College tuition, student loans and divorce can be a messy mix. Planning out how to pay for college costs can get even trickier when you’re working with an ex.
But many divorced parents make it work each year for the benefit of their children attending college. From FAFSA forms to divorce agreements, here are some tips for exes to work together and figure out how each parent can help pay for college.
Know your state’s divorce laws
Divorce laws vary widely by state, and this includes rules regarding paying for college.
“Depending on the state where the family lives, this may be tough,” says Carol Meerschaert, editor-in-chief of HBAdvantage Magazine and divorcee who helped her three children attend college.
“I got divorced in Maine so there is no law to support putting paying for college in a divorce decree. In Maine, once the child is 18 they are on their own.”
Some state laws might require a divorced parent to financially support a child in college even when there is no college support agreement in place. In Utah and Washington, for example, laws allow courts to order a non-custodial parent to pay, reports Lawyers.com.
In these cases, the judge weighs factors like the non-custodial parent’s ability to pay. The judge might also consider the child’s academic goals and access to other forms of support such as scholarships or federal student aid. The amount each parent is expected to contribute and other details are then determined by the judge and outlined in a court order.
Review what your divorce agreement says about college
Most states allow parents who are divorcing to work out a voluntary college support agreement, according to legal resource Lawyers.com. This is a contract in which the divorcees agree on responsibility for college costs and details of payment.
“Often, the parents either commit to each save a certain amount per month or per year, per child” toward a college account, says Jessica Markham, a Maryland-based attorney specializing in family law. Alternatively, “they will commit to funding college at a certain rate,” such as agreeing to pay the cost of an in-state public college, she adds.
Review your divorce decree and college support agreement to see how it outlines each parent’s contributions to college costs.
Plan with your ex to pay for college
One of the trickiest aspects of paying for college with an ex is navigating a relationship that comes with a lot of baggage. “Don’t underestimate these factors when it comes to asking a parent to pay hundreds of thousands of dollars for college educations,” Meerschaert says.
If possible, exes should try to communicate and put past differences aside in an effort to work together. There are a variety of ways to divide college costs and responsibilities, from jointly funding a 529 college savings account to agreeing on who should cosign your child’s private student loans.
But divorcees also need to be realistic about each parent’s ability and willingness to pay for educational costs. A divorce means splitting up households and increasing the family’s costs, Markham pointed out. And remarriage requires you to take new spouses, stepchildren, or other dependents into consideration, too.
Overall, “there is less expendable income to go around,” Markham adds.
Unfortunately, in some cases an ex might be unable or unwilling to contribute to college costs. It can be difficult to figure out costs alone, but it’s better for the paying parent to know in advance that they will be shouldering costs alone and so they can plan accordingly.
Understand how to file a FAFSA if you’re divorced
When it comes to student loans and divorce, one of the most important aspects is filing the FAFSA correctly and advantageously.
Simply deciding whether you or your ex is responsible for filing the FAFSA can be confusing, says Joe Orsolini, a certified financial planner and founder of College Aid Planners.
“If parents are divorced, it [is] the custodial parent that completes the FAFSA,” he says. “If the custodial parent gets remarried, the new spouse’s information goes on the FAFSA as well.”
The non-custodial parent will not have to submit information for the FAFSA. This parent can still contribute to college costs, but their income and assets won’t be included in calculating the Expected Family Contribution. This can help the student qualify for need-based aid, especially if the non-custodial parent earns more.
There’s an exception to this rule, however. Divorced or separated parents will both need to be listed if they still live together in the same household. “This leads to a lot of last-minute scrambling to get one parent out of the house” at times, Orsolini says, so that the parent’s income isn’t included on the FAFSA.
Take advantage of educational tax credits
Divorced parents can also be strategic about how they claim a child on their taxes. “There are tax credits for paying college tuition, but you must claim the student to receive them,” Orsolini says. Only one parent in a divorce can claim a child.
Additionally, the parent who claims the college student as a dependent doesn’t have to be the same person listed as the custodial parent on the FAFSA. “Think of FAFSA rules, IRS regulations, and divorce laws as a Venn diagram — sometimes they intersect, other times they don’t,” Orsolini says.
Parents should keep in mind that these tax credit benefits phase out and disappear at higher income levels. “Divorced parents should be mindful of these limits, otherwise they leave money on the table,” Orsolini says. It could be the difference of as much as $10,000 throughout college, he estimates.
When it comes to college funding, divorce and student loans, it can feel like a confusing whirlwind. Do your research, consult an expert when necessary, and work together to decide on the best course of action for your family. It could mean big savings for both you and your child.
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1 Important Disclosures for Earnest.
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APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
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Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
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5 Important Disclosures for Citizens Bank.
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|2.47% – 6.99%3|
|2.57% – 6.97%1|
|3.02% – 6.44%2|
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|2.79% – 8.39%5|