20 Mar What ‘custodial accounts’ mean for financial aid

Q. I have custodial accounts for my grandchildren. Will this affect their financial aid for college?
— Grandpa

A. The cost of college has been increasing dramatically for decades, significantly outpacing than the normal rate of inflation.

The average in-state public school cost of attendance is approaching $30,000 a year, while some private college costs have already exceeded the $70,000 a year mark, said Steven Sirot, co-founder of College Benefits Research Group (CBRG) in Roseland.

“We certainly appreciate that grandparents may wish to help, if they can, with the increased cost of college,” Sirot said. “Unfortunately, this could negatively impact the financial aid award.”

The Free Application for Federal Student Aid (FAFSA) is a form that the schools and government use in determining a family’s need for aid.

Having custodian accounts for your minor grandchildren will increase the FAFSA calculation for their Expected Family Contribution (EFC) – the calculation that determines what a family can afford.

The EFC would be higher because of custodial accounts, so that could result in lower financial aid awards, Sirot said.

Assets that are owned by the student or their parents are counted on the FAFSA, he said.

“Custodial accounts like Uniformed Gifts to Minors Accounts (UGMA) or Unified Transfers to Minors Accounts (UTMA) are counted as the student’s assets,” he said. “So even though the grandparent might be funding the UGMA/UTMA and acting as the custodian for the benefit of the minor student, they have gifted the funds to the student.”

Funds under the student’s Social Security number are considered student assets on the financial aid forms, he said.

What most people are not aware of is that the government asks the student to contribute a larger percentage of their own money in the financial aid calculation than they do their parents, Sirot said.

“Only about 5.6 percent of the parent-owned assets get factored in to the FAFSA algorithm but somewhere between 20 to 25 percent of the student-owned assets are considered,” Sirot said.

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