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Is there a "Look Back" period in financial aid?

The Pay “Wholesale” for College Success Bulletin

It’s inevitable.

In my college planning workshops I talk about how, in financial aid, some “stuff” (savings accounts) counts against you more than others, and some not at all.

Then, I brace myself. Because I know, as night follows day, that the audience will ask me a series of questions about 529’s and other types of college savings vehicles.

One question has to do with the act of moving money from one type of account to another (“sheltering” it under the financial aid formulas, which is a lot less sleazy sounding than “hiding”):

“Is there a ‘look-back’ period?”

Meaning, if you move money from one “bucket” to another, can the financial aid office go back in time to see that you once had your savings in the “wrong” place?

I think people ask this because it reminds them of other scenarios, such as when an elderly parent will create a trust to move assets out of his name and qualify for more Medicare benefits.  At least I think it’s Medicare, not Medicaid, but I’m still not completely sure.  Embarrassing.

I understand that there is a five-year look back period for the “Medicare Spend-down.”

In financial aid, there’s no look-back period.  However, you may have some timing issues if you’re thinking about sheltering assets for financial aid purposes. Here’s what I mean.

If you have $200,000 sitting in a bank account, it will throw off interest that you report on your tax returns.

If you take that $200,000 and shelter it, you don’t have to report it on your financial aid forms.  However, most financial aid offices will look at your tax returns for the “Base” year – commonly, the year that ends in the middle of the Senior Year of high school.  (If your child graduates 2015, your base year is 2014.)

If you earned interest in 2014, an astute financial aid officer (oxymoron?  like “military intelligence?”) can say, “Hey, your tax returns show that you made $4,000 in interest, but we don’t see the asset that generated it.  What’s up with that, ‘bro?”

Then they’ll ask you some questions, called “Verification,” which colleges do 30-100% of the time, depending on the school.  There’s your de facto Look Back.

The solution:  shelter the assets before the Base Year, which keeps any type of paper trail off the radar of the financial aid office.

Of course, there’s a ton of other issues to think about, which are way beyond the scope of this article, such as where do you shelter your money, what are the pro’s and con’s in terms of tax implications, penalties, your ability to access it and much more.

For more of an explanation, attend an upcoming free (see my website for live and “on demand”), or watch this webinar where I dissect an actual FAFSA, the main financial aid form that all colleges require.

I hope you found this information valuable!

Your Correspondent,

– Andy Lockwood

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Andrew Lockwood, J.D.

Publisher, The Pay “Wholesale” for College Success Bulletin

Lockwood College Consulting
497 South Oyster Bay Road
Plainview New York 11803
AndyLockwood.com