How Does My Parents’ College Savings Touch My Financial Aid?


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Did you know the factor of “who owns what” affects the level of financial aid you receive? Now you know. But how does this affect your financial relief? In fact, several factors come into play when calculating your monetary assistance.

One of the leading causes is your parent’s college savings account. When you apply for college loans and need aid, you are required to fill in all the information about your parent’s assets through the Free Application for Federal Student Aid (FAFSA).

The many questions you are required to answer concerning your assets, as well as those of your parents, are used to calculate the Expected Family Contribution (EFC). Colleges go ahead and use the assets you report in FAFSA and factor them in the report in the following ways.

The learner’s resources count for more. In this case, colleges expect the families to fund up to20 percent of the assets owned by the dependent student to pay for college fees. This element does not matter if some other people’s funds fund the child’s assets. The good thing is, a 529 account that is owned by a student counts as a parent’s asset.

Assets of the parents count for less. For instance, colleges expect parents to use less than 6% of their “unshielded” assets towards college payments.

Some portion of the parent’s asset is shielded. “Protected” assets remain untouched. The exact amount varies depending on the number of blood relations and the age of the elder parent.

So What Does This Mean For My Financial Aid Packages?

Since the government assumes that the student’s primary focus is their education and not towards other things like retirement or savings, this is the reason why 20 percent of a dependent student’s income goes towards education.

So how does this knowledge help you? If the college savings happen to be in your name instead of that of your parents, the stash will be considered at a greater rate hence lower the amount of financial aid you would receive.

However, if, on the other hand, the same college savings are in your parent’s name, they are factored in at only 5.64 percent and thereby increase the amount of aid you would collect. Do you get the concept?

So collect savings in your parent’s name have less impact on financial aid as compared to them being in your name. It is, therefore, very crucial to go over this information with your parents while applying for college loans or even during the initial stages of filling in your college info through FAFSA.

Which Assets Count When It Comes To Financial Aid?

According to the FAFSA, most money owned by the student or parent counts as an asset. These assets can include checking and savings accounts, a business net worth which has over 100 employees full time, investment accounts, farms that are not primary residences, interest income which is tax-exempt, investment property, tax credits, savings plans including 529 accounts which are non-retirement and tax-deferred among other assets.

Note that a farm that is your primary residence does not count.

But Which Assets Not Counted Still Affect Your Financial Aid?

Despite the FAFSA not requiring information about retirement accounts like ROTH and traditional IRAs, pensions, and 401(k) plans, the untaxed income and contributions for these accounts must be conveyed to the FAFSA that spans the time in which the transactions ensued.

Similarly, you don’t have to report assets held by other people even if they are intended for college. However, be careful that once the money is paid or given to the student as part of college, it must be reported to the FAFSA as untaxed income on the oncoming year’s application.

So bearing in mind that a student’s income is charged at a much higher rate than that of the parent, know that this action could significantly affect the financial aid you receive. Therefore, be smart when accepting this kind of “gifts” knowing how vital they are to your aid eligibility.

Bottom Line

There is a misconception that if your parents have a high income, you will not qualify for financial aid. That is a lie. So go out there and fill out the FAFSA form. Do you know why you need to do this? This action opens doors to merit-based grants and scholarships, and any money that your parents have saved can be used to building your life after college.


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