Questions about FAFSA and life insurance proceeds for financial aid?

Education Law Forum
1

I’m working on filling out my daughter’s FAFSA for college, and I’m struggling with how to handle life insurance proceeds and other financial details. My spouse passed away in April, and things have been confusing ever since. We co-mingled the life insurance money with pre-existing savings and brokerage accounts based on advice from my accountant and financial advisor, but now I’m hearing mixed recommendations from college financial aid offices.

Here are my main questions:

  1. Do I need to report the life insurance proceeds on the FAFSA?
  2. How should I handle the fact that the accounts are now mixed?
  3. Should I file the FAFSA now using 2023 tax information or wait until 2024 taxes are done? One college suggested waiting, but others say to file ASAP.

I just want to make sure my daughter gets all the financial aid she’s eligible for, but this process feels overwhelming. Any advice on how to proceed would be greatly appreciated!

2

Sorry to hear about your loss. For the FAFSA, life insurance payouts don’t need to be reported as income, but they might count as assets if mixed with other funds. Have you talked to a financial aid counselor?

3

@Kemper
Thanks. I have, but different colleges are giving me different advice. It’s hard to know who to trust.

4

@Kemper
That’s tough. Maybe stick with the official FAFSA guidelines—they’re usually more reliable than individual colleges.

5

I think you should file sooner rather than later. The FAFSA uses 2023 tax info anyway, so waiting for 2024 might not make a difference.

6

Wil said:
I think you should file sooner rather than later. The FAFSA uses 2023 tax info anyway, so waiting for 2024 might not make a difference.

That makes sense. I was just worried about reporting everything correctly since things are still a bit chaotic.

7

Wil said:
I think you should file sooner rather than later. The FAFSA uses 2023 tax info anyway, so waiting for 2024 might not make a difference.

Totally understandable. Maybe check with the FAFSA helpline if you’re unsure about specific details.

8

If the life insurance proceeds are mixed with other accounts, they probably count as assets now. Could you use some of that money to pay off debts or prepay college expenses?

9

Iman said:
If the life insurance proceeds are mixed with other accounts, they probably count as assets now. Could you use some of that money to pay off debts or prepay college expenses?

That’s a good idea. I do have some bills I could pay off before filing. Thanks for the suggestion!

10

One thing to consider is appealing to the financial aid offices for special circumstances. They might adjust aid based on your situation.

11

Dahlia said:
One thing to consider is appealing to the financial aid offices for special circumstances. They might adjust aid based on your situation.

Good point. I’ll definitely look into that. Hopefully, they’ll be understanding given everything that’s happened.

12

Dahlia said:
One thing to consider is appealing to the financial aid offices for special circumstances. They might adjust aid based on your situation.

They usually are if you explain it well. Just make sure to gather all the necessary documents before appealing.

13

It sounds like a stressful situation. Have you considered consulting a financial aid advisor? They might help clear up the conflicting advice.

14

Avery said:
It sounds like a stressful situation. Have you considered consulting a financial aid advisor? They might help clear up the conflicting advice.

I haven’t yet, but it’s probably a good idea at this point. This process has been way more complicated than I expected.