Why Do Some Merit-Based Scholarships Require the FAFSA?

Why Do Some Merit-Based Scholarships Require the FAFSA?

I am a 38-year-old student who returned to junior college after

being laid off and being unable to find a comparable job. Because I

was a “good saver” in my 20’s, I was able to do this while only

working part-time. Approximately 60% of my expenses are paid with my

savings. I am ready to transfer into a 4-year institution. However, I

am concerned that I might not receive any financial aid because my

savings are now held exclusively in a CD, not a qualified retirement

plan. My prospective college initially informed me that I qualify for

a substantial performance-based scholarship based upon my 4.0

GPA. But they will not confirm this until I complete the

FAFSA. What does one have to do with the other, and is there anyway

for me to protect the savings I have left? Shouldn’t I be able to

benefit from performance-based scholarships without disclosing my

financial information? Have I made a big mistake by keeping my

retirement money in a CD?

— L.P.

When colleges offer merit-based aid, they almost always require the

recipient to apply for need-based aid first. If you were to qualify

for a Pell Grant, for example, that would reduce the college’s cost in

providing you with the performance-based scholarship. The amount of a

merit-based scholarship is usually reduced by the amount of any

need-based grants. By requiring you to take advantage of federal and

state aid first, the college can stretch its limited financial aid

budget further.

A requirement to submit the Free Application for Federal Student Aid

(FAFSA) can also be motivated by what’s in the student’s best

interests. For example, the federal government requires students who

intend to borrow only the unsubsidized Stafford loan to submit the

FAFSA first, just in case they qualify for need-based grants. Grants

are better than loans.

If your adjusted gross income (including your spouse’s AGI) is less

than $50,000 and you are eligible to file an IRS Form 1040A or 1040EZ

(or you meet certain other substitute criteria, such as having been a

displaced worker within the last two years), you will qualify for the

simplified needs test and your assets will be ignored on the

FAFSA. Otherwise the money in the CD will count against you.

(There is a similar test that will result in an automatic zero EFC if

your adjusted gross income is under $30,000. However, independent

students with no dependents other than a spouse do not qualify for

automatic zero EFC. Only independent students with dependents other

than a spouse (or dependent students) can qualify for automatic zero

EFC.)

My husband and I own our home thanks to my

father-in-law, but we earn only $13,500 a year. Would we qualify for

financial aid?

— Brett P.

The federal need analysis formula ignores the net worth of the

family’s principal place of residence, so your home will not affect

your eligibility for need-based federal student aid. You will probably

qualify for a full Pell Grant because of your low income.

About 250 mostly private colleges use the CSS/Financial Aid PROFILE

form for awarding their own funds. The PROFILE does consider the net

worth of the family’s home, but it caps that net worth at 2-3 times

income. Given your low income, your home should have only a minimal

impact on your aid eligibility at these colleges.

Source: Fastweb

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