How Your Salary Could Affect Your Student’s Loans
With the cost of college steadily on the rise, even middle class and upper middle-class families are struggling to send their kids to school. While there are scholarships, grants and programs for financial aid help available for young people and their parents with college costs, those programs are often confusing, and a change in your income could have a significant impact on the college costs you and your children will have to bear.
Many parents do not realize that a seemingly small change in their family income could have a huge impact on their college costs – and on how much they need to put away for educational expenses. Parents who see their salaries drop by as little as $5,000 annually could find that they are suddenly eligible for thousands of dollars in new financial aid, while an increase of the same amount could seriously curtail the aid their student receives.
The impact of income increases is most significant at higher income levels. A working mother or father who gets a raise from $20,000 to $25,000 may not see much – if any – change in financial aid eligibility. A working couple earning $70,000 annually might see a big impact with a salary increase to $80,000, according to an article from U.S. News.
With so much at stake, it is important for parents seeking financial aid help to look at any increase or decrease in household income as part of their overall financial picture. This is especially critical for parents whose children are already in school, but it can be very important for parents trying to determine their college savings needs as well.
There are a number of financial aid vehicles available for parents and students, and it is important to look at each of them and determine how an increase or decrease in eligibility will impact a student. Federal Pell Grants are income based, so parents should estimate their eligibility for this type of aid based on their annual earnings. Parents can check eligibility at their current and anticipated income levels, then adjust their outside college savings accordingly.
Parents whose children have already chosen a school should check with the university financial aid office to determine their eligibility. Parents should be prepared to provide as much income information as possible to help the college financial aid officer make an accurate determination. Parents should also keep the financial aid office apprised of any income changes – both positive and negative – since these changes can impact future financial aid eligibility.
Federal tax credits can also be impacted by a change in income, although the eligibility guidelines for these credits is quite generous. Current law provides parents with a tax break, known as the American Opportunity Tax Credit, of up to $2,500 – with an income limit of $90,000 per single filer or $180,000 per married couple. Parents who expect their incomes to top out past those limits will no longer be eligible for this popular credit.
Some states also offer income-dependent financial aid help to students in college. If your state offers such assistance it’s advised to check the income guidelines carefully, especially if you anticipate a change in you employment situation.
In the end, understanding how a sudden change in income will impact your college finances is essential for every parent. After all, $5,000 might be great, but not if it means a $6,000 reduction in financial aid for your college student.
Did you enjoy reading this article? Sign up for UniversityParent’s weekly eNewsletter for additional tips and advice to help your college student succeed. You can also add to the discussion and get feedback from fellow college parents by joining our College Parents’ Facebook group.