Financial Aid

Why Do Some Merit-Based Scholarships Require the FAFSA?

The Fastweb Team

August 24, 2017

Why Do Some Merit-Based Scholarships Require the FAFSA?
Most colleges require students to apply for need-based aid for merit-based aid. Why?
<b>I am a 38-year-old student who returned to junior college after being laid off and being unable to find a comparable job. Because I was a "good saver" in my 20's, I was able to do this while only working part-time. Approximately 60% of my expenses are paid with my savings. I am ready to transfer into a 4-year institution. However, I am concerned that I might not receive any financial aid because my
savings are now held exclusively in a CD, not a qualified retirement plan. My prospective college initially informed me that I qualify for a substantial performance-based scholarship based upon my 4.0 GPA. But they will not confirm this until I complete the FAFSA. What does one have to do with the other, and is there anyway for me to protect the savings I have left? Shouldn't I be able to
benefit from performance-based scholarships without disclosing my financial information? Have I made a big mistake by keeping my retirement money in a CD? — L.P. When colleges offer merit-based aid, they almost always require the
recipient to apply for need-based aid first. If you were to qualify for a Pell Grant, for example, that would reduce the college's cost in providing you with the performance-based scholarship. The amount of a merit-based scholarship is usually reduced by the amount of any need-based grants. By requiring you to take advantage of federal and state aid first, the college can stretch its limited financial aid budget further. A requirement to submit the Free Application for Federal Student Aid (FAFSA) can also be motivated by what's in the student's best interests. For example, the federal government requires students who intend to borrow only the unsubsidized Stafford loan to submit the FAFSA first, just in case they qualify for need-based grants. Grants are better than loans.
If your adjusted gross income (including your spouse's AGI) is less than $50,000 and you are eligible to file an IRS Form 1040A or 1040EZ (or you meet certain other substitute criteria, such as having been a displaced worker within the last two years), you will qualify for the simplified needs test and your assets will be ignored on the FAFSA. Otherwise the money in the CD will count against you. (There is a similar test that will result in an automatic zero EFC if your adjusted gross income is under $30,000. However, independent students with no dependents other than a spouse do not qualify for automatic zero EFC. Only independent students with dependents other than a spouse (or dependent students) can qualify for automatic zero EFC.) My husband and I own our home thanks to my father-in-law, but we earn only $13,500 a year. Would we qualify for financial aid? — Brett P. The federal need analysis formula ignores the net worth of the family's principal place of residence, so your home will not affect your eligibility for need-based federal student aid. You will probably qualify for a full Pell Grant because of your low income. About 250 mostly private colleges use the CSS/Financial Aid PROFILE form for awarding their own funds. The PROFILE does consider the net worth of the family's home, but it caps that net worth at 2-3 times income. Given your low income, your home should have only a minimal impact on your aid eligibility at these colleges.

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