How Does Inherited Money Affect the FAFSA?

The Free Application of Federal Student Aid (FAFSA) is a form used by the U.S. Department of Education when assessing the amount of money that can be made available to a student in the form of financial aid. It is used to calculate the Expected Family Contribution (EFC), which may reduce the total amount of student aid available. An inheritance over a certain amount may increase the EFC.

The FAFSA

The Free Application of Federal Student Aid (FAFSA) is a form used to assess the amount of student loans or scholarships that can be offered to a prospective student. It takes into account the Expected Family Contribution (EFC) when assessing your financial need. The EFC is based on the family's income, net worth, and other assets. The form is processed by the U.S. Department of Education, which produces a Student Aid Report (SAR), which will indicate the EFC.

Inherited Money and the FAFSA

If you have inherited money before filling out the FAFSA, it must be indicated on the form. On the FAFSA form for the July 1, 2010 to June 30, 2011 application year, this must be stated on step two, question 45 under "student's 2009 untaxed income." Any inheritance money of your spouse should also be included here. Specifically, the full amount is entered on line J.

Inherited Money and the EFC

The EFC has an impact on the size of federal Pell grants, subsidized Stafford loans or Perkins loans available. An inheritance under $15,000 is exempt from affecting the EFC. However, any inheritance over the sum of $15,000, and not including the first $15,000, contributes to the EFC by 5.64 percent. Therefore, an inheritance of $115,000 would lead to $5,640 being added to the EFC. This $5,640 is subtracted from the total amount of student aid available to the student.

Fraudulent Claims

Providing incorrect financial information on the FAFSA may lead to claims of fraud. If you are convicted of fraud, you must repay the full amount of any money you received from student loans. You also risk facing a fine of up to $20,000 and a prison sentence. According to College Made Simple, roughly one-third of FAFSA applications are audited. Thus, understating the amount of money you have inherited should be avoided.

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