Is your income too high to qualify for college financial aid?

by Grace

Mark Kantrowitz answers the recurring question about how much is too much income to qualify for college financial aid.

Question:

Is there a certain level of income and assets at which it doesn’t even make sense to apply for aid? I know this is not cut and dried, but before going through all the forms and submission expense, is there a formula where you can absolutely say that if your income is above x (say for a family of four) and your assets (outside of your primary home and retirement fund) are y, don’t even bother? – Stephanie

Answer:

The need analysis formulas are complicated enough that there is no simple answer to this question. The number of children in college can have a dramatic impact on eligibility for need-based financial aid. For example, a family with $100,000 in income and $250,000 in assets might have an expected family contribution (EFC) of about $29,000 with one child in college, but an EFC of $15,000 with two children in college. That won’t qualify for a Pell Grant since the EFC is more than $4,995, but it might qualify for subsidized Stafford loans or even institutional grants depending on the cost of the college. Financial need is defined as the difference between the cost of attendance (COA) and the EFC, so even a wealthy family might demonstrate financial need at a higher-cost college.

If family members have unusual financial circumstances, they may be able to qualify for more financial aid by asking the college financial aid administrator for a professional judgment review, sometimes called a special circumstances review or financial aid appeal. Unusual circumstances include anything that changed from last year to this year or anything that sets the family apart from the typical family. The college won’t make an adjustment for boat payments, but adjustments for job loss, unreimbursed medical expenses and high dependent care expenses (for example, for a special needs child or elderly parent) might qualify. Job loss is the most common reason for an adjustment. According to the 2011 College Decision Impact Survey, about one in six (17.6 percent) high school seniors had at least one parent lose a job in the last year.

Many colleges and scholarship providers require families to file the Fafsa to ensure that the student receives all the federal and state aid to which he or she is entitled. Families often overestimate eligibility for merit-based aid and underestimate eligibility for need-based aid.

Filing the Fafsa is also a prerequisite for low-cost federal education loans, like the Stafford loan and Parent PLUS loan. Almost half of Bachelor’s degree recipients from families with adjusted gross income (AGI) of $100,000 or more graduated in 2007-8 with student loan debt. More than two-fifths of students from families with AGI of $250,000 or more graduate with a Bachelor’s degree and student loan debt. More than a quarter of students from the top 1 percent borrow to pay for their education, perhaps because their parents want to ensure that the student has skin in the game.

Should you fill out the FAFSA if you are a high-income family?  It’s complicated, but keep this information in mind:

  • The FAFSA must be submitted to qualify for a federal loan.
  • Some merit scholarships require a completed FAFSA.
  • A family income that is higher than about $200,000 disqualifies most students for financial aid, but there are exceptions.

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