If the parents are divorced, who should serve as the custodial parent?
Divorce is a difficult process, but in the case of financial aid, it has its advantages. Since the EFC depends on the reported wealth of only the custodial parent for most colleges, it may make sense to have the less affluent of the former spouses serve as the custodial parent through college. In doing so, the student may become eligible for many financial aid programs and receive financial aid filing advantages that are based on certain income and asset ceilings.
- Talk to your ex. Decide which of the former spouses should serve as the custodial parent. That parent should carry the student as an exemption on their income tax.
- Don’t forget the residency requirement. Before deciding, be sure to take into consideration residency implications. For instance, if the poorer ex-spouse moves out of state and the student wants to go to a public college in-state, you may want to rethink the strategy. On the plus side, your student may be eligible for more financial aid, but out of state fees will be higher, and the financial aid office will not provide as much financial aid to out of state students. Because residency requirements vary from state to state, we recommend contacting in-state colleges to see if the student would still be considered as a resident if the custodial parent moved to another state.
- Remember the marriage trap. Stepparents married to the custodial parent must also report their income and assets on financial aid forms. You should consider the tax implications of gaining or losing an exemption, and whether either of the former spouses is likely to remarry while the student is in college.
- Work together. If possible, try to make an informal but reliable arrangement with your ex-spouse to have the non-custodial parent contribute to the cost of college.