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Kids are Stuck with Their Parent’s Income!!! Knowing how this impacts paying for college.

Kids are stuck with their parent’s income.  What exactly does that mean you may ask? Well, in short, it means whatever your tax return says your AGI (Adjusted Gross Income) is the previous year before college applications are submitted is the amount your student’s financial aid awards and scholarships will be based off.  Whew, that was a mouthful. So…what does that mean? Let me explain.

It does not matter if the parent can or can’t, will or won’t pay for the student’s college expense.  The amount of financial aid and scholarships the student will be eligible for is directly related to one line on the parents previous year’s tax return.  This is the parents AGI or adjusted gross income if you want to see what that is, for Form1040 and Form 1040A filers look at the last line of the first page of the parent’s tax return and for 1040EZ filers it should be line 4. Let’s start, shall we?

Let me be clear, the student’s income will be based on this one number on the parent’s income tax form. There is nothing the student can do to change this unless they fit into one of these categories:

1. Married

2. A parent supporting a child (in other words the student has a child)

3. They are in the military

4. They are an emancipated minor

5. They are an orphan

6. Have been granted a dependency override

7. Are a Graduate student

IF the student does not fit into any of these categories then they are stuck with their parent’s income until December 31 of the year they turn 24. Putting that into perspective most students graduate from college by the time they are 22 or 23.  

Let us quickly dispel some myths.

1. It does not matter if the student is not claimed on the parent’s tax return.  That means it does not matter whether or not the student is claimed as a dependent.

2. It does not matter if a student is financially independent and filing their own tax return.

3. It does not matter if a student’s parent has no intention of paying for college.

4. It does not matter if the parent refuses to give the student their tax return.

5. It does not matter if the parent refuses to file a tax return.

This is not fair! No, it is probably not fair. I won’t argue that point, but there are approximately 16 million people attending college right now and the system has a hard enough time keeping up with all of the general college paperwork without throwing in special circumstances.  There are some colleges that are more understanding of these students than others.

The point of this article is to let you know in plain English what you are dealing with. I have found that most of the discussion on this topic centers around FAFSA and although your AGI is the basis for FAFSA it affects many other areas than just that.  Unfortunately, by the time most people figure out what’s going on it is too late. Therefore, we are going to address this subject early.

Although this article applies to everyone, I have found over the years that it is the most relevant for students whose parents are in the fifty thousand and over income range.  In order to help you understand how this affects different students, I will offer several scenarios and you can see which one closest fits your situation. I will also offer some possible actions you can take. Keep in mind these are not exact figures and the income cutoffs may differ.  They are offered only as a general idea to see where the breaks are. Different circumstances produce different results and it is your responsibility to research what income, asset base (things owned or available to turn into cash) and savings the parent has that may move these cutoffs in one direction or the other. This is a subject we discuss with students in depth in our course.

Scenario One:  Parents live together and have a combined income of less than fifty thousand.

In this case, the student will likely be eligible for a full Pell Grant. That is the federal financial aid that is applied for through FAFSA, you can see the corresponding article What is FAFSA?  If the student is eligible for FAFSA they will also be eligible for a number of state grants and the majority of outside scholarships to help pay for school. I have found that the students that fall into this category generally have no idea the resources available to them to pay for school. Parents and students be aware that grades and test scores are very important once you move away from FAFSA which is a solely income based application. There are numerous sources to help pay for college if you fall into this scenario but that is for another article.

Scenario Two: Parents are divorced and one parent has an income under fifty thousand and one has an income of over fifty thousand.

In this case answer, the question who does the student live with? This scenario really has several answers and will depend on where you are applying to school.  I know this is confusing and that is why I am trying to break it down. First, let’s address FAFSA. You may have heard that you have to file FAFSA with whichever parent’s tax return the student was claimed on.  As of this year that is no longer the case, according to FAFSA, the student may use whoever they live with primarily. That means that even if one or the other claims a student it is possible to be living with the parent that has less income.  Where state schools are concerned the only thing a student will need to file is the FAFSA, so as long as the student is filing with the parent who makes less than fifty thousand they should be in a good place.

Private colleges are another story. Private colleges not only require the FAFSA to be filed but also another form called the CSS or College Scholarship Service Profile.  The CSS collects both parent’s data and assets and usually requires copies of taxes from both parties and the student to be uploaded into IDOC or Intermediate Document a data transfer tool that shares information with the schools. They do consider both parents financial situation and what the parents may own over and above a personal residence and vehicles. This form also asks for retirement, stocks and bonds and a number of other asset related items. Depending on the contact situation with one or the other parent the student can file a Non-custodial parent waiver (explained here) exempting a parent that does not have contact with a student from their assets and income being included. In human speak that means if you have no contact with a parent and can prove it even if they make a considerable amount of money, they will not be considered.

Many private schools are raising their demonstrated financial need limits and guarantees for financial aid packages free of loans.  What does this mean for the student? If a student has two parents whose combined income together are under one hundred to one hundred and fifty thousand they may still be covered.  This is dependent upon the school and discussed in another post. Just know that there are options and directions a student can take dependent on this scenario. Let me point out that these schools are very competitive and the better your test scores and grades the more options will be open to a student.

Scenario three: Both parents make over fifty thousand whether married or divorced but less than two hundred thousand combined.

This is when situations start getting complicated for a student. The student will likely not be eligible for FAFSA or any state grants; they will also not be eligible for non-interest accruing Federal loans. This is something not many people know about or consider.  This means at a state school the only option open to them is merit scholarships. These students will be eligible for far fewer outside scholarships as many of those are based on FAFSA eligibility or “financial need.”

Many parents are unaware of how their income affects their student.  Students cannot just get scholarships to pay for school. I have often heard parents say, “We aren’t eligible for financial aid so the student can just get scholarships to pay for it if they want to go.”  I wish it was that simple, I believe students should work for scholarships and have a job and contribute to their education but for those who end up in this scenario; it is just not that simple. These students are inevitably the ones that end up with a ton of student debt.  Here are some options. Again, test scores, grades, community service and being great at one thing help a bunch. Outside scholarship eligibility diminishes greatly when you reach a singular or combined income over one hundred thousand.

Research shows that these students will not be eligible to even apply for over seventy percent of the outside scholarships that are available. They are significantly reduced in number to apply for merit scholarships (scholarships not based on income). These can be in the form of academic achievement, sports, arts, community service and a number of other areas.   Know this; the majority of scholarships are need-based. The competition for merit scholarships is fierce because many students end up in this category.

Some state schools offer alumni or endowment sponsored scholarships to help pay for some or all of a student’s expenses. Again, highly competitive.  Another thing to note with these scholarships is they generally require a student to be accepted to the school before they can apply, will have a separate application and those applications are due in very early.  

Private schools are usually a better way to go.  In the last few years, the private schools seem to have realized that parents can make over a hundred thousand dollars and still not be able to pay for college once they pay their mortgage, car payments and support the rest of their children and a dog or two.

It is encouraging to see some of the financial assistance that is now being offered.  Keep in mind these schools are very competitive so guess what, again grades and test scores are extremely important.  Many of these schools offer complete assistance to anyone making a hundred thousand or less, tuition waivers (a tuition waiver does not include room and board) to those making one hundred fifty thousand and less and half tuition to those making two hundred thousand and less.  The amounts differ by school but be aware these options are out there. I realize many parents are not in a position to help with school but please realize it is a parent’s income that affects how much financial assistance a student will receive.

Scenario Four: Parents separately or combined make over two hundred thousand dollars.

Many people wrongly believe that these students have it the easiest when in fact if they are lingering on that two hundred thousand dollar mark they may very well have the least financial options of any students applying.  Unless their parents have diligently saved over their lifetime and have a college fund set aside, it is these students who will amass a large sum in student loans. Surprising? It is true. There are an unbelievable number of financial options and help for students in scenario one, more than enough for those in scenario two, workarounds for those in scenario three but very few for those in scenario four.

So what do these students do?  To begin with, many of the private schools that offer generous aid based on financial need do not offer merit scholarships.  You heard correctly many of the top fifty schools have no merit aid. If a student is on their own and their parents cannot or will not pay for college or can only pay a portion they are looking at student loans (non-subsidized in other words interest accruing) or outside merit scholarships to cover the bill. If they are accepted to one of these top schools, they will have to ask themselves if graduating from one of these schools will ultimately be worth the debt they will incur to do so.

Their other option is state schools. There are many phenomenal state schools that offer an excellent education and a slew of opportunities upon graduation. State schools offer merit aid, not a lot of it, but they do award it and they also have many departmental scholarships. Many, not all state schools have alumni or other sponsored scholarships which as mentioned above will cover all or part of attendance.  These scholarships are due very early some as soon as August of senior year. When a student is in this situation they best have the best grades and test scores as this will be a huge determining factor in regards to scholarship selection.

Another option is to look for jobs in high school that have an education assistance program. There are some industries that will actually pay tuition for their employees and that includes high school students. I have seen this in the banking sector, oil industry, electronics and elsewhere.

Yet another option is to look to a profession that needs people.  Some of those would be teaching, nursing, and engineering. Many times students who will commit to a career for a set number of years after graduation can receive forgiveness on loans through state and federal programs.

These are just some ideas on how to handle the financial part of the college application process.  These scenarios are very broad overviews of how students are affected by their parent’s income. There are thousands of different scenarios depending on what factors you change.  Every student has a little different situation and there is just not enough room here to attempt to explain them all.

My great hope is after reading this you realize that this is not a subject to be left until a student is attempting to fill out the FAFSA senior year.  This is a subject best discussed years earlier. Researching what schools are a good fit scholastically is important but researching their financial fit is just as important.  

In our program, we teach students where they are on the financial aid spectrum, what and where to search for financial options and how to narrow the scope of that search as well as how to apply once they find them.

Get With The Program

Until Next Time,


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