|A student's dilemma: Work more,
get less free money
For high school students focused on the college years
ahead, your life boils down to raising the grades, test scores and
dough to make it in to the college of your dreams -- without
losing your sanity in the process.
But before you sweat your semesters (not to mention
your summers) away pulling overtime on a job or paid internship,
consider this: As a dependent, the federal government expects you
to put a significant portion of your hard-earned cash toward the
cost of higher education. Expecting to bank big before your freshman
year of college? Watch out -- your extra income could cost you financial
"The FAFSA (Free Application
for Federal Student Aid ) contains a built-in
formula that tries to calculate exactly how much of your income
should be used toward educational expenses as fairly as possible,"
says Brandon Rogers, author of "Ten Things You Gotta Know about
Paying for College."
"For students who, for example, work full-time
all summer the year before school, the FAFSA does not protect your
income as much as your parents' income."
When calculating a family's financial-aid eligibility,
the government recognizes that parents are responsible for providing
the household's food, clothing and shelter on top of footing expensive
tuition bills, whereas dependent students typically contribute little,
if anything, toward basic household expenses. In lieu of paying
for groceries and electricity, Uncle Sam expects eager young minds
to put a significantly higher percentage of their incomes toward
When determining how much financial aid you'll need, the government
estimates that parents will use up to $29,000 of salary each year
for noncollege financial burdens and only assesses a certain percentage
of funds exceeding that amount (anywhere from 22 percent to 47 percent,
depending on an array of factors such as household size, income
level, number of college students in the family, etc.).
Most other assets are assessed at a 5.6-percent rate,
including cash stashed in stocks, mutual funds, checking and savings
accounts, 529 college savings plans, and after July 1, Coverdell
education savings accounts and 529 prepaid tuition plans.
Unfortunately, the formula's assessment of student
assets and income is much harsher. According to the National Association
of Student Financial Aid Administrators, those still relying on
mom and dad for monetary support can only earn up to $2,550 before
their incomes begin to count against them. Above the $2,550 level,
half of all student income directly subtracts from federal financial
aid, since student income is assessed at a 50 percent rate. (The
level of "student income protection" increases to $3,000
in July 2007.)
When it comes to other assets, students lose out again.
All assets held in the students' names are assessed at 35 percent
-- a rate nearly six times that of their parents. Provisions in
the new Deficit Reduction Act reduce the rate to 20 percent, but
not until July 2007.
"Every time the student earns more money, the
amount it impacts their financial aid is greater," says Helen
Allen, assistant director of financial aid for the University of
Alabama in Tuscaloosa. "[Students] have to make a decision
as to whether they want to earn more money and get less free money,
or earn less and get more for free."