FAFSA & College

Maximizing Student Aid Eligibility For College

The FAFSA is the Free Application for Federal Student Aid. Anyone who wants financial aid for college will need to fill out the FAFSA. The application is used to determine the dollar amount the student or student’s family will be expected to contribute towards college. All federal grant and loan awards are determined by the FAFSA, and nearly all colleges use the FAFSA as the basis for their own financial aid awards.

The following outlines some strategies that can maximize your financial need by minimizing your FAFSA’s Expected Family Contribution (EFC). The FAFSA’s EFC is used by Financial Aid offices to assess your eligibility for federal, state, and most school and private need-based Scholarship-Financial Aid programs.

FAFSA Income EFC Reduction Strategies: THE LESS INCOME THE BETTER!

  • Borrow, do not withdraw funds from retirement accounts to pay for school costs.
  • Avoid, reduce or defer pension and IRA and 401k/b distributions.
  • A student’s earnings in excess of $6,570 are taxed as part of the student’s FAFSA EFC.
  • Sell investments (stocks, bonds, property, etc.) that can be taken as a tax return loss.
  • If possible, postpone bonus/discretionary income until after the student’s college enrollment.


  • Maximize contributions to parental and student retirement accounts.
  • Student assets are taxed at the FAFSA Student EFC rate of 20% versus 5.64% for parental assets, thus reduce the student’s FAFSA reportable assets, as much as possible.
  • Move or shift student owned assets to non-college family members and/or if the student works, open a student retirement account.
  • The value of a 529 Plan owned by the student is reported as the parents’ FAFSA assets.
  • If possible, transfer UGMA (Uniform Gift to Minors Act) assets to a student owned 529 Plan. NOTE: A UGMA account is not the property of the parent but that of the student. With a UGMA, the parent is the student’s account guardian. As noted above, student assets are taxed at a higher FAFSA EFC rate than parents.
  • Save and/or invest in the parent’s name and social security number (SSN), not the student’s SSN.
  • Spend down or reduce a student’s assets before filing the FAFSA.
  • To reduce reportable cash assets, pay down/off consumer debt (credit cards, car loans, etc.) and home mortgage/home equity loan debts.
  • Move cash savings into retirement accounts. NOTE: Retirement accounts, life insurance cash values, and your home's equity values are not reportable FAFSA assets.
  • Conservatively estimate the value of your reportable FAFSA assets (mutual funds, stocks, bonds, second/vacation home, rental property, business farm, trusts, etc.).
  • All types of “Retirement” saving accounts are non reportable FAFSA assets. This would include IRAs, 401k/b plans, and all other assets that you consider you will be using for retirement income.
  • After you file your FAFSA based on your prior year’s income/assets, if your current year’s income/assets are much lesser or you have large financial expenses (private school costs, large, uninsured medical expenses, significant loss of prior year income or asset values, etc.), make an appointment with your school’s Financial Aid administrator to appeal your circumstances.
  • In the case of divorced or separated parents, only the “custodial” parent’s income and assets are reported on the FAFSA.  Regardless of the legal custody agreement the divorced parent with the lesser income/assets should be the parent who completes the FAFSA and applies for the financial aid.
  • Having more than one child in the same family enrolled in college at the same time significantly reduces each of the student’s FAFSA EFC.
  • Unless the student is 24 years of age, married, provides their own support,  is a veteran, or both of the student’s parents are deceased, the custodial parent(s) of the student must report their parental income and asset information on the student’s FAFSA.
  • ?Accelerate necessary expenses to reduce available cash. For example, if you need a new car or computer, buy it before you file the FAFSA.
  • Prepay your mortgage.
  • Ask grandparents to wait until the grandchild graduates before giving the student money to help with their education. They should wait and help pay off any student loans after graduation.
  • Meet with John D. Carrigg CPA early in the tax season to plan the preparation of your tax return that will accompany the FAFSA.
  • Choose the date to submit the FAFSA carefully as assets and student marital status are specified as of the application date.

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