(MoneyWatch) As the cost of a college education continues to rise, millions of students are working to help foot the bill. However, what worries many families is the impact of a student’s income and assets on financial aid.
Here are six things you need to know to know if a student’s income and money will compromise aid:
1. The federal financial assistance formula takes student income into account. the Free application for federal student aid (FAFSA), which any student applying for financial aid must complete, takes the student’s income and assets into account when determining eligibility for aid.
2. Students can protect their income. While the FAFSA formula takes students’ income into account, it allows them to protect a portion of their income so that it doesn’t hurt their chances of help. For the next 2013-14 school year, a student could have earned up to $ 6,130 in 2012 and that would not have compromised the aid. So from a practical standpoint, most students won’t have to worry about a job that will hurt them financially.
3. Work-study does not count. A work-study program on a campus is not taken into account when calculating financial aid, so your child’s work cleaning the dishes in the cafeteria or storing books in the library will not jeopardize the ‘aid.
4. Students have no asset protection. The FAFSA does not allow students to protect their assets in financial aid formula checking and savings accounts. The Federal Aid methodology estimates the taxable assets of students at 20 percent. So if a teenager has $ 3,000 in the bank, for example, their eligibility for assistance would drop by $ 600.
In contrast, the FAFSA allows parents to shelter some of their belongings financial aid considerations. The amount a parent can shelter will depend in part on the age of the older parent. For example, a 50-year-old married parent can shelter up to $ 40,900.
5. Only one day counts as assets. The aid formula only cares about a child’s assets on the day a family files for FAFSA. So, if a family submits the FAFSA on February 1, 2014, the child will report the value of their assets on that day. If he spent all his money on a used car on January 31, 2014, he would declare $ 0 in assets.
6. Don’t worry about your retirement assets. It won’t matter how much money students or parents have hidden in retirement accounts. A teenager, for example, might have $ 5,000 in a
and that would not affect his chances of obtaining financial assistance. In contrast, if a child had $ 5,000 in their checking account, their eligibility for financial assistance would drop by $ 1,000.