Does FAFSA Look at Savings Accounts to Determine Aid?

Financial aid might be the only way many students can afford college.

female college student image by Matthew Antonino from

High school seniors across the United States fill out the Free Application for Federal Student Aid form in hopes of getting scholarships, grants and/or loans to help them pay for their higher education. Based upon the information it receives, the U.S. Department of Education calculates an EFC -- expected family contribution -- for each student.

What Affects Your EFC

Federal standards for calculating a student’s EFC are available on the U.S. Department of Education's financial aid website. A student is expected to contribute 20 percent of her assets, which include cash, business interests, investments and real estate. If the student is working, she could expect to contribute up to 50 percent of her income. Contributions from parents fall into the 2.6 percent to 5.6 percent range of any assets and up to 47 percent of a parent’s income, using a sliding scale and allowing for certain deductions. Other financial standards can vary by state and by corporation or organization. The only way to know whether savings is considered in determining financial aid is to contact and ask the state or other source you hope to receive aid from.

What Does Not Affect Your EFC

Based upon federal standards, retirement accounts such as 401(k)s or IRAs, whether they are owned by the parent or the student, are not considered when figuring the EFC. Care should be taken, though, about using these types of funds to pay for a college education. While federal law allows money to be withdrawn from retirement accounts to pay for college expenses, the money withdrawn will be counted as income and could affect financial-aid qualifications for the following year. Also excluded from the EFC calculations are: equity in your primary residence, any value in a business that is family owned, annuity income and the value of life insurance policies.

Who Gets Your Completed FAFSA

The information on your completed form gets sent to the financial aid office at the career schools and/or colleges that you specify on your application. The office uses the information to determine how much federal financial aid you may be eligible to receive at that school. If the school has money to offer its own scholarships, loans, grants or work-study programs, it will use the information on the FAFSA. The information is also sent to agencies offering financial aid in the states of the schools you have selected, as well as to the state’s department of higher education.

Be Honest

There are many legitimate strategies to maximize the financial aid you receive. For example, you could save for college under your parents' name as only 2.6 percent to 5.6 percent of savings under the parents' name are part of the EFC, while the student is expected to contribute 20 percent under his own name. Another method is to save using specially designated state plans, such as a 529 savings account, because money saved in this program receives special tax benefits. When it comes time to fill out the FAFSA, it is important that only truthful information is used. Some schools verify the information on the FAFSA received from all of their students. You may be asked to provide copies of tax returns and investment accounts. If it is discovered that you received financial aid because you lied on the application, you will be required to pay back the money and may have to pay fees and fines. Purposely giving misleading or false information on an FAFSA can even lead to a prison sentence.