With the high cost of college today, it is imperative that all prospective students and their parents educate themselves on the programs available to help reduce tuition cost. Extra planning is particularly needed by parents of children receiving a financial settlement due to injury and who are approaching college age.
The First Steps
Virtually all state and private schools look at the financial needs of prospective students and rely on completed Free Application for Federal Student Aid forms (FAFSA) as the starting point for their assessment. Simply inputting FAFSA in a Google search will take you to a number of sites that provide the information you need to get started or go straight to the source.
The FAFSA Form
The FAFSA form is used to determine the Expected Family Contribution (EFC). The EFC is what schools use to decide how much a family can contribute towards a child’s tuition. Prospective students must disclose any financial assets they have in their own name, typically savings accounts. Families need to supply financial information such as income and assets (i.e., checking, savings accounts and brokerage accounts) to determine what the government feels they should be contributing. The form can be a little daunting for families to fill out the first time but it is well worth the effort to know upfront what is financially expected.
The form needs to be completed annually prior to the next school year. Deadlines can vary from school to school so check with the colleges’ financial aid administrators to learn their particular deadline.
Once a family’s EFC is determined, the student is notified by way of a Student Aid Report of what, if any, financial aid is available. Aid can be in the form of a grant that does not need to be repaid or different levels of loans that must be repaid (typically at low-interest lending rates).
Preparing For College With A Settlement in the Mix
So how does an injured minor’s structured settlement help or hurt the student’s chances of aid? There are a number of different scenarios with different outcomes.
If the decision were made to take a lump sum settlement when the minor turns 18, the student would need to declare the entire settlement payout when filling out the FAFSA. If the amount is significant, it would be unlikely the student would qualify for financial aid. Families may also elect to spread out payments over a period of time (i.e., on the student’s 18, 19, 20 and 21 birthdays). This can greatly enhance the possibility of qualifying for more financial aid than receiving the funds in one lump sum, say at age 18, as it will reduce the EFC. However, when the time comes for the student to fill out the FAFSA, he or she will need to report whatever portion of the settlement that is remaining in the settlement account. If the amount is significant, it will likely hurt his or her chances of receiving financial aid.
There are other options as well. Most schools look to have FAFSAs completed by early January. Suppose the claimant’s 18th birthday is in early December and is scheduled to receive the first structured payment at that time. The payment would need to be included on the student’s FAFSA form. Delaying the first payment until after the deadline would mean the amount does not have to be included until the next year’s form filing. This may mean the difference between getting and not getting financial aid for that first year.
A final option would require financial discipline but may prove to be the smartest strategy. It could be prudent for parents to defer the first payment of a structured settlement until after the student’s expected graduation. By not having to declare the settlement funds during the child’s college years, the chances for financial aid go up. In addition, the settlement funds are allowed to grow within the structure for a longer period. Payment taken after graduation can then be used to pay off any student loans or be put toward future education needs.
Clearly, college can be one of a family’s largest financial undertakings. Insisting on addressing college finances during an injured child’s settlement negotiations may seem an unusual request, but by doing so, parents can make sure they have the ability to provide a solid education for their child. To that end, time should be taken during the settlement process to examine all the options available before making a decision on when best to receive the child’s settlement payments.
For more information about financing an injured child’s college education, contact: