My step-daughter will be applying to colleges in the fall. What is the best way her father and I can prepare ourselves financially? And how is a student with divorced parents affected in terms of financial aid?
The rules for financial aid for the children of divorced parents can be very complicated. However, the general guideline is that the custodial parent is the person responsible for completing the Free Application for Federal Student Aid (FAFSA) form. If your stepdaughter lives with you and your husband for most of the year leading up to the filing of the FAFSA, your husband is likely the custodial parent. Otherwise, the custodial parent is your stepdaughter's mother.
When it comes to determining financial aid, the Federal government does not consider the income and assets of the non-custodial parent. One the other hand, most private colleges do consider the non-custodial parent's income and assets. So, the distribution of aid from the college itself will probably be determined using both parent's income, but Federal and State aid (which would include subsidized Stafford loans)will be based only on the custodial parent's family income.
If your husband is the custodial parent, you should be aware that your income is considered to be available to meet college needs. This is true even if you were married the week before the FAFSA form was filed and you have four children of your own to support. Most people are surprised to hear this, but it is true. If you haven't planned appropriately, you could find yourself with a very high expected family contribution (EFC) because of the inclusion of your income. To determine what your EFC might be, check out this calculator.
That doesn't mean that the non-custodial parent is "off the hook" when it comes to paying for college. Many divorce decrees specify that the non-custodial parent must pay a certain amount of percentage of college costs. Massachusetts is one of the states where payment of college expenese can be ordered by a judge.
For more information on this topic, check out the FinAid website. Also, it never hurts to contact the financial aid officers at the schools your daughter is considering attending. They should be able to tell you, at least in general terms, how they make financial aid decisions for the children of divorced parents.