Can Saving for Education Affect Financial Aid?

Like many families, you may plan on receiving some form of financial aid to help pay for college. And while scholarships may be the most appealing option, only one student out of every 300 will receive a full scholarship to college.¹

Most aid comes in the form of student grants and loans.

• Federal grants don’t need to be repaid but are typically designed for low-income families. So many students don’t qualify. 
• Student loans, which are much more common, have to be repaid within a certain time frame and incur interest – with interest rates that are reset each year according to Treasury rates.

Financial aid eligibility

While you can’t control how much financial aid your child may be awarded or what the interest rate on a student loan will be, you are in control of how much you contribute to your education savings strategy.

Some families worry that contributing to a 529 plan or other savings plans may hurt their chances of receiving financial aid. In reality, up to 5.64% of parent-owned assets - excluding qualified retirement assets, your primary residence and insurance policies - are considered in financial aid calculation, according to the U.S. Department of Education. 

Your financial advisor can show you different ways to save for education and will explain how different ways of saving may impact financial aid eligibility. Don't worry if you have a lot of questions. Ask away. We'll take as much time as you need to make sure you understand how it all works.

Examining financial need

Federal financial aid is need-based and determined by one equation:

Cost of Attendance (COA) — Expected Family Contribution (EFC) = Financial Need

All families applying for financial aid must complete the Free Application for Federal Student Aid (FAFSA). Beginning in October 2016, you can apply as early as Oct. 1 of your child's senior year in high school for the 2017-2018 school year. The deadline to complete the FAFSA varies by state. Based on the information you provide in your FAFSA, the Federal Student Aid Office will determine your Expected Family Contribution (EFC). This is subtracted from a school’s cost of attendance (COA) to determine your child’s financial need. However, this need doesn't necessarily guarantee you'll receive that amount in financial aid.

The COA is the total cost of attending a particular school for one year. It includes tuition and fees, room and board, books and supplies, and transportation to and from school.

How we can help

Remember, while loans, scholarships and grants can help, what they can offer may be beyond your control. The more money you save and invest for education, the more control you and your child will have over how to pay for college. Talk to your financial advisor today for more information.