How to Lower Your EFC to Zero – Become Self-Employed

You can lower your EFC to zero and automatically maximize your federal and college financial aid by becoming self-employed and controlling your own W-2. This is certainly not what most financial aid advisors will advise you to do, but it is the way that college financial aid works. It’s the federal government’s big secret that they prefer people did not know.

The FAFSA student aid form, the CSS profile, and a university’s own independent financial aid form rely on the parents and students W-2 income. Assuming that you aren’t unemployed, there is an enormous benefit to becoming self-employed. You can form a corporation, such as an S-Corp, and control the income on your own W-2.

I would advise you to secure a competent CPA who is well versed in the college financial aid process. The CPA should be able to guide you regarding the best type of corporation to form. There are General Corporations, S-Corps, LLC or Limited Liability Company’s and Partnerships. They each have their own advantages and disadvantages.

The universities will usually request copies of all tax documents filed so you need to be sure that they are filled out correctly. And please be sure that when you the mail the tax documents to the school, they’re the ones you filed with the federal government. There are those who modify tax documents to receive financial aid. That would be committing tax fraud and it’s not something you want to do.

What type of business can you create?

  1. If you’re an accountant, form your own CPA firm.
  2. If you’re a plumber or electrician, attain all the licenses and certifications you need and become self-employed;
  3. If you’re a carpenter, become a licensed contractor;

It really doesn’t matter what you do, as long as you can provide a service and do it independently, you should be able to form some sort of licensed company.

For the 2010- 2011 college year, the magic number for your W-2 income on the FAFSA form is under $49,999. This places you on the simplified federal worksheet which eliminates the need for you to declare any of your assets.

Now the key to getting your EFC down to zero is to lower your w-2 income to under $30,000 and also qualify for one of the federal assistance programs such as Food Stamps or the Free Lunch Program. In addition, your income for the previous year must have been less than $49,999.

To see how a family qualifies for one of these federal aid programs, I went to the NYC food stamp program eligibility screening tool and created a factious family of four, with an income of $30,000 and two children – one eighteen, and one twelve. The result – the family was eligible for the NYS food stamp program. This eligibility will automatically reduce the EFC to zero and maximize your child’s college aid.

To test this yourself visit: https://www.mybenefits.ny.gov/selfservice/. The maximum gross income to qualify for food stamp as of October 1, 2009 was $28,668 for a family of four, with each additional family member adding $4,872 to the total.

In addition,

  • Make sure your child works off the books or does volunteer work during the previous year that you apply for aid – the previous year’s income is the income that’s looked at;
  • Also don’t let the students grandparents load up your child’s account with money. Once your child begins college, ask the grandparents to provide funds in cash.

Your child’s income has a detrimental effect on college aid because 50% of it is taken into account during the FAFSA calculations.

Securing some amount of college financial aid is certainly feasible for most of us, but there is a huge benefit for those who are self-employed.