Working in college has its benefits: extra income, resume-boosting experience and professional references.
But there’s a potential downside to that college job. Just like parental income, student earnings may boost expected family contribution, a figure which represents what a family is expected to pay for one year of college. And students who over-earn may see a chunk of need-based aid removed from the next year’s financial aid package.
“If a student might receive need-based aid, then their annual income, including summer earnings, can affect eligibility” for that aid, says David Horne, director of the financial aid office at Maryland’s Towson University. For some low-income students, too-high earnings may even knock them out of eligibility for a Pell Grant.
Students who are weighing whether their paycheck might actually cost them more in the long run have a tough call to make.
“It’s a trade-off,” says Katharine Ruby, director of college finance at College Coach, which advises students on the college admissions and finance process. “You just want to be informed.”
Here’s what students should know to make sure that their fat paycheck doesn’t slim down their financial aid.
[Learn how to ensure that a college job won’t cost you. ]
— Not all earnings count: The good news is that the federal financial aid formula allows students to earn up to a certain amount before it’s counted against their need-based financial aid.
For the 2015-2016 school year, dependent students can have earned up to $6,310 in 2014, after certain deductions, without that income cutting into their aid award. Universities use the information families report on the Free Application for Federal Student Aid each year to determine whether the student’s paycheck falls below that amount, called the income protection allowance.
Above that threshold, 50 percent of a student’s earnings may be earmarked for college expenses. For example, if a student earns $2,000 above the cutoff, the student could be expected to put $1,000 of it toward college costs.
Horne cautions that the cutoff isn’t totally cut and dried since it’s calculated after certain deductions. The formula “will always ignore at least the first $6,310, but depending on other variables, it may ignore even more,” he says. “We don’t want it to sound like every dollar above $6,310 is going to hurt you.”
— Some schools go beyond the federal formula: Institutional policies, which some universities use in addition to the federal formula, may expect more student income to go toward college expenses. Colleges may count student earnings above a lower threshold or assume that students are contributing a certain amount of their summer earnings to pay for college.
That’s true “especially at private institutions,” says Ruby, who says that students can contact the financial aid office. “Students could certainly ask financial aid, ‘Next summer I’m going to make a boatload of money, will that impact what I get?'”
— Work-study gets a pass: “One benefit of work-study jobs is that those earnings are excluded from the formula,” says Kalman Chany, author of “Paying for College Without Going Broke, 2015 Edition” and president of Campus Consultants, a firm that helps families maximize eligibility for aid.
[Discover how to make a work-study job pay off.]
Since dollars earned through federal work-study won’t count toward students’ income protection allowance, they may want to take a work-study job, even if it doesn’t offer as high a salary an outside gig. “Students with other income getting up to those limits could better off taking a work-study job,” says Chany.
— Hording a paycheck may do double the damage: One way that over-earning can count doubly against students is when they squirrel away their earnings. When their paycheck sits in a checking or savings account, for example, it may be counted as a student asset, which is assessed at a 20 percent rate by the federal aid formula.
Since assets are counted on the day the student files the FAFSA, says Chany, a simple way to prevent assets from dinging need-based aid is to spend that money before filing the form.
[Learn how to maximize your chances for earning need-based financial aid.]
Students can pay for books, a new laptop or next semester’s tuition, then file the FAFSA with their recently lowered balance. Just make sure to file, says Chany, before the priority deadline passes.
In the end, it’s up to the student to decide whether to dial back on work or sacrifice some need-based aid, say experts. The extra income may be worth it, especially if the student doesn’t anticipate earning need-based aid.
“Understand your financial aid award and how high earnings might impact your award,” says Ruby, of College Coach. “And then you just have to decide. It may be that you lose a little bit of financial aid but have more money.”
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
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Earning Too Much at Your Summer Job May Slash Financial Aid Eligibility originally appeared on usnews.com
