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The Free Application for Federal Student Aid (FAFSA) uses your family’s income and assets to determine much financial aid you’ll receive for school. Many families do not fill out the FAFSA, assuming that their income will disqualify them for any aid. But even if your family has a good amount of both income and assets, there are ways you can maximize your federal financial aid.
Both student and parent income counts on the FAFSA — meaning if you have a job as a student, you’ll need to report your earnings for the previous tax year on your upcoming FAFSA application.
Your parents’ income is all their earnings from work that’s reported on their taxes. That’s why the most recent tax filings are so important: They detail the latest earnings and can give you the most accurate estimate of your family’s situation.
Retirement withdrawals, capital gains and some taxable scholarships may also be reported as income.
Assets are what either the student or the parent owns that could be collateral to help pay for college. This includes investments from rental properties, investment accounts, college savings plans and a business.
Assets that aren’t included are the family’s primary residence, cars and other possessions.
Income and assets are the some of the primary metrics on which the FAFSA measures your financial need. If your family has a high relative income, you may receive less financial aid than a family with a relatively low income, because the FAFSA will determine that you have a higher expected family contribution (EFC).
However, the cost of your school also affects your potential financial aid. Your financial need is calculated by subtracting your EFC from the school’s cost of attendance, so if you’re attending an expensive school, you may receive financial aid even if your family income is high.
What parents claim as assets and what students claim as assets are different. For instance, a 529 account counts as assets of the owner (not the student beneficiary), while UGMA and UTMA accounts are considered student assets, since the minor is the owner of the account.
Student income and assets generally have a greater effect on EFC than parent income and assets. This is why FinAid recommends transferring as many assets as possible from the child’s name to the parents’ before beginning the FAFSA.
Income is more heavily weighted than assets on the FAFSA, meaning you may still qualify for financial aid if your family has a low income but high assets. This is true even if your family lives in an expensive home — primary residences are not considered assets for the purposes of the FAFSA.
It’s important to configure income, assets, savings and other financial college preparation into the right places so you can still maximize how much you receive in federal financial aid. You can do this by:
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How Income And Assets Affect Financial Aid For College – Bankrate.com
