By Jill Young Miller
Communications Specialist, Center for Social Development at Washington University in St. Louis
February 27, 2017
Parents’ savings and assets are unlikely to jeopardize federal or state need-based aid for low- and moderate-income dependent college students, according to a new policy brief from the Center for Social Development (CSD) at Washington University in St. Louis. Even high levels of assets may have a small impact on need-based aid.
“Do Savings and Assets Reduce Need-Based Aid for Dependent Students?” describes several provisions in the Expected Family Contribution (EFC) formula that exclude assets, and it illustrates the impact of parents’ assets on need-based aid in six hypothetical households.
When students apply for federal need-based aid, the government uses financial and demographic information from the application to calculate the EFC, determining the amount of need-based aid students are eligible to receive.
The main determinants of the EFC are parent and student income. Assets can also increase the EFC and decrease need-based aid, but many provisions in the EFC formula greatly reduce or eliminate the impact of assets, especially for low- and moderate-income students, according to the brief’s authors, Margaret M. Clancy and Sondra G. Beverly.
Assets do not affect the EFC for many students whose parents have adjusted gross incomes below $50,000. Many of these students qualify for a simplified EFC formula, which disregards all parent and student assets.
For students who do not qualify for a simplified EFC formula, there are important exclusions for certain parent-owned assets, including home equity and qualified retirement assets. An additional exclusion—the parents’ education savings and asset protection allowance—lets parents maintain a certain level of savings in case of an emergency and for future college expenses.
“Our most important conclusion is that parent-owned assets are very unlikely to reduce need-based aid for low- and moderate-income dependent students,” said Clancy, CSD policy director and director of CSD’s College Savings Initiative. Read more.
About the Author
Jill Young Miller is the Communications Specialist for the Center for Social Development at Washington University in St. Louis. The Center’s mission is to create and study innovations in policy and practices that enable individuals, families and communities to formulate and achieve life goals, and contribute to the economy and society. Through innovation, research and policy development, CSD makes intellectual and applied contributions in social development theory, evidence, community projects and public policy.