Economy & Finance

How Sandy settlements can hit financial aid

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ROCKAWAY BEACH, New York (Reuters) – Families whose homes were damaged by superstorm Sandy have one more insult they can add to their list of injuries: Unless they are careful, their children’s student aid packages might get nicked.

There are two reasons for that. The first is that the insurance settlements these families receive could make them appear less aid-worthy.

Furthermore, they often delay filing their income tax returns so they can properly calculate their losses. But that could mean they do not have all the information they need to file their financial aid forms. And when it comes to financial aid, the early applicant often gets more money.

By law, any assets you have at the time you submit your Free Application for Federal Student Aid (FAFSA) – including money an insurance company gives you to buy a new car or fix your damaged house – are factored into the calculation of how much tuition assistance your child gets.

But do not despair: Financial aid officers have a way around this, as long as families know how to ask.

“We are allowed to use what is called ‘professional judgment,’ and on a case-by-case basis, we can look at information on the application and make adjustments where they should be made,” says Eileen Buckle, director of financial aid at Ocean County College in Sandy-struck Toms River, New Jersey. “It’s something we have some latitude with because of the storm. We don’t want to hurt students in that way.”

Unless your financial aid office is run by the love child of Ebenezer Scrooge and Cruella De Vil, you should be all right as long as you document where the money came from and how you plan to use it.

Mark Kantrowitz, publisher of and, advises writing a letter to the financial aid office of the schools your child is applying to. It should explain why you have extra money in your account and that you expect to use it to repair storm-related losses.

“But it should go further and discuss the overall impact, both financial and emotional, of your experience,” he said.

In the letter, explain all of your other storm-related costs that might not show up on your financial aid form – hotel bills, new clothing and anything else your insurance did not cover.

“They will realize that a family affected by a natural disaster has a lot of expenses, and they might be more accommodating as they go through a professional judgment review,” Kantrowitz said.

Also provide check stubs to prove the money was from an insurance company, and any other documentation, such as a contractor’s estimate, that proves you will use the money to rebuild.


On the FAFSA you will be asked to include the total amounts you have in your checking and savings accounts. This is basically a “snapshot in time” that looks at your balances the day you file your application.

If you deposited $50,000 a month ago and then a week later used it to pay your contractor, you do not have to include it as an asset. Or if you are waiting on a big fat check but have not received it yet, you do not need to include that, either.

But if the insurance money is in your account the day you file your application, then you must list it.

You can tap-dance around this by not depositing the check until the application is submitted. Or, as Kantrowitz suggests, you can open a separate bank account for your insurance funds to show that you are keeping the proceeds separate from your regular budget.


The Internal Revenue Service states that proceeds from Sandy-related insurance settlements are not taxable income. Therefore, you do not need to include them in the income portion of your application.

But the FAFSA does request a copy of your tax return, and you may have had to delay filing your taxes while you add up Sandy losses and settlement dollars.

No worries, file your financial aid application anyway, says Charles Puls, director of financial aid at the University of Rochester. “Make your best estimate (of your 2012 taxable income) possible.”

Whatever you do, do not delay. “Don’t wait to file your FAFSA until you file your tax return,” says Kantrowitz. Because lots of funds are distributed on a first-come, first-serve basis, “you could miss out on aid as a result.”

(Editing by Linda Stern and Lisa Von Ahn)

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