Parents sometimes wonder if it’s worthwhile to file the Free Application for Federal Student Aid (FAFSA), especially if they think their income is too high to qualify for need-based federal financial aid. But, there are no simple FAFSA income limits, or income cutoffs on financial aid eligibility, in part due to the complexity of financial aid formulas.
Unless the parents earn more than $350,000 a year, have only one child and that child will enroll at an in-state public college, they should still file the FAFSA form, as there is a good chance they may qualify for federal student aid or state or institutional grants. They may also qualify for low-cost federal loans and federal work-study.
Even if a college uses the CSS Profile to determine institutional aid eligibility, the student must still file the FAFSA to apply for federal financial aid.
Use our Financial Aid Calculator to estimate the expected family contribution (EFC) and your financial need.
Intuition is Inaccurate
Parents have a tendency to underestimate eligibility for need-based aid and overestimate eligibility for merit-based aid.
Eligibility for need-based aid depends on more than just income. Important factors include the cost of the college, the number of children enrolled in college at the same time, family size, special circumstances that affect the family’s ability to pay for college and whether or not the student is a dependent student. Student income and assets are assessed more heavily than parent income and assets. Graduate students are eligible to borrow a larger amount of federal student loans than undergraduate students. Financial aid formulas are also more focused on cash flow than on income.
Academic performance is not enough to distinguish a student from his or her peers, especially at the most selective colleges. There are more than 80,000 valedictorians and salutatorians each year. Grade inflation and weighted GPAs contribute to more high school students having a 4.0 (or better!) GPA on a 4.0 scale. Thousands of students get a perfect score on the SAT and ACT each year. Tens of thousands of students get at least a 1500 on the SAT and a 33 or better on the ACT.
Students must make satisfactory academic progress to qualify for federal financial aid, but they shouldn’t count on good grades to pay for college.
Apply for Financial Aid Every Year
It is important to submit a financial aid application every year, even if you did not get anything other than a student loan last year. There are subtle factors that can affect eligibility requirements for need-based financial aid. These factors can change from one year to the next. Congress tinkers with the financial aid formulas periodically. If you don’t file the FAFSA every year, you might miss out on financial aid.
Financial aid is based on financial need, which is the difference between the cost of attendance (COA) and the expected family contribution (EFC). Financial need increases when the COA increases and when the EFC decreases.
Thus, a student who enrolls at a higher-cost college might qualify for some financial aid, while the same student might qualify for no financial aid at a low-cost college, such as an in-state public college.
The parent contribution part of the EFC is divided by the number of children enrolled in college at the same time. When the number of children in college increases from one to two, it is almost like dividing the parent income in half, which can qualify both children for much more financial assistance than either could qualify for on their own.
For example, when the oldest child enrolls in college for the first time, that child might not qualify for much college financial aid. However, when the oldest and second oldest children both enroll in college at the same time, the number of children in college increases from one to two, potentially qualifying them for more financial aid.
Thus, there are no clear FAFSA income limits. Eligibility for need-based financial aid depends on more than just income.
Eligibility for Grants
There is no explicit income cutoff on eligibility for the Federal Pell Grant. Eligibility for the Federal Pell Grant is based on the expected family contribution (EFC), not income.
Based on data from the National Postsecondary Student Aid Study (NPSAS), more than 94% of Federal Pell Grant recipients in 2015-16 had an adjusted gross income (AGI) under $60,000 and 99.9% had an AGI under $100,000.
The odds of receiving a federal grant decrease with increasing income, as shown in this chart.
As noted above, a family with two or more children in college may qualify for a Federal Pell Grant because the parent contribution is divided by the number of children in college. Also, the family may have special circumstances that affect their ability to pay for college.
Eligible students may also qualify for other forms of financial aid, such as institutional grants. For example, some students whose parents earn $100,000 or more will qualify for grants from their college. For example, almost a third (32.9%) of students whose parents earn six-figure salaries received institutional grants. A fifth (21.4%) received merit-only grants and a tenth (11.6%) received need-based grants.
Some colleges require students who are applying only for merit aid to file the FAFSA, just to make sure they get any need-based aid for which they are eligible. Colleges often use need-based aid to offset part of a merit-based grant or scholarship.
If there is any question as to whether a student might qualify for financial aid, use the college’s net price calculator to get an estimate as to how much gift aid the student might get.
How Many Students Pay Full Sticker Price?
Based on 4-year college data from the Integrated Postsecondary Education Data System (IPEDS), a quarter of freshmen and a third of all undergraduate students pay full sticker price. Slightly less than half got no institutional grants.
At Ivy League colleges, half of freshmen and all undergraduate students pay full sticker price, and slightly more than half get no institutional grants. Generally, the percentage of undergraduate students paying full sticker price increases with greater selectivity. But, among the most selective colleges, fewer undergraduate students pay full sticker price at MIT, Stanford and Princeton.
Counter-intuitively, undergraduate students at 4-year public colleges and lower-cost colleges are more likely to pay full price than students at private colleges. Two-fifths of undergraduate students at public colleges pay full sticker price, compared with a quarter of students at private colleges.
Overall, a third of students at 4-year colleges pay full price, compared with almost half of students at community colleges.
The lower cost at public colleges causes fewer students to qualify for financial aid, especially among high-income students.
Family income affects where the students enroll.
- Students from high-income families enroll in colleges where three-fifths of undergraduate students pay full price
- Students from low-income families enroll in colleges where a third of undergraduate students pay full price
The same is true even when the data is limited to Bachelor’s degree programs, where the proportions are half and a quarter, respectively.
The FAFSA is a Prerequisite for Federal Loans
Even if a student will not qualify for grants, filing the FAFSA makes them eligible for low-cost federal student loans, which are usually less expensive than private student loans. Even wealthy students will qualify for the unsubsidized Federal Direct Stafford Loan and the Federal Parent PLUS Loan. The Federal Stafford Loan is a good way for the student to have skin in the game, since they are unlikely to over-borrow with just a federal student loan.
When is it OK to Not File the FAFSA?
There are a handful of situations in which the family probably does not qualify for need-based financial aid, including families who:
- Can afford to pay for college tuition with pocket change
- Are in the top one percent by income or wealth
- Who have donated a building or two to the college
Upcoming FAFSA Changes
Significant changes are coming to FAFSA requirements, which will affect financial aid eligibility for many students. These changes include eliminating the “discount” for parents with multiple students in college, and replacing the EFC with the Student Aid Index. The Department of Ed will implement the changes in phase, beginning with the 2021-22 academic year, with a scheduled completion date of 2024-25.
If college is years away, it can be difficult to predict how much financial aid your child will qualify for. That’s why it’s important to save as much as possible in a 529 plan. But, if your savings come up short and you’ve exhausted all of your federal student loan options, you may want to consider a private student loan to cover the remaining costs. Learn more about private student loan options.