Does Savings Impact Financial Aid Eligibility

Q: Is it really possible to increase the chances of receiving more federal financial aid for college from FAFSA by spending down money in a savings account?

A: For the majority of families, spending money in a savings account will have little effect on increasing your child’s eligibility for need-based federal financial aid. However, as for money in the student’s name, this could certainly have a large impact on their federal financial aid eligibility, which is why most financial aid advisors and/or experts will advise you to spend down the student’s assets and income first, and/or to save money in the parent’s name, and not the child’s name.

Some parents may choose to move a child’s money from savings into a custodial 529 College Savings Plan, since money in a dependent student’s custodial 529 College Savings Plan is not considered an asset on the FAFSA. In addition, the custodial versions of the following are all disregarded as assets on the FAFSA as long as the student is a dependent student: 529 College Savings Plans, Prepaid Tuition Plans and Coverdell Education Savings Accounts.

Keep in mind that answers to questions regarding increasing chances for federal financial aid can heavily depend on each individuals (and their families) specific financial circumstances, because of this, without knowing the specific details of an individuals financial situation, generalized answers which may fit the majority of students, may or may not be applicable to your situation.

The Role of Assets in Financial Aid Calculation

When it comes to financing education, understanding the implications of savings accounts on financial aid eligibility is crucial for students and their families. Among these assets, savings accounts play a significant role. Let’s take a deeper look at how savings accounts can impact financial aid eligibility, focusing on federal aid, institutional aid, and strategies for effective financial planning.

For a full walkthrough of the FAFSA form, timelines, and what to expect, see our step-by-step overview on FAFSA and Financial Aid.

Understanding Financial Aid
The Free Application for Federal Student Aid (FAFSA) is the primary form used to assess a student’s financial need in the United States. Beginning in the 2024–2025 FAFSA, financial need is no longer calculated using the Expected Family Contribution (EFC). Instead, the formula now generates a Student Aid Index (SAI), which can even be negative (as low as –1500). Although terminology has changed, the purpose remains the same: the SAI helps colleges determine how much aid you may qualify for.

The Role of Assets in SAI Calculation
Assets—including savings accounts—are still reported on the FAFSA and can affect your SAI. However, only a small portion of parent assets is considered. Under the updated federal formula:

• Student assets are assessed at a much higher rate (typically 20%).
• Parent assets are assessed at a maximum of 5.64%.

This means that while savings accounts do impact aid eligibility, the effect is usually much smaller than families assume. For example, $10,000 in a parent-owned account will only increase the SAI by roughly $564—not enough to dramatically change Pell Grant eligibility on its own.

Institutional Aid Considerations
Some colleges—especially private schools using the CSS Profile—consider assets more heavily. These institutions review savings, investments, home equity, business value, and other financial factors beyond FAFSA rules. In these cases, a large savings account may reduce institutional grants or scholarships more significantly than it affects federal aid.

Special Circumstances
Savings do not always reduce aid, depending on context. Families may document:

• Large medical expenses
• Job loss or reduced income
• Temporary financial hardship
• Multiple students enrolled in college

Financial aid offices can consider these documented circumstances in a process known as a professional judgment review, which may help preserve or increase aid even if savings exist.

Strategies for Managing Savings Accounts

While savings typically have limited impact on SAI, strategic planning can help families avoid unnecessary reductions in aid eligibility.

Timing of Withdrawals
FAFSA uses a “snapshot” of your assets on the day you file. If you plan to use savings for educational expenses, paying those bills before you submit your FAFSA can reduce the amount reported as an asset.

Utilizing 529 Plans
529 plans are considered parental assets even when the student is the beneficiary. This is extremely beneficial because parental assets are assessed at a much lower rate than student-owned accounts. In contrast:

• Money in a student’s name (savings, UTMA/UGMA) is assessed at 20%.
• Money in a parent-owned 529 plan is assessed at a maximum of 5.64%.

Transferring student-owned savings into a custodial 529 plan can, in some cases, reduce the asset impact on the FAFSA—but families must check state tax rules and implications before making changes.

Annual Reviews
Financial situations change. Reviewing assets annually with the FAFSA timeline in mind (October–June) can help families avoid unintentionally inflating their reported assets at filing time.

Seeking Financial Advice
A financial planner specializing in college planning can help families understand how their specific assets will be evaluated under the SAI formula. This is especially helpful for:

• Business owners
• Families with investments or rental property
• Parents saving aggressively in a student’s name
• Families applying to CSS Profile schools

So YES, savings accounts do have an impact on financial aid eligibility—but the degree of that impact varies widely depending on:

• Who owns the assets (parent vs. student)
• The type of savings (bank account vs. 529)
• The school’s financial aid methodology
• The family’s complete financial picture

For most families, savings will not drastically reduce federal aid eligibility. However, assets in the student’s name can meaningfully increase the SAI and reduce available aid, which is why advisors consistently recommend minimizing student-owned assets whenever possible.

Understanding how FAFSA treats savings—and planning ahead—can help families avoid unintended consequences and maximize available financial aid.