College Federal Aid Calculations

You will have to fill out a FAFSA form in January each year if you want to apply for federal financial aid or aid from a college/university/trade school for yourself or a dependent. Parent savings are not counted heavily in federal aid calculations according to Money Magazine. Generally your savings will increase your expected contribution by 5.64% of your nonretirement savings after a deduction of $30,000 per couple. However, as much as 47% of a parent’s earnings (after deducting $50,000 for a family earning $100,000) will count toward the expected contribution. In this case, the expected contribution would be $100,000 – 50,000 = 50,000 X 47% = $23,500 per year. Colleges will also reduce need based aid by at least 20% of any student assets (excluding anything in a 529 plan). That is why saving in a 529 plan can be a helpful planning tool.

If you own rental properties, know that generally 5.64% of any equity is also counted toward the expected family contribution.

These are just rough calculations. You will usually find that when you run the actual FAFSA form that the expected family contribution will be a little less, but unfortunately, likely more than what you’d hoped. Luckily there are tax breaks for the tuition you do end up paying!

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s