How Income and Assets affect your Child’s Potential Financial Aid Award by Joanie B. Stein, CPA

Posted on February 23, 2018 by Joanie Stein

There is no denying that a college education is expensive. According to the College Board, the average tuition and fees at a four-year public university for the 2017-2018 school year university is $8,230 for in-state students and $33,450 at a private institution. When you add in costs for room, board, books and everyday living expenses, the amount can become overwhelming for families at most all income levels. Thankfully, there are a number of ways that students can receive financial assistance based on their academic achievements and/or their financial needs. Understanding how these processes work is not for the faint of heart; they require some advance planning.

The Dreaded FAFSA

Each Fall, the U.S. Department of Education encourages high school seniors to complete the Free Application for Federal Student Aid (FAFSA) online at by the Spring deadline, which for 2018 is June 30. Despite this generous allotment of time, it is recommended that student complete the online form as early as possible since aid is typically given on a first-come, first-serve basis. In addition, some colleges require prospective students FAFSA information in advance of their college application deadlines.

As its name implies, the FAFSA asks for information to help the federal government, states and post-secondary schools determine a student’s eligibility for financial aid. Contrary to popular belief, there is no income cut-off or academic threshold to qualify for tuition assistance. In fact, the Department of Education emphasizes that even if students have poor grades and/or their parents make a lot of money, they should still fill out the FAFSA each year to potentially receive scholarship dollars. According to the most recent data from the National Center for Education Statistics, 72 percent of all students received some form of financial aid in 2016. Sixty-three percent of those students received grants, which included scholarships that were not based on financial need.

How does the FAFSA determine a Student’s Eligibility for Aid?

The FAFSA asks families to provide information about the income and assets of both students and their parents as reported on tax returns filed two years prior to the school year in which aid is requested. For example, students entering college in 2018 would use information from their families’ 2016 tax returns as the base year. After entering information about balances in checking and savings accounts, certificates of deposit, taxable brokerage accounts and trust accounts, the government will estimate an Expected Family Contribution (EFC), which is the minimum amount that a family should expect to contribute towards a child’s education.

It is important to note that the government does not weigh all of a family’s income and assets equally. Assets owned by students or in custodial UGMA/UTMA accounts for the benefit of a child count against the family more than assets owned by the parents. More specifically, for every dollar in a child’s account, the government will subtract 20 cents from a potential financial aid award. Assets held in a parents’ name will lose 5.64 cents of every dollar. Yet, 529 college savings plans in which a parent is an owner/custodian would count as the parents’ assets. When 529 accounts are owned by grandparents, they are completely excluded from the EFC calculation until a student takes a distribution to pay college-related expenses. At that point, the distribution is considered income to the student.

In addition, the EFC calculation excludes the value of a small business with 100 or fewer employees, the equity in a primary family residence and balances held in qualified retirement accounts, such as 401(k)s, Individual Retirement Accounts (IRAs), Roth IRAs and SEP IRAs. However, investments in real estate other than the family home and contributions to retirement accounts made during the base year will count in the EFC calculation.

Each college will interpret a family’s EFC differently, and some will also require applicants to complete a profile for the College Board’s College Scholarship Service (CSS) to determine financial aid awards. In general, the CSS requires the disclosure of more financial detail and weighs income and assets differently than the FAFSA.

With these details in mind, families at all income levels should take the time to apply for financial aid. In addition, advance planning under the direction of experienced financial advisors can help to improve a family’s chances of receiving financial aid and easing the burden of paying for children’s college education.


About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she works with individuals and closely held businesses to implement sound strategies that are intended to preserve wealth and improve tax efficiency.  She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at