How Gifts Can Effect Your FAFSA

Graduation is approaching for many students and relatives are trying to figure out the best gifts to hand out. You’d probably assume that money would be the most economically smart thing to ask for. You’re definitely going to need the extra cash, what with all the expenses that come with going to college, making new friends, eating out, etc. But wait! Receiving money as a gift may effect how much money the federal government is willing to give you.

Now, a gift of $10 from your 2nd cousin will not do any damage, but if you know someone who is planning on giving you a substantial monetary gift, you may want to ask them for something else. Rick Darvis, co-founder of the National Institute of Certified College Planners in Plentywood, Mont. warns that "A cash gift from (anyone) other than a parent is reported as income on the (federal) financial aid form," says Darvis. "(Student) income is assessed at a 50% rate. That means that a gift of $10,000 could potentially cost $5,000 in financial aid." Your FAFSA has a section dedicated to such gifts. This section is called “student’s untaxed income.” This part wants to know the amount of "Money received, or paid on your behalf (e.g., bills), not reported elsewhere on this form." This includes any money you’ve received from grandma and grandpa, your mom or dad who doesn’t have custody of you, and any family friend. Any cas you receive subtracts fifty cents on the dollar from your need-based federal aid.

By-passing the FAFSA trouble and going straight to the college wont help either. If the college/university was planning on awarding you a $10,000 grant, but they see that you have $10,000 coming in, they’ll take your grant away.

Read next time for Part 2