Reporting Prepaid Tuition Plans and 529 Plans on the FAFSA for Independent Students

<b>I'm confused as to how to treat a prepaid tuition plan when applying for financial aid. I'm an independent student but I have a small prepaid tuition account which is held by a parent as account owner with me as the beneficiary. Since I don't list parent assets when filling out the FAFSA, do I need to list the prepaid tuition plan? If so, how does this effect my financial aid? Do I list the current value of the plan? — Jim C. The College Cost Reduction and Access Act of 2007 changed the treatment of qualified education benefits effective July 1, 2009. Qualified education benefits include 529 college savings plans, prepaid tuition plans and Coverdell education savings accounts. A previous article discussed the asset treatment of college savings plans for dependent students. For an independent student, a qualified education benefit plan is treated as a student asset if the student is the account owner or if the student is the beneficiary. Thus you should report the prepaid tuition plan as your asset on the FAFSA even though you are independent and your parent is the account owner. This will reduce your financial aid eligibility by 20% of the value of the prepaid tuition plan account. The value of the prepaid tuition plan is the refund value as reported on the most recent plan statement. Your parent could change the beneficiary listed on the account, but then you wouldn't be able to use the money to pay for your education. A better strategy is to spend the money to pay for your education as quickly as possible so that it doesn't affect your aid eligibility next year as well. Don't forget about the Hope Scholarship tax credit, which is based on $4,000 you pay in tuition, fee and course material expenses. There are coordination restrictions in the Internal Revenue Code that prevent double-dipping, so you can't use the same expenses to justify both the Hope Scholarship tax credit and the tax-free distribution from a prepaid tuition plan or 529 college savings plan. Since the Hope Scholarship tax credit typically has a greater financial value than the tax-free distributions, you will want to reserve $4,000 in expenses to qualify for the Hope Scholarship. You can pay for these expenses out of pocket or with student loans. The rest of your expenses can be paid using the prepaid tuition plan. When am I supposed to compete my application for FAFSA? I am going to be a high school senior this fall and will graduate the following May. Also by when? — Tania O. The FAFSA should be filed as soon as possible on or after October 1 of your senior year in high school (and each subsequent year in college except the last). You cannot file the FAFSA before October 1, as the form depends on your income from the prior tax year, which ends on December 31. The FAFSA is used to apply for state grants in addition to federal student aid. You should submit the FAFSA as soon as possible after October 1 because several states have very early deadlines for state grants, some even as early as February. Do not wait until you've filed your federal income tax returns or you've been admitted to a college to file the FAFSA. You can estimate your income based on your W-2 and 1099 statements and the last pay stub of the year. You will have an opportunity to correct any errors later. The FAFSA has a filing cycle, starting October 1 and ending June 30 of the following year. You can submit the FAFSA at any time before June 30 or the end of the academic year, whichever comes sooner, and still qualify for federal student aid. The college just needs to receive a valid output document with your EFC before the earlier of these two dates. Some forms of federal student aid have payment period (semester) limits, which may affect the amount of aid you can receive, so it is better to submit the FAFSA sooner rather than later. If your circumstances change mid-year, you can appeal for more aid.