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How Much Income is Too Much When Applying for Need-Based Aid?

Mark Kantrowitz

September 22, 2009

In general, with the student not working and in a home with mom and dad both working, what is the maximum income they can earn and still qualify for financial aid? — Tracee N.

Federal student aid is awarded based on the student and parent income and assets, household size, number of children in college and a variety of other factors. It does not, however, have any explicit income cutoffs on need-based aid eligibility.

The number of children in college can have a big impact on aid eligibility. The Free Application for Federal Student Aid (FAFSA) is used to calculate the Expected Family Contribution (EFC), a somewhat harsh measure of the family’s ability to pay for college. The EFC is the sum of a student contribution and a parent contribution. The parent contribution is roughly divided by the number of children in college. So if the number of children in college increases, it can significantly cut the EFC and thereby allow a family to qualify for student aid despite having a higher income.

It is important to apply for financial aid every year even if you didn’t qualify for grants last year. Suppose you apply for financial aid for your freshman year in college and don’t qualify for any aid because you are the first in your family to enroll. If you give up and stop submitting the FAFSA, you might miss out on a lot of financial aid in a subsequent year when you and one or more siblings are enrolled in college at the same time.

For example, 95.9% of Pell Grant recipients in 2007-08 had an adjusted gross income (AGI) of $50,000 or less, 3.5% had an AGI of $50,000 to $75,000, 0.4% had an AGI of $75,000 to $100,000 and 0.2% had an AGI of $100,000 or more. But for families with two or more dependent children in college at the same time the percentages drop to 84.4%, 13.5%, 1.3% and 0.8%, respectively. With three or more children in college the percentages drop to 77.2%, 18.8%, 2.7% and 1.3%, respectively. Thus with more children in college at the same time, your chances of qualifying for the Pell Grant increase.

But even if you don’t qualify for a Pell Grant it is still worthwhile to submit the FAFSA. The unsubsidized Stafford loan and the PLUS loan are available without regard to financial need. You can be extremely wealthy and still qualify for these loans. The Hope Scholarship tax credit is available to families with income up to $90,000 (single filers) and $180,000 (married filing joint).

Note that student employment can have a big impact on aid eligibility, especially for independent students. A portion of student income is sheltered from the financial aid formula, but as much as half of income above this income protection allowance will be counted as part of the EFC.

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