Many households do their best to save up for college. Their hope is to set aside enough in savings to avoid student loans. Debts that can often take years, if not decades, to pay off in full. Plus, having a hefty emergency fund is often considered wise. Ensuring a household can navigate the unexpected. However, many worry, “Will my savings account affect my financial aid?” If you’re wondering whether it has an impact. Here’s what you need to know.
Will My Savings Account Affect My Financial Aid?
The short answer to that question is yes. Savings account balances will impact your financial aid. Money held in a savings account is considered an asset. And it does affect a student’s expected family contribution (EFC) calculations when they complete their free application for federal student aid (FAFSA).
However, the impact of a savings account may not be as dramatic as you’d think. It’s only part of a larger equation. Students aren’t expected to hand over their entire savings account balance to cover tuition.
What Has the Biggest Impact on Financial Aid?
While your savings account balance may have a slight impact on your financial aid package. Your income level is a bigger factor. It’s given the most weight when it comes to calculating college affordability.
If you are low-income, you’ll usually qualify for a substantial amount of support unless your assets are high. It would take a considerable amount of savings to completely wipe out your financial aid. Though technically wouldn’t be impossible.
It’s also important to understand that the cost of your chosen college plays a role as well. After completing the FAFSA, your EFC is compared to the estimated cost of going to that college. Thus, influencing the amount of aid that may be available.
How Much Does Savings Impact Financial Aid?
Generally, about 20 percent of a student’s savings account and other cash-oriented assets are counted on the FAFSA as being eligible for use when it comes to covering the cost of college. That means 80 percent is essentially protected from the equation.
For dependent students who are worried about the value of their parent’s saving, the math is even more in their favor. Less than 6 percent of those assets are viewed as potentially useable by the FAFSA.
Generally speaking, savings will potentially reduce how much you receive in financial aid. However, precisely how much of an impact it will have depends on a range of factors, including the total value of your assets, your income level, whether you’re a dependent or independent student, whether the savings is in your name or your parent’s names, and more. Often, the reduction is fairly minimal, as income level is the biggest determiner when it comes to how much a student receives in financial aid.
Making the Most of Your Savings
If the money you have set aside in savings is for college, then do put it toward your education. As that balance shrinks each year, it will have less of an impact on your EFC. As a result, if your income either remains largely unchanged or falls while you’re in school, you could qualify for more financial aid over time.
For dependent students who have money in savings but whose parents also set money aside for college, it’s best to spend your own money first. Personal savings has a bigger impact on your EFC than what your parents have in the bank, so it makes sense to spend the cash that’s saved in your name first.
Did your savings impact your financial aid? Did you decide to change how much you had in savings to secure more financial aid? Share your thoughts in the comments below.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is a former AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.