When and how do assets get counted for financial assistance?

I went into some detail a couple of weeks ago explaining the household income brackets for specific financial assistance programs in a newspaper column called How tight is your budget?

Beyond the family income brackets, individual resources and programs also can invoke additional requirements. For example, Pell grants for college have a lifetime limit on the number of years a student is eligible; a renewable college scholarship often has a grade point requirement for the subsequent years; and the Home Affordable Refinance Program requires a good payment record on the home loan at the time of application.

Another qualification category that frequently comes up is financial assets beyond monthly income.

Since that discussion seems to be running rampant again on social media among people who do not understand qualification requirements for specific assistance programs, here are some examples and background of what has happened in Michigan in recent years.

The point I’m making is that it’s time to direct anger and frustration about what is “fair” away from those who are receiving assistance, toward legislators and boards of directors who can change the rules if something doesn’t seem right.

But in the meantime, critics should be prepared for the possibility that stricter rules could discourage some they really want to help from going through the process of “proving” their need. There is evidence to support that.

Welfare

The program that most people call welfare, but is known as cash assistance under Michigan Department of Human Services, is among them. The DHS eligibility rules are this:

The cash asset limit is $3,000. Assets are cash or any property you own. Assets such as your vehicles and personal belongings are not counted.

Cash assets include:

• Cash on hand.
• Bank and credit union accounts.
• Investments.
• Retirement plans.
• Trusts.
• Property or real estate (asset limit is $500,000).

Food stamps

The program most people call food stamps, but is known today as Supplemental Nutrition Assistance Program, also takes assets into consideration, at least here in Michigan. Here are the Michigan DHS guidelines on that detail:

The food asset limit is $5,000. Assets are cash or any property you own. Examples of cash assets are: 

• Cash on hand.
• Checking and savings accounts.
• Investments.
• Some retirement plans.
• Some trusts.
• Property or real estate (excludes first home).
• Vehicle (one household vehicle will not be counted).

College financial aid

The FinAid.org website has an entire page discussing what is considered fair vs. what complications to look for on the income and asset review if a student hopes to receive getting grants, certain scholarships or low-cost loans.

But here’s a snippet that gets to the point I’m talking about. The FAFSA is the Free Application for Federal Student Aid, a national application used by many colleges and universities as part of the financial aid review:

Certain types of property, such as automobiles, computers, boats, furniture, appliances, books, clothing and school supplies, do not count as assets. If you will need to make certain major purchases, such as buying a new car, do it by the base year so that your liquid assets are reduced. We are not suggesting that you go on a spending spree, but simply accelerate a few necessary expenses. For example, if the student will need a computer, automobile, dorm refrigerator and microwave oven for school, it may be worthwhile to buy them before the student enters college. Since student assets count more heavily than parent assets, this strategy should apply mainly to items needed by the student and purchased using his or her own money.

For example, if you’ve been saving money in the bank for a specific purpose, such as a big dollar-item purchase, use it for that purpose before you file the FAFSA, not after. You cannot ignore the money even if you plan to use it the day after you file the FAFSA. If the money is there, even only temporarily, it must be reported.

What are generally not considered assets?

The exceptions will vary from one program to the next, but you’ll find clues in what is specifically mentioned in the rules and what is not. For example, an assets review might not consider:

• How “good” of a car you own.
• How “good” of a neighborhood you live in /  how big your house is ($500,000 would go pretty far in southeast Michigan’s real estate market).
• How fancy or expensive your clothing is.
• How much money you put into your retirement account in recent years.
• How tricked-out of a cell phone you have.
• Whether money that contribute to your living expenses is actually in someone else’s name. Remember: if someone else’s name is on that account, it’s not your money. He or she can do whatever they like with it.

How does being frugal fit in?

I have said repeatedly, that charity donors, public agencies and grant writers do not want their resources to be wasted on expenses they consider to be frivolous.

Specifically, if you are in financial need or likely to be, you can limit or postpone your need for assistance, and will likely find a more sympathetic response should you ask for help, when you are known to lead an overall frugal lifestyle.

The problem is that third parties tend to pick one or two examples out of context when they start to analyze someone else’s spending habits.

Here is an example:

If you hear about a family taking a trip to Disney World, as is a popular thing for Michigan families to do at least once when the children are young, did you think, “They must have a lot of money”?

Or did you think, “They must have worked extra hours to pay for that trip.”?

Or did you think, “That mom was pretty resourceful in saving money on other expenses so they could pay for that trip.”?

What if you don’t like the rules?

Some of the complaints and rants I’ve heard and read about financial assistance clients are more in regards to how the rules are written than whether specific clients are following the stated rules.

If you have questions about client eligibility, then find out what the rules actually are. You’ll find the guidelines listed on many of the agency websites, or you can call or write the agency, legislators or board of directors for an explanation. If you disagree with a particular point or see a loophole that should be changed, ask who you need to contact in order to recommend an update.

Changes can get made when an existing rule is no longer relevant or appropriate to the circumstances. It may not happen as fast as you would like, but here are two examples of specific concerns being dealt with in Michigan:

One topic that was pretty heated a couple of years ago involved the question of whether college students should be eligible for food stamps. In fact, I listened to a rant from a reader last week when she called me for another matter as to the fact her college-student granddaughter doesn’t qualify for food stamps. I told her yes, that’s the procedure now in Michigan unless very specific circumstances are involved.

To be fair, I added, college students have access to other resources to help pay for living expenses that a typical low-income individual does not. The fact that those financial aid “resources” are typically in the form of loans is a different matter entirely.

Another topic that got public attention in recent years was the question as to whether lottery winners remain eligible for public assistance. In Michigan, the answer is now this:

On April 11, 2012, Governor Rick Snyder signed new legislation requiring the Michigan Lottery to notify the Department of Human Services about any lottery winners awarded $1,000 or more within seven days.  The legislation also provided for specific asset tests to help determine eligibility for some public assistance programs.

What if you know someone is cheating the system?

Fraud is a very different issue than whether you disagree with how the rules are written.

This is the definition from Michigan DHS:

A welfare fraud complaint should be submitted only if you believe an individual or a business has been issued benefits in Michigan they were not entitled to.

Fraud is defined as acquisition or attempted acquisition, or aiding and abetting acquisition or attempted, of property, income, rights or legal privilege by means of willful false statement, false representative or impersonation, or by any scheme contrived to misrepresent true circumstances.

Do people really get charged with welfare fraud? Yes, there was a widely publicized case in Michigan earlier this year.

What if the guidelines became stricter?

The conventional wisdom, or at least the hope of those who want to encourage fiscal responsibility among financial assistance clients, is that stricter guidelines and review procedures could help direct limited funds to the individuals and families most in need.

The reality is: the more complicated an application or review process becomes, the more annoyed the potential clients will get over the time and effort that is involved.

One example is the huge genre of discussions, including this article at AgingCare.com, about the topic of “spending down” assets so that someone can become eligible for Medicaid. The recommended steps vary from state to state depending on regional rules.

But it is fair to say that many families have been resentful that savings that were meant to help an elder have a better life during retirement years, or might have been passed on as inheritance, must be spent down before Medicaid eligibility begins.

In other cases, it is less likely that applications will be received at all.

Such an example can be found with the federal school lunch program. The application paperwork is pretty straightforward, as the basic formula is household income compared to numbers of people in the home.

But in spring 2008, the State of Michigan started procedures so that food stamp families are automatically eligible for the school lunch program. Why is that?

Some children were not getting free lunches because their parents had not filled out the required paperwork for that resource, even though administrators knew the students would be eligible for that program if they had already qualified for food stamps. While Michigan officials didn’t report in the press release how many students they believe had been overlooked, they did match up more than 300,000 children with the new database sharing.

College financial aid and scholarship money also fits into this discussion.

There also is a federal database where you can look up by state and high school how many students are filling out the Free Application for Federal Student Aid, which is the standard national application for college assistance such as grants and low-cost loans. This had a reputation of being complicated, but there were some tweaks in recent years to streamline the process.

But according to that database, there were only 210 completed applications among students from Monroe High School in Monroe, Mich., and only 86 completed applications among students from Jefferson High School, which is just outside Monroe, during spring 2012.

At a time when post-secondary education is highly encouraged, are there really only 210 recent graduates from MHS and 86 from Jefferson who are taking college classes this fall?

I also heard a rant one day from a college dad about the essays, applications and reference letters for the $500 and $1,000 scholarships that Monroe-area students can apply for. His point was “that’s a lot of effort for a little bit of money.’

True that. My daughter applied for them anyway. His daughter did not.

I also have heard stories of local students who missed the application deadlines or didn’t even think to look for that money.

Can you really define “need” in the first place?

How easy is it to define financial need in the first place?

Take another look at the income brackets listed in How tight is your budget? That list shows that income eligibility for specific programs stretches pretty high into the working poor demographic.

Now expand that concept further into the middle-class and upper class brackets. There is now a more expensive lifestyle even in terms of housing, and completely different expectations among families in regards to needs and wants.

Should someone apply for financial assistance?

I get asked this from time to time, and my answer is always: yes. If you honestly meet the requirements for a specific program or resource, you were the person it was written for. Use it.

But if you realize upon looking over the rules that you would not qualify, or you no longer wish to keep up with the requirements, then leave those funds for whom the resource was intended for. Find another way to make your household budget work.