By Jonathan Hughes, Associate Director of College Planning and Content Creation, Massachusetts Educational Financing Authority

June 25, 2024

If there is one pernicious myth that I could stomp out of existence, it would be this one: “I can’t save any money for college because the financial aid office will see it, and then I won’t receive any financial aid.” Though this is a common belief among families with college-bound students, it’s not true. Let me explain.

Financial aid is awarded on two bases: merit and financial need. When you hear about academic, artistic, or athletic scholarships, these are examples of merit-based aid granted to recognize student achievement. In most cases, family finances are not considered when awarding merit-based aid.

Most financial aid is need-based. When applying for financial aid, families are asked to submit financial aid applications, including the FAFSA®. Based on the information reported, including income, assets, taxes paid, and family size, students receive a Student Aid Index (SAI). This formula-calculated figure is intended to represent a family’s financial strength and ability to pay for college. A low SAI means more eligibility for financial aid. Most people assume that saving for college will result in a high SAI and, therefore, less financial aid eligibility.

What most people need to know is that most of the weight in the SAI calculation is given to income, not assets. In fact, the SAI formula used by every college and university only takes into account, at most, 5.6% of parent total assets, which include college savings accounts. This means if a family saved, for example, $50,000 for college, the SAI formula would only include $2,800 of that in the student’s SAI. So, the impact of saving for college on financial aid is minimal, to say the least. And remember, if a family has saved $50,000 for college costs, that means they’ll have $50,000 to use for the college bill that they won’t need to borrow and pay back later with interest.

College savings accounts started by grandparents have even less effect on financial aid because they’re usually not counted at all. In the past, grandparent contributions from a college savings account toward a college bill counted as student income on the FAFSA, which had a detrimental effect on that student’s financial aid eligibility in later years. That treatment has been changed. Now, college savings accounts owned by grandparents (as well as aunts and uncles) and distributions from those accounts are not asked for anywhere on the FAFSA. The CSS Profile, a financial aid application used by roughly 200 colleges across the country, does ask for information about relatives who plan to provide funds to help pay for college expenses, but it’s up to each college whether or not that information is even considered when awarding financial aid.

Over the years, I’ve spoken with many families who are very concerned about the impact that saving for college will have on their child’s financial aid. But their minds are put at ease once I explain how the SAI formula works. In all my years working to guide parents through college planning, I’ve never spoken to one parent who has regretted saving. In fact, the most common sentiment I hear is, “I wish I had done more.” 

Our message to families should be one of encouragement and education, letting them know that if they haven’t started saving for college, they should begin today. 

About the author:

Jonathan has worked at Massachusetts Educational Financing Authority (MEFA) for 20 years, helping families in Massachusetts prepare for college. As Associate Director of College Planning and Content Creation, he provides guidance on planning, saving, and paying for college to students and their families and serves as host of the MEFA Podcast.