Does Saving for College Mean You Will Receive Less Financial Aid?
One of the questions I am continually asked is, "should I save for my child’s college education?" Families often believe that saving for college will penalize a student when it comes time to apply for need-based aid.
While college savings are considered assets when calculating a family’s need for financial aid, income is typically a larger driver of determining a student’s eligibility for such aid. The reality I see is that families who have the capacity to save are less likely to qualify for need-based aid, whether they save or not. In most cases, the aid you may become eligible for by having fewer assets will never outweigh the potential accrued savings with interest over multiple years.
An article in CNN Money highlights this case in point by sharing that, “For every dollar you save, you might—at most—lose 5.6 cents in financial aid.” The article also provides other useful tips on the best saving options for college.
Plan for the Long Play
It is important to remember that planning for college is a long play. Student aid programs can change from year to year. As the old saying goes, a bird in the hand is worth two in the bush. It would be heartbreaking to depend on a program to find out it no longer exists when it’s time to apply for college.
Save Now if You Can
Financial aid programs should be used to help offset financial hardship, not as a budgeting tool. And remember, need based aid is only one form of aid available to students. Merit scholarships can provide significant support to offset college costs and are in no way related to ability to pay.