Student jobs and financial aid eligibility

Families who become savvy about the college financial aid process will sometimes ask how their high school student’s summer job will affect their financial aid eligibly. The FAFSA, the form colleges use to determine how much a family can afford to pay for one year of college, measures the income and assets of both the parent and the student. A student who’s diligently worked and earned money will have that income figured into the FAFSA’s calculations. A particularly earnest student who saved any of that money has now created an asset on hand. When crunched through the financial aid formulas, that income and assets can reduce the family’s demonstrated need for financial aid. So a student who’s never had a job could technically qualify for more aid than the student who spent the last three summers bagging groceries.

But there’s good news for good workers. The FAFSA has protections in place for student earnings—a student can currently earn up to $6,570 in one year before any of it is counted as income on the FAFSA. So that summer job lifeguarding isn’t likely to sink your financial aid ship.

For high school students who work enough hours out of desire or necessity to earn more than that amount, it would be silly to reduce your hours (or to quit your job) to earn less money and ostensibly protect your financial aid. Having cash on hand is never a bad situation. But there’s something you can do to mitigate the potential negative impact on your financial aid eligibility—save some of the money in a 529 plan.

A 529 college savings plan allows families to keep money in the student’s name, but to report that money as a parent asset on the FAFSA. That’s a crucial difference as while the FAFSA assesses student assets at around 20 percent, it assesses the parent assets at 5 percent. Saving $1,000 in your own name reduces your financial aid eligibility by $200. But saving that money in a 529 plan only reduces your eligibility by around $50.

There are a lot of benefits for high school students holding regular jobs—making money, earning work experience, and even impressing colleges. So don’t back off from your work opportunities just to protect your aid. But do be aware of how much you’re earning. And remember that no matter how much or how little you earn, saving some of that money in a 529 plan is a smart way to invest in yourself and to protect your eligibility for aid.

Ability vs. willingness

When I first started Collegewise in 1999, I enrolled in a course through the UCLA extension program to learn more about financial aid for college. I still remember one particularly pithy piece of information from the instructor, who’d worked as a director of financial aid for several prominent colleges and universities.

“Financial aid is designed to make up for a family’s lack of ability, not their lack of willingness, to pay for college.”

Financial aid officers treat paying for college as a responsibility that falls first on the family. The financial aid formulas determine the price a family can reasonably afford—it’s a snapshot of their ability to pay for college. When it works well, a financial aid package can make up the difference.

A family certainly has the right to decide that a particular college’s price is more than they are willing to pay. They also have the right to decide to live beyond their means rather than to save that money for college. But they can’t make those choices and then expect a financial aid package to make up the difference. That’s asking financial aid to make up for a lack of willingness to pay, not a lack of ability.

Given that every dollar you set aside for college is a dollar less that financial aid will cover, a family who diligently saves what they can afford to set aside, no matter what the amount may be, is taking more control of their college financial future. And they’re also demonstrating to financial aid officers that they have leaned into their responsibility. That willingness to save can increase a college’s willingness to help.

The formulas will calculate your need, but your actions can demonstrate your willingness.

What are the best student loans?

Mounting student loan debt has left many families far more reluctant to take out loans to send their kids to college. But done responsibly, loans can help some families make up that difference between the full cost of attendance and what they can afford to pay for the college that really is the best place for their child to learn and grow for four years. If you’re looking for—or would like to file away for future reference—suggestions for the best student loans, expert Mark Kantrowitz comes through again with this piece, “Which are the best student loans?”

How to save if college is not a sure thing

Saving for college is usually one of those just-plain-good-sense things to do, not unlike exercising or reducing your midnight servings of Oreos. And the prevailing wisdom from every reputable college financial planner I’ve come across is to save that money in a 529 plan due to the favorable rate of return and the minimal impact on your financial aid eligibility.

But you’ll incur a tax penalty if you pull that money out of a 529 plan to pay for non-approved expenses. So what should you do if you’re not sure of your child’s college future? Should you continue to rely on the 529 plan and run the risk of penalties, or take a different savings route that would leave more cash on hand if college doesn’t pan out, but likely cost you in financial aid if college comes to fruition?

The short answer, according to this article, is to take the 529 plan off the table only if you are sure your child won’t attend college. Otherwise, keep saving in your 529 plan.

If you’re interested in the math behind the recommendation, the article lays it out nicely. But this question of the 529’s viability for kids who may or may not be college bound was a new one for me, and one that seemed worth sharing here.

Announcing the Collegewise Scholarship Program

At Collegewise, we make our living working with families who can afford to hire us. But we’ve always felt a responsibility to be generous with our time, our resources, and our counseling to help get information and assistance to kids who won’t have a Collegewise counselor to guide them. One of the ways we’ve done that is to work with students pro-bono. What we haven’t done is formalize this work. We’ve never established how many pro-bono kids we can help through the process while doing a good job for both them and for our customers. We’ve never publicized any program like this or offered an organized way for students to raise their hand for consideration, or for counselors on the high school side to identify kids they believe would benefit. That’s about to change.

The Collegewise Scholarship Program
This week we’re proud to announce the Collegewise Scholarship Program. Championed and brought to fruition by our own Casey Near, this program will assist U.S. students of limited means who would benefit from working one-on-one with a Collegewise counselor. We’ll help them build their college lists. We’ll help them craft their applications and essays. We’ll act as the project managers, answer their questions, and cheerlead them through a successful college application process.

How to apply
This year, we’re accepting applications from rising seniors in the class of 2019 residing in the United States (including DACA students). For students interested in applying—and for high school counselors who’d like to share this opportunity with particular students—the application is available here. The deadline to apply is June 22nd. If spaces are still available after that date, we’ll consider applications on a rolling basis. If you have any questions, please email scholarship@collegewise.com. We’re excited to have the opportunity to help more kids find their way to the right colleges, and to do even more to help level the college access playing field.

When private scholarships go to 529 plans

The largest chunks of scholarship money available to help students pay for college comes from the federal and state governments, and from the colleges themselves. But students can also apply for “outside” or “private” scholarships offered from private companies, foundations, community organizations, churches and other benefactors. Rather than simply writing a check to the scholarship winner, some of those providers will offer their awards as contributions to the family’s 529 college savings plan. There are several financial advantages to this, and expert Mark Kantrowitz explains them well in his recent piece, “Advantages of receiving scholarships through a 529 college savings plan.”

Free webinar: Financing Your College Education

Much like the process of applying to college, applying for financial aid can be confusing and stressful. Unfamiliar terms, conflicting information, complex application processes—it can all be so much more difficult than it needs to be. If you’d like some help making sense of it all, I hope you’ll join us for an upcoming free webinar:

Financing Your College Education: A Conversation with Jodi Okun
Tuesday, May 22, 2018
5 p.m. – 6 p.m. PDT

Jodi is the founder of College Financial Aid Advisors and the author of Secrets of a Financial Aid Pro. She’ll be joined by Collegewise counselor Michael Banks to discuss tips and techniques for navigating the financial aid application process while avoiding common mistakes. We’ll also record the webinar and share it with all registered attendees.

You can register or get more information here. I hope we’ll see you there virtually.

Avoid financial aid scams

This CNBC piece shares some good tips on how to avoid scams that purport to help you pay for college, including:

  • Scholarship applications that come with a fee
  • Seemingly exclusive invitations to workshops that in reality are open to everyone
  • Seminars that promise better information than your high school counselor can give you

For honest, reliable advice, here’s NACAC’s list of trusted sources.

How should you spend your 529 savings?

Parents, if you have a student starting college this fall and you’ve saved money for college in a 529 plan, you’ll soon be faced with making a decision about how and when you’ll spend it. Should you try to spread that savings out over time while your student is in college? Or should you use what you’ve saved in the first semester or two?

Financial aid expert Mark Kantrowitz tackles this question in this column, “What is the best way to use 529 plan funds?” The details within the explanation might get a bit complex for those like me who don’t speak fluent finance, but hang in there until the end where he summarizes his recommendations.