How Do College Savings Affect Aid Eligibility?

Education

How Do College Savings Affect Aid Eligibility?

Learn more about how savings contributions affect your student's financial aid eligibility.

September 5, 2018

As you save for a child’s or grandchild’s future education, you might wonder what impact that saving will have on their chances of qualifying for financial aid. There are several types of financial aid (federal, state and institutional), but federal aid is the most widely dispersed and is based solely on financial need.

Agencies use a simple but dynamic formula to calculate financial need:

A school’s cost of attendance − Expected family contribution (EFC) = Financial aid eligibility

Determining Expected Family Contribution (EFC)

EFC is an annual figure expressed in dollars, and it determines whether a family has a financial need. You can estimate your EFC at savingforcollege.com. Financial aid offices often weight parental and student income more heavily than assets when determining EFC. In addition, student assets are weighted more heavily than parental assets.

From parents, EFC includes:

  • 22% to 47% of available income
  • 0% to 5.64% of assets
    • Mutual funds
    • Securities
    • Bank accounts and CDs
    • Parent-owned 529 savings plans

From the student, EFC includes:

  • 50% of adjusted gross income over $6,310
  • 20% of assets held in the student’s name
    • UGMA/UTMA accounts not held in a 529 plan
    • Minor trusts not held in a 529 plan
    • Savings bonds in the student’s name
    • Any other savings

Aid and Savings: Factors to Keep in Mind

  • A family seeking federal financial aid must complete the Free Application for Federal Student Aid (FAFSA) form.
  • Assets held in qualified retirement plans such as IRAs are not considered in determining eligibility for federal student aid. The percentage of other assets considered in determining EFC will vary based on the amount of assets, the age of the eldest parent and whether there are one or two parents.
  • Any student-owned 529 or 529 funded with UGMA/UTMA assets is reported as a parental asset if the student files the FAFSA as a dependent student.

None of the income and assets of a grandparent or other contributor are considered in the federal financial aid formulas. However, any withdrawals a grandparent or other makes toward education expenses may be considered student income and must be reported on the following year’s financial aid forms. Such income can reduce the amount of aid by 50%.

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