NOTE:
This was posted in June, 2025. The information outlined may change, depending on updated government laws.
Here Is How Your Aid is Calculated
Each year, we assist many families with college planning, including helping them understand the financial aid process. One of the questions on top of everyone’s mind is, “How much financial aid can I get for college?” The answer is a very personal one that takes into account income and assets, amongst other information. If you are saving for your child’s college education and there’s a chance that you will be applying for any kind of federal financial aid when your child heads to college (loans, scholarships, grants…etc.), keep on reading!
College Financial Aid Calculations are Complex
In order to get any kind of federal – or even college specific – financial aid, the student/parent needs to complete the FAFSA form, which is the federal government financial aid form. Detailed personal financial information about income and assets must be submitted, then a complex calculation is used to assess what parents and students can pay towards a year of college costs (See Student Aid Index below). In addition, there are approximately 400 schools that also require you to complete the CSS Profile form, a much more complex and invasive form than the FAFSA. These forms usually become available October 1 each year. While financial aid calculations are income heavy, assets also play a pivotal part in determining the Student Aid Index and financial aid awards.
What Is the Expected Family Contribution and How Is It Calculated?
So let’s start at the beginning and speak in greater detail about the STUDENT AID INDEX (SAI, which was formerly known as the Expected Family Contribution (EFC)). This is the core and base for a college to determine how much financial aid you will be awarded for college and what a college says your family can pay for one year of your college education. This doesn’t mean that it is actually what you feel you can pay, but it is what they say you can pay. This can be a big difference! Your SAI is based on a number of financial factors. It is a heavily income-driven calculation where the majority of your SAI amount is based on this. But, your assets are also included (both parent and student – further defined below), the number of family members in your household, the age of the student’s parents, and some other factors.
Once your SAI is calculated, your family’s financial need is then calculated. What does this mean? If your SAI is $30,000 and the cost of attendance (COA) for a particular college is $65,000, your family’s financial need is $35,000 (COA – EFC = NEED). This does not mean that you will receive financial funding from the college for the entire $35,000. On the contrary, the vast amount of colleges will not cover 100% of your financial need. Some schools may cover 80%, some may cover 60% or even 30% or less. It varies by school and also by where you fit into their applicant pool. A student who is at the upper end of their applicant pool may receive more financial aid than a student who is at the lower end of their application pool. Also, keep in mind that typically the financial aid they award you will include the federal direct student loan, which is about $5,500 for the first year of college.
Assets in a Child’s Name Impact Financial Aid Amounts
Many parents we speak with feel that the money they put away for college should be put into their child’s name. Unless these funds are deposited into a 529 account/plan, where the parent is the owner and the child the beneficiary (This is a plan that is operated by the state), putting money into your child’s name can actually be detrimental to the amount of funds the federal government will provide to you. Why is this? When calculating your family’s SAI, if a parent has $100,000 in non-retirement assets, approximately 5% of that amount is added onto your SAI ($5,000 in this example). If that same $100,000 is in the student’s name, it is assessed at approximately a 20% rate ($20,000 in this example). That is a significant difference!
How Assets Are Applied in Financial Aid Determinations
As mentioned above, assets in the child’s name impact the financial aid award. So do parental assets. Here is a breakdown of how these assets are included in the financial aid calculation:
20% of a child’s assets may be counted towards aid calculations, meaning how much that child can apply towards one year of their college costs
5.64% of a parents assets may be counted towards aid calculations, meaning how much a parent can apply towards one year of their child’s college costs
• Money put into a 529 account is counted as a parental asset at 5.64% vs. a child’s asset at 20%
For example, if your child has an account in their name valued at $50,000, the government says $10,000 of it can be applied to pay for 1 year of college. If it is in the parents name, only $2,820 will be applied.
• How much financial aid you will receive for college is based on many factors. Being aware of how you can best manage your funds to gain the best possible outcome can make the difference in not only how much money you can receive but what kind of aid as well.
Signature College Counseling is here to help you with college search, application assistance, essay guidance, interview preparation, career assessment and financial aid counseling. We help alleviate your stress by navigating this complex process with you. Count on our expertise to help you through the college admissions process, finding the best colleges that fit you academically, socially and financially. If you’re a parent or student looking for help, call us at (845) 551-6946 or email info@signaturecollegecounseling.com
