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FAFSA at Any Income Level

Some wealthy parents ask whether it is worthwhile to apply for financial aid if they earn a high income. They want to know what parent income and asset levels are too high to qualify for financial aid for their undergraduate students when they attend school full time.

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

The FAFSA is a prerequisite for federal financial aid: 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 to help pay for college.

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 calculated at 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 limits on eligibility. In most cases, the eligibility is based on demonstrated financial need or the EFC.

In the 2019-2020 award year, 33.6% of undergraduate students received a Pell Grant, according to the National Center of Education Statistics. Undergraduate students with households which had an adjusted gross income (AGI) under $50,000 will likely qualify for some amount Pell Grant funds. For the 2021-2022 award year(July 1, 2021, to June 30, 2022), the maximum Pell grant an undergraduate student can receive is $6,495. While there are many factors, such as enrollment status, cost of your program, other financial offered to the student, and the student’s expected family contribution (EFC – the number determined by your FAFSA), many students qualify for some grant assistance from the federal government.

Essentially, if a student is enrolled full-time in a program which had a cost of attendance over $6,495, with an EFC is between 5801 – 5846 the student could be eligible for a Pell Grant in the amount of $672. Now if a student is enrolled full-time in a program with a cost of attendance over $6,495, and the student’s EFC is between 2001-2100, the student could be eligible for a Pell Grant in the amount of $4,445.

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, and they have no issue paying out of pocket, 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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