FAFSA Tip: Reduce cash to maximize financial aid

February 14, 2012 by LendKey Staff

1 comment

Update: January 2014

When completing the FAFSA, parents and students must list income and asset information. This normally includes information found on the 1040 tax return, or by consulting other important financial documents to transfer the data to the online application.

One of the questions covers the area of cash assets. Cash assets are typically hard to track or trace, so the FAFSA phrases the question as follows….

“As of today what is your parent’s total current balance of cash, savings and checking accounts?”


“As of today, what is your (student) total current balance of cash, savings and checking accounts?”

The key part of these statements is “As of today”, leaving some flexibility for the student and/or parent to answer. If indeed there were no cash available in any of these accounts on the day the FAFSA were filed the correct answer would be zero.

So logically speaking, it would behoove the applicant to have as little cash available as possible on the day the FAFSA is filed to help maximize financial aid eligibility.

Here is a list of things that students and/or their parents and family can do with their cash instead of keeping it in the bank only to be listed as an asset on the FAFSA.

1. Pay off credit cards:

If you have any credit card debt, and are carrying extra cash in your checking or savings, go ahead and make a bigger payment towards that debt just before filing the FAFSA. The FAFSA does not ask any questions about personal debt, they only care about what cash is on hand the day the FAFSA is filed. Instead of listing this cash as an available asset, it should be used to reduce personal debt. It does not make sense to be penalized by the FAFSA for having cash when one has outstanding debts to be re-payed with interest.

2. Maybe it’s time to upgrade the computer/laptop/smart phone/tablet:

Let’s say personal debts are well managed, but your computer is worn out and behind on capabilities, kinda like the relic pictured above. It may be time to make an investment in technology. There are some good deals for college students looking to buy computer technology, especially online. Instead of claiming cash on the FAFSA, it may be time to get a new computer to help enhance your educational experience.

3. Use it for transportation or other miscellaneous expenses:

Getting equipped for college may involve some new clothing, or exercise equipment, or a used car (It’s new to you!). Again, if cash is available and there are useful items you need for education, it’s better to spend the money than claim it on the FAFSA.



Easy on the cash flow, Uncle Money Bags


4. Relatives, please hold off on any large cash gifts:

Uncle Bobby is a successful business man, and wants to help his nieces and nephews with their college costs. When he heard that his niece Stephanie was admitted and planning to attend an awesome college next year, he thought about sending her a check for $3,000 to help with expenses. However, when he realized that extra cash like that would end up getting claimed on the FAFSA, he held back on sending the money. Instead, he let Stephanie know to make a list of necessary supplies and items, and he would help her to buy those items as she needed them. It’s as simple as ordering online, and having deliveries sent to the dorm. This way Bobby can make sure the money is used for educational purposes, and Stephanie does not get penalized by the FAFSA for having extra cash.

5. If any cash must be claimed, it should be in the parent’s name:

Be advised that the value of cash assets on the FAFSA is weighed more heavily under the student’s name than under the parent’s name. So if claiming cash is unavoidable, make sure it is claimed under the parent’s name only.

Read up more on FAFSA filing tips from my prior article. FAFSA: Understanding Parent and Student Assets

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  • Brad

    Hi Ken
    My wife and I are retired and receiving pensions. After retirement my wife has currently obtained a part time job. When I originally filled out our FAFSA I included our taxable pensions income in lines #86 and #87 under the Father’s and Mother’s Income Earned form Work plus the income my wife earned. The Expected Family Contribution from that FAFSA was sent to the Colleges that our son applied to. When I found out that I was not supposed to include pension income in those lines I changed it. But in doing so our EFC increased by $ 4000.00.When I called FAFSA to find out on the increase they seem to be surprise that it increase instead of decrease but the FAFSA was correctly done. I didn’t change anything else expect removing our pensions income from those lines.So our Adjusted Gross Income stayed the same. My question is do you know if taxable pension income are weighed more heavily that earned income? If so what is the reasoning? Also we are considering contributing to an IRA to reduce our AGI and would like your thoughts on this.