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
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benefit from performance-based scholarships without disclosing my
financial information? Have I made a big mistake by keeping my
retirement money in a CD?
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When colleges offer merit-based aid, they almost always require the
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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
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
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
— 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.