This article was updated on April 25, 2025. It was originally published on November 16, 2020.
When parents are wrangling about alimony, asset distribution, and who gets the large collection of Tupperware, it’s fairly common to overlook what really matters. How do the kids feel? What does their future look like?
Divorce can have massive repercussions when it comes to paying for college. Not only is a little cooperation needed, but things become extremely confusing when trying to figure out how to maximize financial aid, how to submit the FAFSA and CSS Profile correctly, and how to save and pay for college with efficient money.
How do financial aid rules impact the kids of divorced parents?
File the FAFSA No Matter What!
It does not matter who you are or what your family situation is. You should always file the Free Application for Federal Student Aid (FAFSA).
We hear from parents all the time that they did not file the FAFSA because they make too much money. Colleges want to see your cards before they show you theirs. In other words, they want to see what you have before they decide to offer any financial aid to your child.
If you don’t submit the FAFSA, the federal government and many colleges take it for granted that you are going to pay for 100% of your college costs. What does this mean?
- This means your child will not receive access to low-interest federal loans. Student loans offer their own set of challenges, but it is always a good thing to have access to other financial tools, even if you don’t use them.
- This also means your child may lose out on other forms of aid: state, institutional, and even private. Many families don’t realize that the FAFSA, despite its name, does not only apply to federal aid: some schools and private organizations REQUIRE you to fill out the FAFSA to be eligible for merit aid!
- This means if your family faces any financial challenges in the future, it will be harder to access the aid that you need.
So, even if you think that you can pay for your child’s college education, it’s a good idea to file the FAFSA.
Why It Is EXTRA Important to File the FAFSA as the Custodial Parent After a Divorce
The definition of the custodial parent on the FAFSA is not the same as the divorce decree!
The FAFSA is interesting because it only asks for the custodial parent’s financial information. This can be hugely beneficial for children of divorced parents, but it is crucial to understand what exactly the FAFSA means by “custodial parent.”
For FAFSA, the custodial parent is the one who provided the most financial support to the child within the previous 12 months of FAFSA submission. This now aligns with the CSS Profile’s definition for custodial parents. Before the 2024-2025 FAFSA changes, the custodial parent was the parent with whom the student lived for 51% of the year.
It does not matter if you share joint custody; what matters is which parent provides the most financial support to the child.
If each parent contributes equal financial support, the custodial parent shifts to the one with the higher income and assets.
A note on how the FAFSA sees divorce: if parents are legally divorced but still live together, BOTH parents must include their information. If parents are legally married but do NOT live together, only the custodial parent (as the FAFSA defines it) has to fill in their information.
What if the custodial parent remarries?
If the custodial parent remarries, the stepparent’s income and assets must also be reported on the FAFSA and the CSS profile. Failure to do so could result in a significant reduction in financial aid.
However, if the stepparent has children from a previous marriage and is providing more than half of their support, then those children are also counted in the household size; this could result in reducing the Student Aid Index and thus the potential for more financial aid.
Although rare, we have heard of parents waiting to remarry so that their children will not lose out on financial aid!
To verify which parent should report their financial information on the FAFSA, check the FSA parent information page here.
Why Is It So Important to Understand Financial Aid Rules for Divorced Parents?
You can employ several different tactics, depending on how your family intends to pay for college, the breakdown of parental contributions, and which schools the student applies to.
For example, some interesting planning opportunities arise when the two parents’ incomes significantly differ.
Remember, for the FAFSA, the income and assets of the non-custodial parent are not counted. If the custodial parent makes a low to moderate income and the noncustodial parent makes a very large amount of money, then it may make sense for you to encourage your student to apply to schools that only take the FAFSA.
Keep in mind that the custodial parent must list alimony as untaxed income on the FAFSA.
Child support must also be reported, but it is now counted as an asset. The good news is that parental assets are only counted at up to 5.64% of their value, much less than the 22% to 47% rate for parental income.
The CSS Profile for Divorced Parents
Like the FAFSA, the CSS Profile determines your family’s ability to pay for college and how much aid you are eligible for. Many private schools and a few elite public schools use this form in addition to the FAFSA.
Unlike the FAFSA, which focuses primarily on income, the CSS Profile takes a more holistic approach to your family’s financial situation. It is incredibly detailed and all-encompassing because these schools have money to give, and they want to ensure they are giving the right amount to people who need it.
How Should Divorced Parents Fill Out the CSS Profile?
For divorced families, most schools that require the CSS Profile also require the noncustodial parent to fill out financial information.
However, about one-third of CSS Profile schools do not require custodial parent information. The list is here.
Note: If one parent has abandoned the child or cannot be located, the colleges require a CSS Profile Waiver Request for Non-Custodial Parent to be submitted, and each school treats this differently.
If the noncustodial parent makes a lot of money, this may jeopardize the child’s chances of receiving need-based financial aid. Obviously, this becomes a major problem if the noncustodial parent does not want to help pay for the child’s college or is not keeping their end of the bargain.
Should You Still Consider CSS Profile Schools?
The answer to this? It really depends on each family.
If the custodial parent does not make a lot of money and the noncustodial parent does, it may be a good idea to focus on FAFSA-only schools and CSS schools that do not require the noncustodial parent’s information.
Of course, the answer is not as simple as this. Since the CSS Profile focuses on more than just income and looks at things that the FAFSA does not look at (medical expenses, mortgage payments, multiple kids in college, etc.), you may get a more desired aid package through a CSS Profile school. This is why it’s crucial to calculate your SAI early and determine what your estimated package looks like at each school.
Bear in mind that the CSS Profile is not free. It costs $25 to submit to the first school and $16 for each school after that. You can waive the fee, but only if the student is eligible for an SAT waiver, parental income is less than $45,000, or the student is an orphan/ward of the court and under 24 years old.
Do you have more questions? The College Board, which administers the CSS Profile, has pages dedicated to divorced parent FAQs and even a tutorial for noncustodial parents.
The Puzzle of 529 College Plans Amidst Divorce – Who Should Own Them?
Ownership of 529 Plans is another crucial part when saving and paying for college.
If the 529 plan is owned by the custodial parent or the dependent student, then it is included as a parental asset on the FAFSA; parental assets are counted up to 5.64%. The distributions from it to pay for college are ignored.
If the 529 plan is owned by the non-custodial parent, it is NOT reported on the FAFSA (thanks to the new changes).
For CSS Profile schools, the noncustodial parent’s 529 is not counted as an asset, but distributions are counted as the student’s untaxed income. This is similar to how CSS Profile schools treat grandparent-owned 529s.
If the custodial parent has $20,000 in a 529 plan as a parental asset, it can impact financial aid by up to $1128. If the noncustodial parent has $20,000 in a parent-owned 529, this can reduce aid by as much as $10,000.
Besides transferring the 529 plan to the custodial parent, other planning strategies can be used to overcome this problem. One of these is not taking a distribution from the 529 plan until the spring of the child’s second year in college (assuming they will graduate in four years).
Want to talk to a college funding advisor about this for free? Speak with a coach today.
Lost a 529 Plan in the Divorce Chaos?
Occasionally, a 529 plan is overlooked in the divorce battle of who owns what and how it’s divided.
If you are the custodial parent and are unsure what happened to the 529 plan, it’s best to call your state’s 529 plan provider. In most cases, they can help locate the plan with the beneficiary’s Social Security number. Sometimes they may need to speak to the beneficiary for verification purposes.
We are here to help!
Need more personalized guidance? Talk to a financial planner who understands not only the financial aid system but also college funding strategies that can pay you back in retirement.
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