by John Darer® CLU ChFC MSSC CeFT® RSP CLTC
Selling structured settlement to pay for college
Selling your structured settlement to help pay for college is probably not a good idea. It could seriously impact your ability to get financial aid. Here's why. When you fill out the FAFSA form to try to get approval for financial aid, you will need to declare 20% of assets in the dependent student's name is part of the expected family contribution. The Expected Family Contribution or EFC, is a number used to calculate the amount of federal student aid you are eligible to receive. For example, if you have a lump sum in the dependent student's name of $50,000, this alone will reduce eligibility for need-based financial aid by $10,000.
Companies like Novation Solutions, which recommend this strategy as a reason to sell your structured settlement, make money on the size of the margin they can get, by discounting the future payments to present value. Why pay for college with money after you have had to take a big capital loss and negatively impact financial aid? You have to do the math, or work with a licensed and credentialed financial professional, but perhaps it makes sense to maximize your student loans and scholarships, wait for the structured settlement payments and then pay off the loans with undiscounted dollars.
In a recent deal approved October 30, 2015, in Okeechobee Florida, Novation Capital and another company that does not come up on the radar, 365 Advance Services, participated in what has to be one of the worst deals for a structured settlement seller ever. with in excess of a combined $1.4 million mark up on a naive 21 year old young adult. This means that the seller could have received $1.4 million more. If Novation Solutions is going to participate in a deal such as that, why would you ever trust Novation Solutions' daily "Tweet Fest' to advise you in what is in your best interest concerning paying for college?
Novation Solutions has to have known the buyer friendly and seller unfriendly economics of the deal as the assignee of the periodic payments