You can lower your EFC to zero and automatically maximize your federal and college financial aid if you are self-employed and control your own W-2. This is certainly not what most financial aid advisors will advise you to do, but it is the way college financial aid works. It’s the big secret of the federal government that they prefer people not to know.
The FAFSA Student Aid Form, CSS Profile, and a College’s Independent Financial Aid Form depend on parent and student W-2 income. Assuming you’re not unemployed, there’s a huge benefit to becoming self-employed. You can form a corporation, such as an S-Corp, and control the income on your own W-2.
I would advise you to get a competent CPA who is well versed in the college financial aid process. The CPA should be able to guide you regarding the best type of corporation to form. There are General Corporations, S-Corps, LLC or Limited Liability Companies and Partnerships. Each has its own advantages and disadvantages.
Universities generally request copies of all submitted tax documents, so make sure they are filled out correctly. And make sure when you send your tax documents to school, they’re the ones you filed with the federal government. There are those who modify tax documents to receive financial aid. That would be committing tax fraud and it’s not something you want to do.
What kind of business can you create?
- If you are an accountant, form your own CPA firm.
- If you’re a plumber or electrician, get all the licenses and certifications you need and be self-employed;
- If you are a carpenter, become a licensed contractor;
It doesn’t really matter what you do, as long as you can provide a service and do it independently, you should be able to form some kind of licensed company.
For the 2010-2011 college year, the magic number for your W-2 income on the FAFSA form is less than $49,999. This puts you on the simplified federal worksheet that eliminates the need to declare any of your assets.
Now the key to lowering your EFC to zero is to reduce your w-2 income to less than $30,000 and also qualify for one of the federal assistance programs, like food stamps or the free lunch program. Also, your income from the prior year must have been less than $49,999.
To see how a family qualifies for one of these federal aid programs, I went to the New York City Food Stamp Program Eligibility Screening Tool and created a split family of four, with an income of $30,000 and two children, one eighteen and the other twelve. The result: The family was eligible for the New York State Food Stamp program. This eligibility will automatically reduce the EFC to zero and maximize your child’s college aid.
To try it for yourself, visit: https://www.mybenefits.ny.gov/selfservice/. The maximum gross income to qualify for food stamps as of October 1, 2009 was $28,668 for a family of four, with each additional family member adding $4,872 to the total.
Besides,
- Make sure your child worked off the books or did volunteer work in the previous year for which you are applying: Earnings from the prior year are the earnings being analyzed;
- Also, do not allow the grandparents of the students to load your child’s account with money. Once your child starts college, ask the grandparents to provide cash funds.
Your child’s income has a detrimental effect on college aid because 50% is taken into account during FAFSA calculations.
Securing some amount of financial aid for college is certainly doable for most of us, but there is a huge benefit for those who are self-employed.
