The Free Application for Federal Student Aid (FAFSA®) does ask for a lot of financial information from parents, including details about your income. This may have you wondering if there are ways to reduce your income to help increase your child’s financial aid eligibility. Before making any decisions, learn more information about how income is reported on the FAFSA and if actions you take to increase student aid this year could actually lower it next year.

Whose Income Is Reported on the FAFSA?

Your child’s dependency status determines what income information is needed for the FAFSA. Dependent students report both their financial information and their parents’ when completing the FAFSA. Independent students report their own financial information, including a spouse and any dependents.

What Is the Income Cap for Federal Student Aid?

There are no income requirements or cap to the amount of money you can earn to qualify for federal student aid. Many factors go into the financial aid equation, such as the number of children in college and the parents’ age.

What Does the Income Determine on the FAFSA?

Income information is used to calculate a reasonable percentage of your family’s income and assets that can be used to contribute to your student’s college education, which is known as the Expected Family Contribution (EFC). The EFC is calculated based on your Adjusted Gross Income (AGI) and other income sources, and schools use it to determine your child’s eligibility for financial aid. The AGI is the bottom-line income amount used to determine your tax basis for federal income tax purposes and can often be retrieved directly from your tax returns or the Internal Revenue Service (IRS).

What Income Must Be Reported?

The FAFSA asks about income as well as assets. Use the information from your Form W-2s to report income earned by the student and parents. The FAFSA will want information on available cash, balances in savings and checking accounts and any investment portfolios. All real estate holdings other than the house you live in must be listed, as well as any business or farm assets. You will also need to report untaxed income, such as child support received, interest income and any non-education veterans’ benefits.

What if We Have a Large Amount of Cash Available?

Available cash counts toward your ability to pay for college and will be factored into the EFC, which can reduce the amount of federal student aid you receive.

If you want to maximize your eligibility for financial aid, and you do not want to use the cash for living expenses, college tuition or consumer debt, you could consider making a contribution to a qualified Individual Retirement Account (IRA) plan or paying down your mortgage. When planning your budget, remember to take into consideration how long your child will be in school.

Should We “Gift” Any Money to Our Student?

This is usually not helpful as the FAFSA also looks at the student’s financial information. In general, colleges calculate that a higher proportion of the student’s resources should be available to pay for college, so such a move may actually lower the amount of student aid received.

It may not be wise to make drastic financial decisions based solely on trying to qualify for a higher level of federal student aid. Look at your family’s entire financial picture and talk to a financial planner to determine what moves are best for you now and in the future.

About the Author

Jodi Okun is founder and president of College Financial Aid Advisors. She has been featured in The Wall Street Journal, Mashable, US News & Education and The Huffington Post. The opinions expressed in this article are Jodi’s and do not necessarily reflect the opinions of Discover Student Loans.

FAFSA is a registered trademark of the US Department of Education and is not affiliated with Discover Student Loans.

How helpful was this content?



Not Helpful

More to Explore

Navigating financial aid

Navigating the financial aid process can seem daunting whether it's your first time in college or you are a returning student. Use these step-by-step instructions to help guide you through the process.

Interested in private student loans?

Learn More