If a Student's Parents Do Not Claim Him as a Dependent on their Income Tax Returns, Will the Student Get More Financial Aid?

Mark Kantrowitz

February 20, 2012

How beneficial is it to have our college attending son file his taxes on his own versus us claiming him as a dependent? Does it make a huge difference in the amount of aid and/or scholarships he would receive? — Lois H.

Whether or not a student is claimed as an exemption on his parents’ federal income tax returns has no impact on the student’s eligibility for financial aid and scholarships. The student will not get more financial aid.

Although the word “dependent” is used on both the federal income tax returns and the Free Application for Federal Student Aid (FAFSA), one has nothing to do with the other. The word “dependent” for federal student aid purposes is defined by the Higher Education Act of 1965, while the definition used for federal income tax purposes is based on the Internal Revenue Code of 1986.

The statutory definition of an independent student for federal student aid purposes appears in section 480(d) of the Higher Education Act of 1965 [20 USC 1087vv(d)]. Any student who does not satisfy the criteria for independent student status is considered to be a dependent student, even if the student is financially self-sufficient, does not live with his parents and claims himself as an exemption on his own federal income tax return.

The FAFSA currently includes thirteen questions that are used to determine whether the student satisfies the statutory requirements to be considered an independent student. These criteria include whether the student is over age 24, is married, has dependents other than a spouse, is in graduate school or is a veteran. (A complete list of the criteria for independent student status appears at the end of this column.)

All other students are considered to be dependent.

None of these criteria are based on whether the student was claimed as an exemption on their parents’ federal income tax returns. Independent student status has not been based on whether the student is claimed as an exemption for two decades. The old “bright line test”, which was prone to abuse, was repealed by the Higher Education Amendments of 1992 (P.L. 102-325) effective starting with the 1993-94 award year on July 1, 1993.

The current set of rules concerning independent student status were designed to prevent the student’s parents from manipulating the student’s status to qualify for more financial aid. The federal government considers the student and the student’s parents as having the primary responsibility to pay for the student’s college education. The federal government provides financial aid only to the extent that the family is unable to pay for college.

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