Dear Penny: Should I Divorce My Husband to Qualify for a Pell Grant?

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Dear Penny,

I am a full-time student who is making $10,000 a year, while my husband earns an average of $45,000 annually. Therefore, I was deemed ineligible for a Pell Grant even though I pay for school on my own.

I’ve currently accumulated over $20,000 in federal student loans and have two more years to go for my bachelor’s degree. Should I divorce my husband (just on paper), then file for professional judgment with the school to be eligible for a Pell Grant? Otherwise, I will owe double the debt by the time I graduate.

Also, I have my health insurance through my husband’s employer. Will I be still eligible for the insurance as a domestic partner? 

-K.

Dear K.,

It’s possible that you’d qualify for a Pell Grant if you got divorced, but I’m not sure that it’s practical. A paper divorce is occasionally used by the extremely wealthy to save money on taxes, as well as people with lower incomes who need to qualify for government benefits or more financial aid. Some people have strong aversion to this strategy, but I’ll avoid delving into the morality or the potential legal ramifications and stick to the financial issues.

Pell Grants are reserved for undergraduate students who demonstrate the highest level of financial need. They’ve gotten a lot of attention lately because President Joe Biden’s student loan forgiveness plan will eliminate $20,000 of federal loans for recipients of the needs-based grants versus $10,000 for all other borrowers.

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There’s no neat formula for determining your Pell Grant eligibility. The formula is based on your school’s cost of attendance, your expected family contribution as determined by FAFSA, and whether you’re a full-time student. Most Pell Grants go to students whose families make less than $30,000.

Since you’re married, you meet the federal government’s criteria for an independent student, which means that your parents’ income isn’t used to determine your financial aid. In all likelihood, an annual income of $10,000 would make you eligible for a Pell Grant.

But it gets a little more complicated because FAFSA, which is used to determine Pell Grant awards, uses your tax returns from two years prior. In other words, your financial aid award for the 2023-24 school year will be based on your 2021 income. The professional judgment process you mention allows financial aid offices to modify students’ FAFSA information to reflect a recent life change, like a job loss, death or divorce. However, each school has different rules for this process. Some don’t even offer professional judgment adjustments.

The maximum Pell Grant for the 2022-23 school year is $6,895. It’s possible to apply for financial aid for the 2022-23 school year up until June 30, 2023, and have the money retroactively applied. So let’s assume the best-case scenario that you can qualify for two years of Pell Grant awards, or just shy of $14,000. It’s also possible that you get an extra $10,000 of student loan forgiveness, though I wouldn’t take it as a given.

That means in a perfect world where everything goes swimmingly, getting a divorce could get you an extra $24,000 between Pell Grants and extra loan forgiveness. Of course, you’d need to weigh that against the costs. Even with an uncontested divorce, you’d pay some court fees. I also wouldn’t recommend getting a divorce without legal consultation, even though it’s just a divorce on paper. Some states also require that you live separately in order to divorce.

You’d also probably be looking at higher health premiums. You’d need to check with your husband’s employer about whether their insurance covers domestic partners. But it’s likely you’d need to either pay higher premiums to get COBRA coverage and stick with the current plan or purchase health insurance on your own.

But what you really need to consider are the curveballs life can sometimes throw at you. One letter I got about a year ago sticks with me. A couple secretly divorced to qualify their disabled daughter for benefits. The wife hadn’t worked much because she spent so much time caring for her daughter. She assumed she’d be able to get her husband’s Social Security someday. But when he died tragically in a car accident, she couldn’t get his survivor benefits because they hadn’t been married for 10 years.

That’s just one example of how a divorce could have unexpected disastrous consequences. When everything goes as expected, getting divorced for the financial benefits seems like a no-brainer. But it can also make a severe illness or sudden death far more devastating, no matter how unlikely they seem.

Given that you’re halfway done with school, you’re probably looking at graduating with $40,000 worth of debt, or $30,000 assuming you qualify for the $10,000 loan forgiveness non-Pell Grant recipients will get. Life would be easier without those loans, but it’s also not an unmanageable amount of debt.

Your maximum benefit here is about $24,000. But it’s impossible to quantify the potential cost if something goes really wrong. Think carefully before you proceed.

Trying to climb out of debt? Here are 50 ways to bring in extra money this month.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected]er.com.