Finding money for college usually always feels like a stretch, and uncertain economic times can make it extra tricky, especially with changes in income that can alter your ability to pay for college.
As a college student, your income directly affects your student aid, too, because it’s used to figure out how much federal financial assistance you qualify for. But exactly how does that work? Here’s what you need to know.
Why Does My Income Affect Student Aid?
When filing the FAFSA (Free Application for Federal Student Aid), you provide financial information including your own earned income.
“The student’s income is a piece of the calculation used to determine a family’s ability to pay,” Dana Kelly, vice president of professional development for the National Association of Student Financial Aid Administrators, told The Balance via email. Your income, savings, and assets reported on the FAFSA are used to calculate your expected family contribution or EFC.
It’s not just your income that can impact your student aid. If you’re married, the EFC includes income earned by your spouse, too. And if you’re a dependent student, your parents’ income is used to calculate the EFC.
This EFC is subtracted from your cost of attendance for the year, and the difference is your financial need. This amount determines how much need-based aid you qualify for, such as Pell Grants, work-study, or subsidized loans.
How Student Income Affects Student Aid
Not all of your income while a student will be counted toward your EFC.
Tax Year Used on FAFSA
Students report income from the so-called prior, prior year to the start of their school year instead of the current income year. For the 2020-21 school year, for example, students report 2018 tax income on the FAFSA.
The EFC formula includes an income protection allowance that excludes a certain amount of your earnings from use for college costs. That allowance for the 2020-21 school year is $6,840 for dependent students and $10,640 for single independent students.
“Any earnings [students] have up to that amount will not affect the size of their EFC and therefore not reduce any financial aid eligibility they may have,” MorraLee Keller, director of technical assistance at the National College Attainment Network, told The Balance in an email.
Other income allowances can apply, such as not counting income taxes and Social Security taxes.
Assessment of Income
Once the EFC formula has applied allowances to your income, the remaining amount is considered “available income.” According to the EFC formula, 50% of a student’s available income is earmarked for payment of your educational expenses.
Student and parent income are treated differently when calculating EFC. While 50% of a student’s available income is counted toward fulfilling financial need, that number ranges from 22% to 47% for parents and is added to a preset assessment.
Maximize Student Aid Based on Your Job
Working through college is a smart way to help cover your costs. But be aware that the impact of your income on federal student aid can depend on the type of job you have.
Summer Job or Internship
These types of jobs might not affect your student aid. Earnings from a summer job, internship, or part-time job alone are likely to fall within the income protection allowance—$6,840 for dependent students or $10,640 for independent students for the year. Some students might earn more, of course, so remember that income above this amount can change your student aid eligibility.
One form of federal student aid is federal work-study, which subsidizes employers’ wages paid to eligible students. There’s good news about this type of employment, too.
“Earning money through the work-study program has no effect on a student’s EFC or aid eligibility,” Keller said. It also won’t count toward your income protection allowance, either.
You are asked to report this income on the FAFSA, but don’t sweat it.
“Work-study earnings are subtracted from [available income] in the EFC formula,” Keller said.
Previous Full-Time Job
A lot can happen in the 1.5 years between earning the income that’s used on your FAFSA and actually paying for college. Maybe you lost a full-time job this year, or quit one to attend school.
According to Kelly, if your current income is substantially lower than what was reported on the FAFSA, talk to your school’s financial aid office.
“Such students may qualify for special consideration, which could provide additional assistance,” she said.
Current Full-Time Job
If you wish to continue working full-time while enrolled in college, it’s worth filing a FAFSA to see what types of student aid you’re offered.
If a higher full-time income disqualifies you from need-based aid, consider your options. You could talk to your employer about going part-time, if you think that could help you gain access to more need-based aid, for example. Or you can look into other ways besides federal assistance to pay for college.
When Your Income Is Too High for Federal Student Aid
If your income or other factors mean you didn’t get enough student aid, keep at it. Seek out alternative funds, such as:
- Employer assistance: Take advantage of employer-provided educational benefits, such as tuition reimbursement.
- Scholarships: Seek out and apply for scholarships and grants, especially those specific to your background or situation.
- Income and savings: Investigate your cash flow and savings to find ways to cut other costs and free up funds for college expenses.
- Student loans: Once you’ve exhausted your other options, consider student loans, both federal and private. Unsubsidized loans aren’t need-based. “[You] always have the opportunity to borrow federal loans to assist with the cost of college,” Keller said—regardless of income.
- Your income (and other financial details) reported on the FAFSA determine your eligibility for federal student aid, with lower incomes netting more need-based aid.
- As a student, a portion of your income is excluded from determining your financial need, as well as all work-study earnings.
- The FAFSA uses income reported for the prior, prior tax year. If your financial situation has significantly changed for the worse since that time, talk to your financial aid office for help.