aid Formulas.

Assessable income and assets do count.

In this area, using proper strategy and planning you can make big gains in reducing your EFC number.

There are some different rules between the FAFSA – Federal Method and the CSS Profile – Institutional Method.

Since income is assessed at 47% once $27,500 is reached after the income allowance, this is the primary driver of your EFC number.

Because income is the primary driver of your EFC number it is important to understand how untaxed income benefits can add to your EFC income resulting in a big surprise. You really need to plan for and understand this areas.

ALERT: Positioning your assets can have advantages but make sure you look at your countable income first. This is especially true if the “only reason” you are positioning your assets is to qualify for financial aid.

WARNING: There is a misleading or misunderstanding that should you move your assets and income so they are not assessable, you will receive a $1.00 for $1.00 trade off in increased financial aid. That is not the way it works.

However, looking at your income and assets can provide benefits in several areas;

  1. Pay off non-deductible debt
  2. Increase cash flow to help pay for college
  3. Managing liabilities into assets
  4. Increase your wealth and retirement potential without sacrifing your current lifestyle

5 Non-Assessable Income Events (Many More)

  • Rollovers
  • Loan Proceeds (Example: Loans From A Cash Value Life Insurance Policy)
  • Gifts and support, other than money
  • Veterans’ (“VA”) benefits not assessed (counts as student resource)
  • Food Stamps

5 Non-Assessable Assets (Partial List)

  • Retirement Accounts (IM may assess student retirement accounts)
  • Personal Residence (IM will assess)
  • Annuities / Cash Value Life Insurance (IM Schools Can Assess,  the answer will be in the School’s CSS Profile Application Section Q )
  • Sibling Assets (IM will assess at rate of parents)
  • Restricted Bank Accounts

Advanced Planning Can Provide Large Returns

There are multiple strategies available the provide you the opportunity to leverage these non-assessable income and asset rules.  Here is one example of each.

Please note  as you consider strategies make sure you clearly understand possible EFC Income Deductions  with available allowances based upon published rules.

Non-qualified deferred compensation contribution Strategy Move

General Rule: Always defer income if possible (W-2 Employees this is difficult).
By deferring income during college years in these plans,you can increase your financial aid eligibility. The value of your plan share does not count as an asset and current year’s contribution is not assessed as “untaxed income. Current FICA tax cannot be deferred and must be paid. A possible disadvantage might be the “unsecured” nature of these plans..

Student Savings Accounts Assessed at 20% Compared to Parents 5.6%

Personal items such as computers, autos, and household items are not assessed. Any personal debt (business valuation can come into play on the PROFILE Form) cannot be listed on the financial aid applications.

However, debt on investments (purchasing Condo for College Student) can be used to establish a net value of the investment.

Graduation Cap Black with Black Tassel[Strategy Alert]: Let’s say the college bound student has $10,000 in a savings account. That will be assessed $2,000 in countable assets increasing your EFC by $2,000. Consider either moving the money to parents balance sheet, or consider purchasing personal items. Now, if your family will not qualify for any Financial Aid because your EFC number is too high, then this is of no value in reducing your EFC number because it is already too high.

High Income Families require a different college planning approach.