Ask the Experts

Family Finance

My parents are headed for divorce. Will I have to drop out because they signed for my student loans?

The anxiety of divorce on top of college stress can be a lot to manage. Now you have to consider how your student debt will be affected by their decision. Your financial aid eligibility will indeed change if your parents’ marital status does, so here is what you need to know.

Surprisingly, divorce rates have fallen in previous years but the current statistics are not encouraging. There is still a 50-50 chance that a marriage will last a lifetime. In many cases, parents will begrudgingly stay together for the sake of the kids, often waiting until they leave home before deciding to split. In your case, they are divorcing while you are still studying so this will affect your aid eligibility, possibly to your advantage.

Generally, Federal Student Aid is determined by the financial status of your parents. When a divorce happens, one parent must take over as the custodial parent, this is the one you will be living with over half of the time. Their financial status will now be considered for calculating your benefits. The non-custodial parent is not included financially and does not affect your student aid.

It is possible that you will be eligible for more benefits under FAFSA this way. Choosing the parent with lower earnings as your custodial parent will increase your potential federal benefits. It sounds harsh to choose depending on their earnings, but your education is at stake so your parents will probably be in agreement. Studies show having more financial aid increases the likelihood that you will complete your degree.

A college support agreement should be completed at the time of the divorce. It covers you legally by specifying which parent is responsible for your college costs. It can be used to allocate expenses designating which parent is contributing towards tuition, accommodation, books or living expenses. Without a plan, you risk losing your financial aid or could suddenly need to refinance student debt in order to remain in college.

Savings or 529 plans that your parents set aside for your education are usually protected in divorce proceedings. You should bring this up as they have made these plans for your future. Decide which parent will manage the account and disperse college funds as needed. If the non-custodial parent manages your college funds, it will not be included in your federal student aid application which should result in more benefits for you.

Legal and accounting advice are needed on tax issues and assignment of responsibilities for you. Regulations vary by state and college expenses can often be claimed as child support. Some states order non-custodial parents to contribute towards college expenses and others prevent it. Courts generally try to balance things out to prevent one parent bearing the brunt of all of the costs. You all have to sit down and work out how to protect your financial student aid.

Every year, many, many stupid people graduate from college. And if they can do it, so can you… John Green.

Martin J. Young is a former correspondent of Asia Times.