FAFSA Income and Asset Reporting 2 — Questions and Answers
Question 1: How does the FAFSA treat assets held in a grandparent-owned 529 plan?
- Reported as parent asset
- Reported as student asset
- Not reported, but distributions count as student income
- Not reported at all under new rules (Correct answer)
Correct answer: Not reported at all under new rules
Under FAFSA Simplification Act changes effective 2024-25, grandparent-owned 529 distributions and accounts are no longer reported on the FAFSA.
Question 2: Rental property owned by parents is reported on FAFSA as:
- Excluded as it is primary residence
- A parent asset (net value) (Correct answer)
- Parent income only
- Not required to be reported
Correct answer: A parent asset (net value)
Rental properties are reported as parent assets on the FAFSA at their net value (market value minus any debt owed).
Question 3: What is the FAFSA income protection allowance (IPA)?
- A limit on how much income can be earned
- An amount of income excluded from the SAI calculation to cover basic living expenses (Correct answer)
- A tax deduction for college expenses
- The minimum income required to receive aid
Correct answer: An amount of income excluded from the SAI calculation to cover basic living expenses
The Income Protection Allowance (IPA) is an amount of income that is shielded from the SAI calculation to account for basic living and family expenses.
Question 4: How are tips and unreported cash income treated on the FAFSA?
- They are excluded since they are not on a tax return
- They must be reported as income even if not on a tax return (Correct answer)
- They only count if over $1,000
- They are treated as assets, not income
Correct answer: They must be reported as income even if not on a tax return
All income including cash tips and other unreported earnings should be accurately reported on the FAFSA, even if not reflected on a tax return.
Question 5: What is included in the definition of 'assets' for FAFSA purposes?
- Only cash and bank accounts
- Cash, savings, investments, and real estate (excluding primary home) (Correct answer)
- Only items over $10,000 in value
- Income from the prior year only
Correct answer: Cash, savings, investments, and real estate (excluding primary home)
FAFSA assets include cash, savings accounts, checking accounts, investments, and real estate other than the primary home.
Question 6: A parent who is self-employed must report business income on FAFSA using:
- Gross business revenue
- Net profit from Schedule C or Schedule F (Correct answer)
- Total business assets
- Business checking account balance
Correct answer: Net profit from Schedule C or Schedule F
Self-employed parents report their net profit from Schedule C or Schedule F of their federal tax return as income on the FAFSA.
FAFSA Income and Asset Reporting 2
How does the FAFSA treat assets held in a grandparent-owned 529 plan?