FAFSA and savings

[Jaybee]

My dd is on a full tuition scholarship, works part time, and with wise and careful spending, she has saved a nice nest egg for herself the first year-and-a-half of her schooling. She has been eligible for Pell Grants in the past. She has been saving for a car and the accompanying expenses, which she will really need in a few months when she enters upper division nursing school. She would prefer to wait a few months to buy the car, but does not want the money she has saved to hurt her possibilities for a Pell Grant this year--which might keep her from being able to buy a car. Anybody know more about this and can offer information or suggestions on how Pell Grant decisions are determined?

[Brenda in MA]

As I understand, Pell grants are determined on EFC, and 20% of a child's saving are added on to the EFC in most cases.

 

However, there are some cases, depending upon the child's age (under 24) and the parents income, where they qualify for an "Auto zero" EFC. In that case, I don't think savings effect the EFC.

 

I would suggest that you research this a bit more before she files her FAFSA for next year. There are many folks on the College Confidential forum in the financial aid section that are really knowledgeable about the FAFSA, so I would suggest asking your question there.

 

Brenda

[mamajudy]

What about parents' savings? DH only gets paid nine months out of the year, so we have to save up for the summer. Then when we fill out the FAFSA we have to report what we have in the bank. We need that money to live on through the summer - it's not for paying college tuition. Does anyone else have a similar situation? What do you do? Take the money out of the bank and put it under your mattress long enough to file your FAFSA?

[MicheleinMN]

What about parents' savings? DH only gets paid nine months out of the year, so we have to save up for the summer. Then when we fill out the FAFSA we have to report what we have in the bank. We need that money to live on through the summer - it's not for paying college tuition. Does anyone else have a similar situation? What do you do? Take the money out of the bank and put it under your mattress long enough to file your FAFSA?

 Yes, we have a similar situation, but I don't have an answer.  I try to pay everything I can ahead of time and scrape to get through the lean time.

 

Definitely all ears on this thread.

[Lori D.]

What about parents' savings? DH only gets paid nine months out of the year, so we have to save up for the summer... We need that money to live on through the summer - it's not for paying college tuition.... What do you do? Take the money out of the bank and put it under your mattress long enough to file your FAFSA?

 

To determine EFC (estimated family contribution), FAFSA looks at the family's financials in this order, with the first 3 being the biggest percentage of factors:

1. student's income

2. parent's income

3. student assets

4. parent's assets

 

FAFSA looks at the previous year's income tax return information (both student and parents) for the income aspect and plugs that info into their formula, along with your current asset information. So, they already "see" your money under the mattress from the income earned. ;) Because that saved cash in the bank is your (the parents') asset, it will have the LEAST effect on the EFC number. I found this article excerpt helpful (note my added boldface):

 

"Cash assets and investments are considered when the government and colleges award need-based financial aid...

 

Before you start shifting assets around, use a financial aid calculator to evaluate the impact on your expected financial contribution (EFC). Often assets have a negligible impact on eligibility for student aid. For example, families earning less than $50,000 a year who could have filed an IRS Form 1040A or 1040EZ may qualify for the simplified needs test, which disregards all assets.

 

There’s also an asset protection allowance that shelters about $50,000 in parent assets. Money in retirement plans, the family home and small businesses owned and controlled by the family have no impact on federal aid. As a result, parent assets affect the EFC of less than 4% of dependent students.

 

You should, however, save money in the parent’s name, not the child’s. Child assets have a much more severe impact on the EFC. If you’ve mistakenly saved in the child’s name, you can fix this by moving the money into a custodial 529 college savings plan. Even though the child will be the account owner, such a 529 college savings plan is treated as though it were a parent asset on the FAFSA.

 

The federal need analysis formula is more heavily weighted toward income than assets. If your assets are enough to eliminate eligibility for federal student aid, chances are your income would have eliminated the eligibility even if assets were ignored entirely.

Some private colleges consider assets more harshly when awarding their own financial aid funds. But you’re still better off with the savings than without it." — excerpt from a 2011 Q&A article by Mark Kantrowitz, FinAid.org

 

So, the few thousand $$ you save for the summer will likely have no effect as an asset on your student's EFC number.

 

 

You may also find some of the past threads on Financial Aid, FAFSA, Scholarships helpful; there are a bunch in post #5 of the pinned thread at the top of the high school board: "Transcripts... College Prep / Applications, Scholarships/Financial Aid... past threads linked here!" Here are a few that may be of interest right now:

 

Do colleges consider a parent's retirement funds when deciding on financial aid? (tips for maximizing financial aid)

Is the financial aid package accurate? (how is work study/federal grant $ determined)

College financial aid question (how to apply for financial aid)

Financial aid question   (FAFSA, EFC, etc.)

Looking for an EFC calculator of the FAFSA

FAFSA and scholarships (paying taxes on scholarships)

S/O: Cautionary tale/high college costs -- a brainstorm $$ ideas thread! (creative idea for funding college)

Five big financial aid lies; one-page article (keeping/losing scholarships; eroded value of scholarships; % of met-need; Parent Plus loans; lowering high EFC #, merit aid)

 

Also, FinAid is a very helpful and informative website.

 

 

Welcome to the wonderful world of financial aid administration for your student.  :wacko:  :ack2:  :banghead:  :blink:  :eek:  :confused1:   :crying:  :cursing:   :leaving:

And the range of emotions you will be experiencing for the next number of years. (LOL) Warmest regards, Lori D.

[Brenda in MA]

What about parents' savings? DH only gets paid nine months out of the year, so we have to save up for the summer. Then when we fill out the FAFSA we have to report what we have in the bank. We need that money to live on through the summer - it's not for paying college tuition. Does anyone else have a similar situation? What do you do? Take the money out of the bank and put it under your mattress long enough to file your FAFSA?

My only suggestion in this case would be to file the FAFSA as soon as possible after January 1 that you can. That way it is filed a ways before the summer so you should theoretically have smaller summer savings at that time of year.

 

Also, I believe that you have to state the amount in your bank accounts when you first file the FAFSA, and then if you need to update it, you do not change the amounts in the bank accounts. This way, you could pay fixed bills (like property tax, car insurance) ahead of time to "draw down" your balance as well. You can also file the FAFSA right after January 1 even before your taxes are ready using estimates. Then when you go back to update the FAFSA after the taxes are done, I don't believe you update the bank account balances.

 

Again, I would suggest asking some of this on College Confidential. There are some really knowledgeable folks on there.

 

HTH,

Brenda