Paul L. Caron

Wednesday, September 5, 2007

How Much Income Can Parents Have Before Losing All Financial Aid for Their Kids' College?

Interesting article in today's Wall Street Journal for those (like me) scarily confronting impending college bills:  Applying for Financial Aid: When It Isn't Worth Your Time, by Jonathan Clements:

For many high-school seniors, this week isn't just the beginning of the academic year. It's also the start of the college-application season, and that means filling out financial-aid forms. But for many families with hefty incomes or sizable wealth, applying for aid will be a wasted effort. Here's a look at who likely won't qualify.

You can get a handle on your aid eligibility by ... playing with the College Board's Expected Family Contribution, or EFC, calculator. The key concept: If your EFC is below a college's total annual cost, you will get help from the college or the federal government in bridging the gap. ... So will you receive needs-based aid? Imagine you don't own your home, have no savings and just one child.

[How much income takes you out of the college financial aid sweepstakes?

  • $90,000, if your child goes to the average in-state public college costing $13,000/year
  • $150,000, if your child goes to the average private college charging $30,000/year
  • $220,000, if your child goes to the most-expensive private college charging $48,000/year

If you have two kids in college, the amount of income you can have before losing all financial aid increases to:

  • $120,000, if your child goes to the average in-state public college costing $13,000/year
  • $220,000, if your child goes to the average private college charging $30,000/year
  • $300,000, if your child goes to the most-expensive private college charging $48,000/year]

Remember, however, we are talking about income alone. What if you have, say, $500,000 in investments sitting in a regular taxable account? If you had one child in college and your income was $130,000, your EFC might be $47,000, which means you are unlikely to get aid, no matter where your child goes to college. Similarly, at $250,000 in income and with two children in college, your EFC would be some $47,000 per child. Again, you would likely be out of luck.

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Depending on your familys income and the cost of the school you are attending, you might not be able to qualify for federal and institutional aid. Theres a really good discussion of this over at the TaxProf Blog. Savings count against w... [Read More]

Tracked on Dec 13, 2007 9:10:09 PM


Are there options for people with money in savings, but without large current income, such as putting money into trusts or FLPs?

Posted by: Paul Comeaux | Sep 6, 2007 11:16:08 AM

The whole thing is such a mess - my father died in a car accident when I was not yet school age. My mother worked as a secretary. I think the most she ever made was 40K or so a year. My brother and I both attended private colleges but were denied federal aid because my mother owned her own home and had too much in savings. She was in her 40s, her savings account had less than one million dollars and lived nicely but not lavishly. In contrast, a classmate who had two working parents received a large amount of aid since they had virtually no savings or assets. We appealed to my college's financial aid office who looked at my mother's situation and assisted us with grants, same process with my brother's college and he was not given any grant/scholarship. (Before you ask, he scored much higher than I did on the SATs and neither of us are athletes) My college did require us to fill out the FAFSA to apply for assistance. So the first poster is partially correct (her numbers seem off - makes no sense) colleges do have some leeway but it is at each institution's discretion. Considering the poor PR Duke has had, it would certainly be in their best interest to assist students who would not normally receive aid.

Posted by: john doe | Sep 6, 2007 10:49:07 AM

This is what bothered me: my parents made approx. 80k a year combined. Both my brother and I were in public universities at the same time. But they owned their own home, and had put a bit away for college, so we did not qualify for aid. The fact is that we needed SOME. Not all, but SOME. between the two of us they were shelling out probably between 40 and 50 a year in tuition & other living (CA)/school expenses. My point? Responsible people who aren't rich get shifted by the FAFSA system. Instead of being rewarded for reducing the amount of aid you may need from the federal goverment, you get NONE.

My other problem? What about the students whose parents are not going to help them with college? I had a few friends who were told they were on their own save an emergency. Their parents' info was considered and subsequently they got no aid. How do we factor this into the equation?

Posted by: steph | Sep 6, 2007 5:59:18 AM

I thought one of the perks of professorships was a free ride for the Little Taxprofs? Don't they want to stay close to home and attend the Univ. of Cincinnati?

Pity those of us without even that scant hope of financial aid, whose children require private school tuition approaching the most expensive private colleges.

Posted by: guy in the veal calf office | Sep 5, 2007 6:39:10 PM

The plain truth is that filling out a FAFSA is a pain in the neck and unbelievably intrusive. Some years ago, when I went to college, I looked at a FAFSA and decided it was easier to work my way through college than put up with such nonsense. And that is what I did. Now I have three kids in college. We took a pass on federally subsidized financial aid because the authors of the FAFSA seem to think we are among the "wealthy." Ah, if only that were the case.............

Posted by: Jake | Sep 5, 2007 6:12:34 PM

There are so many variables that need to factored in. What you have is an oversimplification.

I have a student at Duke whose parents had an AGI of $51,110 last year and the student's was $216,574. Their EFC was $95,226 and they had no unusual or special circumstances and she received no financial aid whatsoever. I appealed, and after the school had review their tax returns, she was awarded $12,500 of need-based financial aid!

This is no accident. I've been doing this for 28 years.

Posted by: Reecy Aresty | Sep 5, 2007 5:11:51 PM