College Savings Accounts and Financial Aid

We offer webinars to families on a range of college planning topics, including saving for college and college financing. Both of these subjects raise a lot of questions about the overlap of college savings accounts and financial aid. How do they affect one another? And what's important to know about financial aid before starting to save for college? We provide the information you need below in Q&A format.

Q: Does a student get ignored for financial aid if the family has a savings account specifically designated for college?

A: No. The financial aid office has no idea whether or not a family has a college-specific savings account, as families lump that information into the total amount of parent investments reported on the financial aid applications. So a student with a college savings account would be treated no differently in the process of applying for financial aid than a student whose family saved in other vehicles.

Q: So I report my college savings account as a parent investment on the financial aid applications?

A: Exactly. You'll be asked to report both student and parent investments. If a parent owns a 529 account or prepaid tuition account, even if the student is the beneficiary of those accounts, the family reports those assets as parent investments, not student investments.

Q: How does a college savings account affect my eligibility for financial aid?

A: As mentioned, your college savings account is considered a parent investment on the financial aid applications, and the financial aid formula assumes that, at most, your family will use 5.6% of those parent investments for college costs (even though your family likely plans to use 100% of your college savings account to pay for college!). That's good news for savers. So if your family has a $25,000 U.Fund 529 account, for example, the financial aid office will assume that only $1,400 of that is available to use for college costs (so that's $1,400 you won't be eligible to receive in financial aid). Assuming that such a small percentage of your college savings account will be used to pay for college benefits students and their families significantly in the financial aid process.

Q: Once I'm awarded financial aid, will the amount change once the school learns of my college savings account?

A: The school will have taken into account the value of your college savings account when it considered your total parent investments within the financial aid process. The college isn't concerned what types of investments those are, even if one is specifically designated for college costs. So your financial aid won't be affected even if the financial aid office does learn that your family did save for college in a designated account.

Q: What happens if my grandparents save for my college. Can that affect my financial aid?

A: A grandparent saving for college is different than a parent saving you college. You won't need to report the value of that college savings account as a parent or student asset on the financial aid applications, as it's neither a student nor parent investment. The CSS Profile^® does ask if other family members plan to contribute toward your college costs, but many schools don't use this information when assessing your eligibility for financial aid. You can learn more in our post here.

Do you have additional questions about financial aid and college savings accounts? We have answers. Reach out to us at (800) 449-6332 or collegesavings@mefa.org.