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15 facts about financial aid eligibility

Kathryn FlynnBy: Kathryn Flynn | 
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If your child is heading to college soon, you're probably wondering about financial aid eligibility. Each year, more than $120 billion in federal student aid is awarded to more than 15 million students who want help paying for college. Yet the financial aid system is so complicated that many families end up making costly mistakes on their applications. Here are 15 facts that can help you maximize your eligibility and reduce the amount you'll have to pay for college out of pocket.

1. Around 38% of financial aid awarded is in the form of federal loans

  • Too many families assume that any type of “award” is free money.
  • There are generally three types of awards: grants, scholarships and loans.
  • Student loans need to be paid back and you will have to pay interest.

2. Financial aid eligibility is recalculated annually

  • Your Expected Family Contribution (EFC) is calculated using information from your FAFSA, which needs to be completed for each school year.
  • Your school will use your EFC to determine how much federal student aid you receive.
  • Any significant changes in your household assets could cause the amount of aid you receive to vary from the previous year.

3. You need to maintain good grades for all types of aid

  • Don’t think of your financial aid application as a “one-and-done” activity.
  • Those who qualify for need-based aid must remain in good academic standing to renew their financial aid in subsequent years.
  • You must maintain at least a 2.0 GPA on a 4.0 scale to maintain eligibility for federal student aid. Other forms of financial aid may have a higher minimum GPA.

4. If you’re a parent who is close to retirement, you might want to consider holding off for a few more years

  • Any liquid assets will be counted against your EFC, even those intended for a parent’s retirement.
  • This includes the sale of a home, inheritance and even company retirement perks such as vested stock options.
  • It’s unlikely that you would be able to verbally convince a financial aid administrator otherwise.

5. Private colleges sometimes offer more financial aid than public schools

  • Don’t cross a private college off your list simply because of its price tag.
  • There are many private colleges that offer need-based and merit-based aid packages.
  • Some students actually end up paying a lower total price at a private school, even though the initial sticker price is much higher.

6. If you’re applying for financial aid, you may be better off saving with a 529 plan than a UGMA/UTMA account

  • Funds saved in a UGMA/UTMA custodial account are considered a student’s assets and are assessed at 20% when determining your family’s EFC.
  • Savings in a 529 account, however, are considered parental assets and are assessed at a maximum rate of only 5.64%.
  • That means if you saved $10,000 your EFC could increase by $2,000 or $564, depending on which vehicle you used to save.

Find your 529 plan - Select your state below

Did you know that residents are not limited to investing in their own state's plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state's plan and other options.

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Find a 529 Plan. Select your state below.

Did you know that residents are not limited to investing in their own state’s plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state’s plan and other options.


7. A student needs to be enrolled on at least a half-time basis to qualify for federal loans

  • Keep in mind, however, that you can still take out the same dollar amount in unsubsidized Stafford Loans whether you are a full-time or part-time student.
  • If you are taking a reduced course load, it’s recommended that you reduce the amount you borrow proportionately to avoid racking up too much debt.
  • There is also a limit to how much a student can borrow and it is possible to run out before graduation.

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Kathryn Flynn

Kathryn Flynn

Content Director

Kathryn is Content Director at Savingforcollege.com. She has been quoted in financial publications including the Wall Street Journal, the NY Times, Fortune, Money and GOBankingRates, and has been an expert guest on personal finance podcasts. Prior to Savingforcollege.com, Kathryn worked in product marketing at Henderson Global Investors (now Janus Henderson Investors), a global asset manager. She earned her MBA with Finance Concentration from DePaul University's Kellstadt Graduate School of Business, and has prior FINRA Series 7 and 63 licenses. Kathryn has 529 college savings plans for each of her three children, and enjoys creating content to help other families prepare for future higher education costs.