By Julie Shields-Rutyna, Senior Director of College Planning, Education, and Training, MEFA
May 30, 2023
As Director of College Planning, Education, and Training at MEFA, I am always talking with families about how to plan for the significant expense of college. I find parents sometimes put off thinking about this for a couple of reasons. First, for any family with young children, life is hectic. Also, thinking about college can be anxiety-producing and overwhelming. Having sent my two children to college (one is about to graduate this month), I understand.
That said, I encourage families to educate themselves and plan how to pay for college, even if it is loose, as early as possible. And the most concrete part of that plan will likely be saving. Most parents want to save, but sometimes they have questions about it, and one of the most common is, “If I save for college, will that mean I won’t be eligible for financial aid?” Given the high cost of college at this point in time, I understand why parents have this fear. However, I tell parents that saving does not mean you won’t receive financial aid, and that you will be very happy you saved when it comes time to pay those college bills.
Here are the facts about how saving for college fits into the financial aid process.
It’s helpful to know that 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 in recognition of student achievement. In most cases, family finances are not considered in awarding merit-based aid. Aside from the Ivy League colleges and a few that compete with them, many colleges offer merit-based aid, and a family’s financial situation has no bearing on this type of funding.
Financial aid that is awarded based on financial need does take a family’s financial situation into account (gleaned from the information the family provides on the FAFSA and, in some cases, the CSS Profile). College savings, such as that saved in a 529 plan, is treated as a parent asset on these financial aid applications, and that means that it is weighted much less than income when determining how much a family will be expected to pay toward college costs and in determining a student’s financial aid.
If a parent owns a 529 account or prepaid tuition account, even if the student is the beneficiary of those accounts, the family reports those assets as parent investments, not student investments. The financial aid formula treats parent assets at a rate of 5.6%. That means if you have $100,000 in assets, you will be expected to pay $5,600 more toward college expenses annually than someone with $0 in assets. And if you have $10,000 in assets, the expectation is only about $560 per year. So the impact of saving for college on financial aid is minimal, to say the least. And if you have $10,000 saved for college costs, that means you’ll have $10,000 that you won’t need to borrow and pay back later with interest.
It is also important to note that beginning in the 2024-25 academic year, families with incomes (AGI) under $60,000 will not report assets at all on the FAFSA as long as they either receive means-tested federal benefits or do not file certain schedules. Additionally, college savings from other relatives will not be counted in the financial aid process either upfront or when it is spent.
In all the years I’ve worked for MEFA guiding parents through college planning, I’ve never spoken to one parent who has regretted saving. In fact, they usually wish they had saved more. As professionals in this field, the fact that we take the time to educate families and answer their questions will help more parents take the important step of saving for their child’s education.
About the Author:
Julie Shields-Rutyna is Senior Director of College Planning, Education, and Training at MEFA. She joined MEFA in 2007 and in her role provides expertise related to planning, saving, and paying for college to families, colleges, and other organizations. Prior to joining MEFA, Julie worked for the College Board, Nellie Mae, and American Express. She was also the Director of Financial Aid at the Harvard Graduate School of Education.