Does Savings Account 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.