THE AID FORMULAS TAKE into account a host of factors. Still, much hinges on four key drivers of aid eligibility: the parents’ income, the parents’ assets, the child’s income and the child’s assets.
Under the formulas, parents are expected to contribute as much as 47% of income and as much as 5% to 5.6% of assets toward each year’s college costs, though only higher-earning and wealthier parents will be assessed at such high rates. Students are expected to contribute as much as 50% of income and as much as 20% to 25% of assets.
For most families, the parents’ income will be the biggest determinant of aid eligibility. While it doesn’t make sense to ask your boss for a pay cut, you might take steps to hold down your income, including your investment income, during the four calendar years that will be used to gauge your aid eligibility. Aid eligibility is reassessed each year. The so-called base year—the tax year that’s considered when a student first applies for financial aid—is especially important.
You might also look carefully at the assets held by both parents and students, as well as what counts as an asset. In addition, if your child is applying to private colleges, you should pay attention to differences between the federal and institutional aid formulas. You can quickly estimate how much federal aid you might receive by using the Department of Education’s Federal Student Aid Estimator.
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