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Divorce Advantageous?

Leveraging your divorce to maximize college financial aid for your child

There are many complexities associated with sending your child off to college. Perhaps the biggest factor that keeps parents up at night is the cost of college. Unfortunately, at $25,000/yr for in-state public institutions to $50,000/yr at private institutions, a 4-year education can approximate that of a small starter house. Multiply that by 2 or 3 kids, and the cost approximates that of a very nice house. Unfortunately, many students are taking on huge loans without regard to their post-graduate income, and parents are likewise assuming massive amount of PLUS loans and putting their retirement in jeopardy.

Complicating this process is the fact that the net cost your child will pay varies significantly between schools. Just as very few people pay the sticker price of their new car, almost nobody pays full price for college. Each college doles out aid in very different ways to reflect their charter. For example, schools such as the Ivys give large amounts of need-based aid (but little merit aid), while other schools are more generous with merit-based aid.

Each college accepts one of three financial aid documents as part of the financial aid process. The majority of schools accept the FAFSA (Free Application for Federal Student Aid), the CSS Profile is utilized by a number of select elite colleges. Finally, 25 uber-elite schools that comprise the “568 Presidents Group” utilize the Consensus approach. The calculation of Expected Family Contribution (EFC) differs significantly between the three. Of the three approaches, FAFSA is the only methodology that takes into account only the income of the custodial parent.

That’s right. If husband and wife are making the same salaries and they get divorced, the amount of family income that a FAFSA school attributes to the family is roughly half of that if they were married. Families filing FAFSA forms with only one parent’s income reported will likely obtain a greater amount of needs based aid.

Families with divorced parents need to leverage their situation to maximize the student aid they receive. These families should do the following:

  1. Students with divorced parents should focus on applying to schools that accept the FAFSA. You can still apply to non-FAFSA schools, especially if you might get merit-based aid, but you have a better shot to get need-based aid at a FAFSA school.
  2. Since the custodial parent is defined as the one with whom the student spends the most time during the year, students should spend at least 183 days each year living with the parent that has lower income. Make sure you plan for this and keep a calendar if necessary. This point is especially important in families where there are significant income disparities between the divorced parents. I don’t mean to “diss” Cupid, but if the custodial parent is considering marriage, they may want to consider delaying the wedding if the impact on college aid is significant.

College financial planning is stressful and complicated no matter your situation. Divorce adds an extra layer of stress and complexity. Leverage these differences to your advantage by planning!