Helping children get into college can be draining and complicated. As unpleasant as the experience can be, it can be even trickier for divorced households.
In recent years, various changes have affected divorced parents seeking financial help for college. Today’s focus will be on some of the key changes and how families can potentially avoid being penalized by them.
1. The FAFSA Definition of Custodial Parent Changed
This change is essential because the custodial parent is responsible for filing the Free Application for Federal Student Aid and sharing his/her income and assets for financial aid purposes. In contrast, the non-custodial parent isn’t relevant, and the FAFSA doesn’t even ask about this parent. The federal formula will determine financial aid eligibility based on the custodial parent’s income.
Until the 2024-2025 season, the FAFSA considered the custodial parent to be where the student lived most of the year ending on the day the FAFSA was filed. So if the FAFSA had been submitted on February 1, what mattered was where the child had been living going back to the previous February 1. With this rule, it made sense for the student to live even one extra day with the parent with the least assets and income.
With the rule change, however, the parent who provides the most financial support must complete the FAFSA and share his/her financial information. This can be tricky for some parents because of a multiple support agreement that is sometimes used in divorce cases. This legal document designates who will claim the child for tax purposes, regardless of who provides the most financial assistance.
So far, however, this issue hasn’t seemed to cause problems. Here is something that few appreciate regarding custodial designation. FAFSA verification regarding the custodial parent designation hasn’t been happening. So, at least currently, the parent with the lowest income/assets can file the FAFSA without worrying about being detected. Of course, this brings up ethical issues regarding the strategy.
2. CSS Profile Definition of Custodial Parent Hasn’t Changed
The FAFSA’s definition change for custodial parents didn’t extend to the CSS Profile, which roughly 200 mostly private colleges and universities use to take a deeper dive into a family’s financial ability to pay for college. Most schools that use the CSS Profile and the FAFSA will continue to require financial information from both parents after a divorce. Consequently, a student who qualified for aid at FAFSA-only institutions might be eligible for a smaller amount or none at all at CSS Profile schools.
A minority of CSS Profile schools do not request information from the non-custodial parent. You can discover the identity of these schools by heading to the CSS Profile’s website and clicking on the participating schools link. Check the “CSS Profile Noncustodial Parents” column and look for the schools that don’t use the non-custodial parent’s financial information.
For some families seeking need-based aid, sticking with FAFSA-only schools and Profile schools that don’t consider non-custodial parents will be the smart move.
3. Getting Married Can Complicate Things
Divorced parents enjoy a break when filing the FAFSA since only one parent’s financial information must be disclosed. That rule, however, doesn’t apply if the custodial parent remarries. It makes no difference if a premarital agreement stipulates that the new household member will not contribute to a stepchild’s college education. The new spouse’s income and assets must be disclosed and will count toward aid eligibility.
If financial aid is possible, couples should consider delaying a wedding until after filing the last FAFSA.
4. Pay Attention to Family Size
How family size is calculated has changed. Of course, for financial aid purposes, the more people you can claim in a household, the better. However, people in the household will only count if they receive at least half their financial support during the tax year from the family and actually live in the residence. After a marriage, a new couple could support stepchildren, but they can’t be counted if they aren’t living in the house long enough. The resident requirement is new.
5. Child Support Is Now Being Treated Differently
In some good news, the FAFSA is treating child support differently. It used to be that child support was counted as untaxed income to the recipient, but now this money is being counted as an asset, which is a much more favorable treatment. The FAFSA assesses parental assets at up to 5.64% while income is evaluated up to 47%.
