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Student Aid Secrets: Complete the FAFSA Regardless of Income Level

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Some wealthy parents ask whether it is worthwhile to apply for financial aid if they earn a high income. They want to know what income and asset levels are too high to qualify for financial aid.

Every student should file the Free Application for Federal Student Aid (FAFSA) every year, even if he or she did not receive anything other than loans during the previous year. Questions about when a family should not apply for financial aid should be approached with caution, because parents have a tendency to underestimate eligibility for need-based aid and to overestimate eligibility for merit-based aid.

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FAFSA Required for Non-Need-Based Federal Student Loans

The FAFSA is a prerequisite for Direct Unsubsidized Loans, Grad PLUS Loans, and Parent PLUS loans. These loans are available without regard to demonstrated financial need. The family does not need to be poor to qualify for these federal student loans. Even wealthy students and parents can get these low-cost loans.

Financial Need Increases with College Cost

Eligibility for many types of financial aid is based on the student’s demonstrated financial need. A student’s demonstrated financial need is the difference between the college’s cost of attendance (COA) and the student’s expected family contribution (EFC). So, even a wealthy student might qualify for need-based aid at one of the more expensive colleges and universities.

Impact of Number in College on Aid Eligibility

The number of children in college may have a big impact on eligibility for need-based aid. Suppose a dependent student’s parents earn $100,000 a year and have $250,000 in reportable net assets. With one child in college, the EFC is about $29,000.

That student might qualify for some need-based financial aid at an expensive private non-profit college that charges $50,000 or $60,000 a year, but not at a public college that charges half as much. However, with two children in college, each child’s EFC might drop to $15,000, low enough that the children might qualify for need-based financial aid even at a public college.

Income Cutoffs on Eligibility for Federal, State and Institutional Grants

Student aid programs generally do not have explicit income cutoffs on eligibility. In most cases, the eligibility is based on demonstrated financial need or the EFC.

On the other hand, 91.7% of Federal Pell Grant recipients in 2011-2012 had an adjusted gross income (AGI) under $50,000, 95.9% had an AGI under $60,000 and 99.8% had an AGI of $99,999 or less, based on data from the 2011-2012 National Postsecondary Student Aid Study (NPSAS). Among dependent students with only one family member in college, 94.1% of Federal Pell Grant recipients had AGI under $50,000, 97.5% had an AGI under $60,000 and 99.8% had an AGI of $99,999 or less.

Yet, some students whose parents earn six-figure salaries may still qualify for grants from the college. In 2011-2012, 11.3% of students whose parents earned $100,000 or more received need-based grants from their colleges and 18.9% received non-need and merit-based grants.

How Much Income is Too Much Income?

So, unless the parents earn more than $350,000 a year, have more than $1 million in reportable net assets, have only one child in college and that child is enrolled at a public college, they should still file the FAFSA. If the family wants to receive federal student loans, they should file the FAFSA every year regardless of their income and assets.

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