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How much can a student earn before it affects financial aid?

December 06, 2018

There is sometimes confusion surrounding financial aid, income limits, and the amount that a student is able to work before that income begins to affect financial aid analysis. This article will clear up the misconceptions and you will be able to find out just how much you are able to earn before it affects financial aid. For example, Pell Grant recipients often make less than $50,000. So even if there is a dedicated and consistent income being reported in a household, there is still the ability to qualify for financial aid of various forms.


How is my earned income calculated for financial aid?

First, it is important to understand that there are no Income limits  or guidelines pertaining to applying for financial aid with FAFSA. As a matter of fact, it is highly recommended to always submit your annual FAFSA no matter how much you earn or are reporting as income since you may still qualify for other types of aid such as merit-based aid, for example. Also, keep in mind that when you submit the FAFSA, a need analysis is conducted which is not solely based upon the income of a student or family. This is why there is the potential for additional scholarships, grants and awards that are based on other factors.


There are some things to keep in mind when considering financial aid and how it may be assessed and analyzed. Your Estimated Family Contribution (EFC) may be affected if you or your family make a particular amount of money per year. Your EFC will also take into consideration that you need living expenses and other needs in the analysis. Additionally, keep in mind that your EFC is not the amount that you will need to pay for college; it is simply a calculation based upon the need analysis that will allow colleges to further calculate your need based upon a combination of factors. The takeaway here is that regardless of your income, submit that FAFSA.


What is an Income Protection Allowance?

An IPA or Income Protection Allowance is something that is taken into account when calculating your EFC. It’s a certain amount of income from your family that doesn’t get counted. The IPA takes into account that there may be other family members in the household and some may also be in college. For 2019-2020, the income protection allowance for a married couple with two children in college is $25,400.


Additionally, when thinking in terms of income, as a student contributing to his or her education, for the 2018-2019 academic year, a student can make up to a particular amount of non-work study taxable or untaxable income before it is counted as income and used in calculating your financial aid package. The student income allowance is $6,660 for 2019-2020. Plus, after that, only "50 percent of your non-work-study income will count against your eligibility to receive federal student funding."


There are also other types of income that do not have to be counted as income in this calculation. Included in this category are scholarships, grants, loans, and withdrawals from a 529 college savings plan as long as it’s owned by the parent or student.

 

What about work-study income?

Earning work-study income will not reduce eligibility to receive financial aid because as stated before there are no income limits to submitting a FAFSA. If you are awarded work-study this is just another type of need-based financial aid that is part of an entire financial aid award package. Since work-study packages will only allow you to make up to a certain amount of money, which will be stated on your award letter, you will only be able to work and be paid up until those funds run out. Your work-study income will be considered taxable and will need to be claimed during tax time with the IRS. You will not have to list it as income on your FAFSA even though you have to file it with the IRS.