Since the FAFSA considers parents’ income and assets when determining award eligibility, an inheritance could be considered a contributor to the family’s overall income.

While the federal government allows parent asset allowances of up to $50,000, a significant inheritance could make a student-applicant ineligible for Pell grants and subsidized loan options.

Your Options for Reducing the Negative Effects of a Large Inheritance

The FAFSA considers the prior year’s tax returns of the parents and applicant. You could reduce the negative effects of a large inheritance by:

  • Using the inheritance to pay off existing debt, thereby decreasing the value of your reportable assets
  • Contributing a sizeable portion of your inheritance to a retirement account
  • Transferring the gift to another person such as grandparent, sibling, or another relative
  • Investing in a qualified college savings plan or educational trust


Philip J. Kavesh
Nationally recognized attorney helping clients with customized estate planning guidance for over 40 years.
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