Personal Savings on the Free Application for Federal Student Aid (FAFSA)
Many families think that saving for college may hurt their chances of getting financial aid. The reality is that the money the average family saves will not significantly affect the amount of aid they receive. There are several reasons why.
The Free Application for Federal Student Aid (FAFSA) uses the Federal Methodology Formula, which considers a family’s income as the primary source from which they will pay for college. The assets considered on the FAFSA include cash, savings, checking, and investments. The family home, qualified retirement plans, family farms, or small businesses are not included.
Here is an example that shows how the personal savings of one family would be considered on the FAFSA :
Mr. Irish is 53 years old and Mrs. Irish is 50 years old. They have saved $25,000 in a basic savings account. The Federal Formula used in the FAFSA protects a significant part of these savings for family needs. Based on that formula, which takes into account the couple’s age among other factors, only $2,160 of the $25,000 in savings would be considered part of the parent contribution towards college expenses for their child’s freshman year.
Because only a small part of the Irish family’s savings was considered in calculating their ability to pay, they have most of their savings remaining. The money in their savings could be used to pay for college-related expenses, making it less likely that they will have to borrow student loans to make up the difference. In the end, it is better for the family to have saved the $25,000 than to have no savings to put toward their student’s unmet need or other expenses.