154 | Hacking The FAFSA | Brian Eufinger And Seonwoo Lee

154 | Hacking The FAFSA | Brian Eufinger And Seonwoo Lee

Graduating from college debt-free can accelerate the path to FI dramatically. Brian Eufinger and Seonwoo Lee share their best tips on hacking the FAFSA on today's episode.

Hacking The FAFSA

The FAFSA, Free Application for Federal Student Aid, helps colleges determine how much student aid your student will receive. Understanding how the FAFSA works could save your child thousands with preparation.

It's about knowing the rules. Right, there are very specific rules in life, in all aspects. And the more information you have and the more time you have to plan, the better result you're going to have. And college and college aid is a very high dollar figure issue that many of us are going to be dealing with, either for ourselves or our kids.

Let's start with understanding the terms and the rules surrounding the FAFSA.

The expected family contribution (EFC) is what colleges expect the parents to pay. After filling out the FAFSA, the EFC will be automatically calculated.

Of course, many parents take issue with this because they are unable or unwilling to contribute to the determined EFC. You can use tools like the FAFSA forecaster to determine your EFC in the years leading up to your child's first year of college. The EFC is based on both the parent's and the child's assets. As college gets more expensive, parents are finding that the EFC for each year is becoming too high.

The cost of attendance (COA) offers a more comprehensive picture of the cost of college. It includes tuition as well as technology fees, room and board, books, parking fees, student fees, and more.

If you are unable to meet the EFC at a school, there are many ways to make up the difference. A few include unsubsidized loans, subsidized loans, parent PLUS loans, private loans, kid's savings, generous grandparents, and more. For example, if you receive an EFC of $10,000 but the university costs $50,000, the difference could be made up of loans and other things.

Full Need Vs. Gapping

Through assistance, some schools promise to meet the full need of the student but others practice gapping. Schools that promise to meet full need generally have larger endowments on a per-student basis. With a heavier endowment, they are more able to meet full need assistance promises.

List of schools that promise to meet full need.

Full need assistance can come in many ways including grants, loans, work-study jobs, and private loans. In a perfect world, all students would be able to have their aid met based on the gap in their needs. However, some schools are unable to do this. This practice is called ‘gapping.' The school basically says that they are unable to help you meet the difference in aid vs. need.

What Determines Your EFC

When filling out the FAFSA, it is divided into sections; parents and students. Student income is weighted the highest. The government expects that students contribute 50% of their income and 20% of their assets to their college expenses. Since you have to fill out the FAFSA four times, your EFC may change slightly every year, they are a good place to start.

As an example, let's say the student has $10,000 in various accounts. 20% would be assessed the first year and go into the EFC. In the second year, there would only be $8,000 to add into the EFC.

Parental assets and income are assessed on a progressive scale, in a similar way to taxes. The assessment for parent's income cap out at 40% and 5.64% for assets.

If you expect that you will be eligible for aid, then having money in your kid's name is not optimal. Of course, if you don’t expect to get any aid at all then you just shouldn’t worry about it.

As far as parental assets, the assets are assessed two calendar years back. So, the parent of a rising senior cannot simply move assets around this year. They would need to do that at least two years in advance if they planned to avoid college costs by moving assets around. So, if your child was going to college in fall 2019, the FAFSA would ask for 2017 tax returns.

Who Should Fill Out The FAFSA?

College is a big purchase, a little bit of financial aid could go a long way. With that in mind, everyone should fill out the FAFSA. Even if you don't expect to receive any aid, it never hurts to apply.

There are three kinds of applicants. The first has a high income with little chance of receiving aid. The second is someone that could optimize their finances and potentially qualify for some aid. The third is someone that is an obvious choice for financial aid but may still need to optimize.

Although stylish pessimism is prevalence among high-income families, it is important to apply anyways. In one example, a high earning surgeon in Atlanta had four kids attending expensive colleges at the same time. She filled out the FAFSA and got a little bit of help on tuition.

The more important reason to fill out the FAFSA is that some schools require you to fill it out in order to compete for their ‘merit aid.' Unfortunately, it seems likely that the financial position of the student is factored into their merit decisions.

What Is The CSS Profile?

The College Board's CSS profile is similar to the FAFSA but some schools opt to use this financial aid form instead. It is a longer form that asks for more details of the family's financial situation. Broadly speaking, the CSS Profile is used by private schools while the FAFSA is used by public schools. The information uncovered by the CSS Profile will be used by each school differently.

The CSS Profile handles financial information differently than the FAFSA. One difference is the parental income of blended families. If there are step-parents involved, then their income may not be counted. Make sure to look into the rules for residency requirements of in-state tuition if parents live in different states.

You can optimize for the CSS Profile instead of the FAFSA if your student prefers schools that use this form.

Overall, Seonwoo does not see a situation where the CSS profile works to your benefit. Plus, there is a fee for the CSS Profile while the FAFSA is free.

List of schools that use the CSS profile.

Tips To Optimize

If you have limited means, you will look good on either form. If you have more means, then it can be more difficult to receive aid through either form. However, there are ways to optimize your assets ahead of time.

If you are a W2 earner with significant assets, then consider making extra mortgage payments. The FAFSA does not ask about your home equity in a personal residence. One helpful dad had an extensive emergency fund of $110,000 through Ally bank. He decided to pour that money into the mortgage and open a HELOC for the same amount. He essentially eliminated $110,000 in assets that will be considered by the FAFSA.

Listen: Letting Go Of The Emergency Fund

In general, income is income. Whatever assets you report on your taxes will need to be reported on the FAFSA. However, it will add any retirement contribution deductions back in to determine your gross income. Also, interest and dividends earned are treated the exact same way.

Another important tip is to make sure you are getting current and up to date information. If you discover an article from a few years ago, it's very likely the rules have changed and it is old news.

Pitfalls To Consider

A lot of families create college lists with safety schools, target schools, and reached. Mostly, they look like a bell curve of admission difficulty.

Brian recommended a 2 axis approach. In addition to admission difficulty, the affordability of the college should be considered. Too many families just apply to a bunch of schools and hope for the best in terms of financial aid. It can lead to heartbreaking choices later in the year.

The two-axis approach would create four quadrants.

  • Easy admission and affordable.
  • Affordable but difficult to get in.
  • Expensive and easy to get in.
  • Expensive and difficult to get in.

Encourage your students to find schools in each quadrant.

Funding Vehicles

If you are helping your child fund their college expenses, then set aside any parent Plus or other loan options. Instead, consider 529 plans and UTMA options as a solution.

529 Plan

There are two types of 529 plans. The first is an investment vehicle similar to a Roth IRA for expenses. As long as you use the funds for education, there are no taxes on the growth. If you don't use the funds for education, there is a 10% penalty on the gains. The second option is a prepaid 529 plan. In other words, you prepay for a semester of college at a time.

If you are going to set aside money for your kids, in general, the 529 is a pretty good option.

With a 529, there is always a custodian and beneficiary. If you are the custodian, then you are the owner in the eyes of the FAFSA.

You can optimize this if you have trustworthy grandparents in the picture. They can open a 529 plan that you fund. When you fill out the FAFSA, the 529 assets are not reported because grandparent's assets are not included. When you take the money out, it will be reported as untaxed income on the FAFSA. So, if you take it out the junior year of college, then these funds will not affect your aid.

Not all 529 plans are created equally. The quality varies dramatically by state. However, even if it has fees it might be worth using depending on the tax deduction benefit. You may be able to open a 529 account in your state and roll it into another state's 529 plan. Most states do not recapture your contributions deduction.

Here are the states that don't recapture the tax deduction.

You don't need to do anything specific to rollover your funds between 529s. It is possible to do this year after year to capture the tax benefits and avoid the fees of your state's plan.


In general, a UTMA is not a good way to maximize aid. A UTMA stands for the Uniform Transfers to Minors Act. Depending on your state, you can transfer assets accumulated into a UTMA to your child at either 18 or 21. As soon as a student gets control, it will qualify as a student asset and get assessed at 20% on the FAFSA.

The biggest benefit to a UTMA is that your child can use this money on things other than education.

Order Of Priority

Maximizing financial aid is not a one size fits all process. Here are some general guidelines to consider:

  • Use up any non-retirement assets in your child's name.
  • Don't use retirement accounts to fund your child's education.
  • Use assets in your taxable account first if you know that all the funds in the 529 will be spent.
  • Be aware of who has the assets.
  • If your kid gets a scholarship, then you can withdraw the amount of the scholarship from your 529 penalty-free.
  • Different schools have different rules about scholarships. Some do not allow kids to stack scholarships while others do. Be mindful of that while applying to schools.

Overall, the early planner is rewarded. Take this into consideration as your kids approach college age.

How To Connect

Brain Eufinger through his Edison Prep tutoring service based in Atlanta.

Seonwoo Lee at blog.seonwoolee.com.

Listen to the Friday Roundup of this episode here.

The Hot Seat

Seonwoo tackles the hot seat in this week's episode.

Favorite Blog: Doctor of Credit

Favorite Article: Mr. Money Mustache's Shockingly Simple Math to Early Retirement

Favorite Life Hack: Tracking my time.

Biggest Financial Mistake: Not actually considering the cost of college.

What advice would you give your younger self? Try to socialize more.

Bonus! What purchase have you made over the last 12 months that has brought the most value to your life? Robotic vacuum.

Related Articles

New to FI? Be sure to check out Episode 100: Welcome To The FI Community!

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14 thoughts on “154 | Hacking The FAFSA | Brian Eufinger And Seonwoo Lee”

  1. I have two young children. My parents set up grandparent 529s for each child and contribute a small amount each year. Separately my wife and I also set up 529s for each child. Is my understanding correct that the grandparent 529 assets will be excluded but mine will not? However if distributions are taken from the grandparent 529 they will count as income? So if I transferred the 529 assets I set up into the grandparent 529s the assets would be excluded from FAFSA and assuming I didn’t draw on them during the first couple years of undergrad or delay any distributions till grad school both the assets and possible income would be entirely excluded from FAFSA? I experimented with some online private school calculators and my parent 529 assets appear to be negatively impacting the potential aid awarded so am looking for ways around this issue. Thank you for the guidance.

    • Yes, grandparent 529 assets will be excluded from the asset calculation.

      Correct, distributions taken from the grandparent 529 will count as income, with a two year lag, e.g., the 2019-2020 school year looks at income from 2017. This is why you should wait until second semester junior year to use the grandparent 529s (assuming a traditional 4 year college degree).

      Yes, if you transferred the 529 assets for which you are the custodian to the grandparents’ 529, then they would also get excluded from FAFSA

  2. Thanks for this episode. Both of my kids are in college. I knew most of this but learned a few things too.

    I’m a high school teacher. Every year I give my students an overview on the basics of financial aid. I’ll definitely make some modifications to how I teach it based on this episode.

    I would like to make a few clarifications of things I heard here based on my experience. My kids applied to lots of schools, many that required the CSS Profile. This episode made it sound like schools are either FAFSA schools or CSS Profile schools. But every school my kids applied to required the FAFSA (20ish schools, some state and some private) and a handful required the CSS Profile as well. The way I would think about it is this: All schools want the basic FAFSA information, some give generous aid and want to make sure they have a lot of detail to distribute it responsibly. If you look at the list of schools that “meet full need,” probably most or all of them require the CSS Profile. At least the ones on the list that my kids applied to are on both lists. So please don’t avoid the CSS Profile just because it’s a pain – if I had I would have missed out on the great and generous schools my kids are attending.

    Also note that “meeting full need” can mean a variety of things. In many case the need might be met with loans as well as grants and scholarships. Some schools meet full need without loans if parental income is lower than a certain threshold. Be careful to read the fine print, especially when analyzing the aid offers schools send around the time they send acceptance letters.

    Some other things I found about the CSS Profile:

    – In situations of divorce, the FAFSA only wants custodial parent information whereas the CSS Profile wants both (though schools can ask for different things). They seem to want to make sure there’s not a wealthy non-custodial parent hiding behind a low FAFSA EFC. Neither my ex nor I make much money so it didn’t affect anything for us.

    – Regarding the home equity solution proposed here, I don’t think it would have worked in my case. The CSS Profile asks for home equity information. I am going through the process of downsizing, which means I’ll be transferring equity into liquid assets. I called my daughter’s school to see if that would count against me in subsequent years’ financial aid offers. They said it would not, the equity was already calculated into the offer.

    – Different schools seem to handle the CSS Profile differently after Freshman year. Of my kids’ two schools, one asks for non-custodial parent information on entry but doesn’t require it after that. The other school doesn’t seem to require the CSS Profile at all after the first year.

    I hope that helps!

  3. A mom left me a voicemail after the episode and asked the following, which is worth clarifying:

    Mom: “Does the info on the FAFSA ever figure into merit aid? Or only loan aid? I think there’s huge confusion for parents who think “financial aid” means “free money” when in my experience with my older child, it meant loans and work study. Can you help me clear this up in my mind? After we got no “free money” for my oldest, we didn’t bother with the FASFA in subsequent years and just paid full price. My goal is to pay for my kids’ education 100%, but merit aid would mean I’d pay less.


    My reply:
    “As for your question, most schools (inexplicably) still require you to fill out financial aid forms if you want to be considered for merit aid, so you really should file regardless. Conspiracy theorists will argue that it’s a college’s way of making sure that the merit aid actually goes to high-achieving poor kids and leaves those with high merit but also high income zero shot at merit aid, whereas a more typical viewpoint is that colleges likely want to track the data so that they can run analyses on what % of merit aid goes to people from various income groups, geographies, etc etc. Data is power.

    As for the second half of the question, all of the various forms of financial aid fall under that general umbrella (grant money that doesn’t have to be paid back (free money), stafford subsidized loans where you at least avoid the interest hit during college years, regular loans, work study that requires work, etc.). One smart consideration for students of all income levels is being a resident advisor. Resident advisor requires work, but is the best-paying job anyone under 21 will ever have. For example, I worked about 10 hours a week and saved $15K a year (plus it was a lot of fun).

    I would always fill out the forms to allow the chance for grant aid forms of merit aid, and also consider listening to ChooseFI episode 114R where there’s more information re: being an RA and some other options as well!

  4. I really enjoyed this episode along with the prior episode with 114R as we try to prepare for our daughter (who is a sophomore in high school) for college. Regarding the tip to drain cash held in a bank and open a HELOC, is that something we need to do now prior to next year as 2020 tax returns would be the fafsa requirement for her going to college fall 2022?

  5. Thanks for this episode. Very useful!
    Wondering how does rental income and rental mortgage debt fit into the FAFSA calculations?
    Also are parental ira accounts, not being accessed, counted as income or assets in the FAFSA calculation?

    • I have the same questions as Laura. Also, how would a Roth IRA in the child’s name be considered since it’s technically a retirement acct…and could it be used to help fund college costs instead of a 529? When considering equity on personal and rental properties, do the FAFSA/CSS consider equity based on purchased price or current market value? TIA… loved the episode!

      • Laura and Lavin — retirement accounts are great for FAFSA purposes, but you need to be careful. Generally tax-advantaged retirement accounts (IRAs, 401(k)s, Roth IRAs, etc.) are not assets for FAFSA purposes. That is true regardless of whether the holder is the student or the parent. However, taking money out of a retirement account usually creates income for FAFSA purposes. I wrote about that issue as it applies to a child’s Roth IRA here. https://www.choosefi.com/worst-fi-tax-hacks/

        Generally speaking, rental income is going to create income for FAFSA purposes, and real estate asset value is based on current FMV, not on historic purchase price.

  6. I didn’t quite understand the HELOC tactic. If I have $100k saved and put that into my mortgage, the cash is not available and if I didn’t pay off my mortgage, I still have a mortgage payment. If I then open up a HELOC to use for college expenses, I will have to pay off that HELOC over time. If I keep the $100k in savings for college, I use that money for college expenses, but don’t end up also having a HELOC payment. My child will get more financial aid, hopefully, since I don’t have as much in available assets, but I don’t think I’d want the additional HELOC hanging over me.

    Is that really a good strategy?

  7. Man you guys really don’t help the international audience here. It took me some google search to know what FAFSA is and you haven’t even defined that in the beginning on the podcast.
    You promote all these international local groups on facebook but you only talk about US stuff. I’d recommend doing a wednesday short podcast with each one of the local groups to introduce them to the world so a representative of each one can tell a bit about the local reality of FIRE in different corners of the world (and even the US). What about that idea Brad and Jon?

  8. Did you mean take out a HELOC for$110k while keeping the $110k in a savings account so the two accounts neutralize each other? Or did you mean to actually take the $110k from savings and pay down mortgage then take out HELOC? THX.

  9. There is a an exclusion from the FASFA for business assets. It seems there could be a path to qualify a rental portfolio as a business asset if one of your household can qualify as a “real estate professional”. If you or your spouse can meet the 750hrs of real estate related activity and material participation requirements could that shelter the equity if the portfolio from the 5.6% asset calculation?
    Follow on question, if you have out of state rentals but a local air bnb or local rentals held in 2 different entities, can your local participation in entity 1 qualify you as a real estate professional there by also excluding your out of state rentals in entity 2 from the calculation?
    Can anyone comment on the viability of this strategy? We are several years away from having another student in college.
    Another strategy could be, moving equity from your rentals to your primary by refinancing rentals and paying down the primary just before FASFA application similar to moving money from a savings account to the primary.

  10. I really liked this episode and also the last one that Brian was on where he talked about thinking of improving SAT scores as a part time job since the pay offs can be huge. There are three things I wanted to point out:
    1. CSS is not as bad as this episode made it sound. We are very frugal and having been saving hard and working towards FIRE. We did not qualify for any FAFSA aid. Our daughter applied to many small liberal arts colleges, most of which required CSS. She ended up getting a full tuition 4 year scholarship worth over $200,000 so do not equate CSS with not giving money- if anything I found small liberal arts schools to give the most competitive packages to the middle class who are in the tough place that do not qualify for aid but have really strong merit students.
    2. If you happen to live in the states that are part of the WUE (Western University Exchange) be aware that many of these tuition deadlines are considered Merit Scholarships and to be considered for them to you need to apply by November 1. Unfortunately we were not aware of this for our son so now even though he qualifies for the Merit Scholarships at University of Utah he will not be considered because he applied in December. So if you plan to take advantage of WUE tuition be on the ball EARLY. It is based on school- not all require early admission but many do. It is basically supply and demand so chances are if it is one of the more desirable WUE schools, you will want to apply early.
    3. Related to number two- do not assume an in state school is your cheapest option. We live in Colorado with a pretty high cost of living. Our two most popular schools CSU and CU Boulder are ridiculously expensive once you add in the outrageous cost of room and board (buffalo shaped pool included but don’t get me started on resort-style living and how that effects college costs). Anyway- using WUE is a much more affordable option- paying out of state WUE is less than paying in state Colorado for at least 7 schools that my son is considering. As mentioned above, we also found small liberal arts schools to be very competitive. So keep an open mind and do not get sucked into branding. The book, How to Raise an Adult has some really great chapters that address this topic and that just because you have not heard of a school does not mean you should write it off. Branding is a big part of college that is tied to consumerism and those of us in the FI community know there might be more to life than blind consumerism 🙂

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