Will having a job reduce a student’s financial aid for college?

Posted on July 11th, 2013

Many prospective and current college students don’t realize that their income and assets are taken into account when they apply for financial aid, just like that of their parents.

So should students be worried about earning too much money and receiving less financial aid if they have a job?

Having a summer job usually won’t affect aid

In short, no, for the most part.

college student summer job

Having a summer job generally will not reduce your financial aid package, but you need to be careful about where you save your earnings.

The FAFSA formula to determine your Estimated Family Contribution takes students’ earnings into account, but it allows them to shield a portion of their income so that it doesn’t hurt their chances for financial aid.

According to CBS News, for the 2013-14 school year, a student could have earned up to $6,130 in 2012 and it wouldn’t have jeopardized aid.

Most students who work during the school year and summers will not earn more than this amount, so they don’t have to worry about receiving less aid because of making too much money.

And on-campus work-study jobs don’t count toward your taxable income, so you don’t have to worry about jeopardizing your chances for financial aid if you receive work-study as part of your financial aid package.

Students should be careful where they save earnings

However, what students do have to worry about is what they do with the money they earn.

The FAFSA does not allow students to hide their assets in savings and checking accounts, so if you deposit your earnings into one of these accounts, they will be taxed at 20% for financial aid purposes. So if you saved $2,000 over the summer, your amount of financial aid will decrease by $400.

It seems somewhat unfair, but there’s a way around this.

The financial aid formula only takes the student’s assets into account on the day his or her family files the FAFSA, so if you manage to move or spend all of the money before submitting the form, these assets will not reduce your financial aid.

Save money in parents’ accounts to maximize financial aid eligibility

One possible way to avoid the high penalty for student assets is to put them in the parents’ name.

Depending on the age of the oldest parent, the FAFSA allows parents to shelter some of their assets from financial aid considerations.

According to CBS News, a 50-year-old married parent can shield up to $40,900 from financial aid considerations, so holding a student’s money in his or her account might make more sense than keeping it in the student’s bank account.

Roth IRA savings won’t reduce financial aid

Another option for students with extra savings is to move the money into a retirement account, such as a Roth IRA.

These accounts are shielded from financial aid considerations for both parents and students, so if the student doesn’t need the money immediately, this is a much better option than keeping the money in a bank account and reducing his or her financial aid eligibility by 20%.

How to get the most financial aid for college

Figuring out how to maximize your financial aid eligibility is no easy task. Without proper guidance from financial aid experts, your family may find itself receiving much less aid than you need to afford college.

Most college financial aid offices will be no help in this matter, as they may assume you are trying to “game” the system. However, you’re entitled to understand how financial aid eligibility is assessed and act appropriately to maximize your chances of receiving help paying for college.

Our financial aid consultants have been able to help families get the most financial aid by explaining the best way to save for college without hurting the student’s chances for financial aid. If you’d like a free consultation on how we can help you, feel free to give us a call at 1-888-234-3907 or send us a message.


Category: Financial Aid

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