When Should You Submit Your FAFSA form?
How to Maximize the Amount of Financial Aid Your Receive?
FAFSA considers the income and assets of the student and parents, size of household, and the number of children attending college to determine a student’s expected family contribution (EFC). For dependent students, the parents’ income is the largest factor for the aid calculation, but distributions from retirement and investments accounts are also a factor.
A maximum of 5.64% of parent assets (including student-owned 529 plans) can be counted toward a student’s Effective Family Contribution. This is typically advantageous because a student’s assets are counted at 20%, and a higher EFC results in less financial aid. Assets held in a 529 account owned by a grandparent, relative, or anyone else besides the student or one of their parents will have no effect on the student’s FAFSA.
It’s also good to think about how this year’s 529 distributions could affect future years. Distributions from a student-owned or parent-owned 529 account to pay for this year’s college expenses are not included as income in the following year’s financial aid eligibility. However, distributions to the student from a 529 plan owned by a non-parent, such as a grandparent or relative, are considered income for the student. A good strategy is to use the funds in a parent-owned 529 plan before a grandparent or relative-owned plan.