2 Biggest Reasons Why Saving For College Won't Hurt Financial Aid Chances

Are you worried that saving for college will ruin your chances for financial aid?


Parents who save for college are almost never penalized in student financial aid considerations. In fact, only about 4% of families who complete financial aid forms are penalized for their savings.

Here are the two biggest reasons why saving money shouldn’t hurt your financial aid chances:

1. Colleges don’t care how much you saved for retirement.

And that’s true whether your child ends up applying to a state university or a private college. The Free Application for Federal Student Aid (FAFSA) doesn’t even ask about retirement assets whether the cash is in 401(k) plans, Individual Retirement Accounts, SEP-IRAs or other retirement plans. Even if you’ve saved $1 million for retirement, or heck, $1 billion it wouldn’t hurt your chances of financial aid.

The 270 private colleges that use CSS/Financial Aid PROFILE, also don’t penalize parents for their retirement savings.

2. Parents can also shelter non-retirement money.

Colleges don’t want to strip you of all the cash. Really, they don’t. So the financial aid formulas will also let you shield a big chunk of your non-retirement money.

You will probably be surprised at how much money the FAFSA formula allows you to protect. It’s all based on the age of the oldest parents.  Let’s say the oldest parent is 55. The family would be able to shield $60,200 in college account money, as well as any other cash laying around in taxable accounts such as checking and savings and brokerage accounts.

Oldest Parent   Asset Allowance

  • 45                      $46,600
  • 47                      $48,900
  • 50                      $52,900
  • 52                      $55,500
  • 55                      $60,200
  • 58                      $65,300
  • 60                      $69,200
  • 62                      $73,200

The CSS/Financial Aid PROFILE also includes an asset allowance, but it’s not based on the age of the oldest parent. It’s more heavily weighted on the number of children a family has — whether or not they are college-age yet or not.

So what’s the bottom line? Savings will hardly ever hurt your chances of financial aid.

Lynn O’Shaughnessy is the author of The College Solution and she also writes a college blog for CBSMoneyWatch. Follow her on Twitter.

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  1. I also believe that parents should not use the FAFSA calculations as a crutch to not save for their child’s education. However, at some level, your savings can start factoring into the FAFSA and may reduce your eligibility for need-based aid.

    I would recommend that you enlist the help of a trusted family member (grandparent,aunt,uncle,etc) to establish a 529 plan for benefit of your student. Reason being,if the program is in their name, any accumulation the fund has over the years will not impact your FAFSA calculation.

    Lastly, whatever you do, do not save money in your student’s name. The FAFSA weights their assets much heavier than the parents. If you have saved money in the student’s name, be sure to spend it first so that it does not negatively impact your FAFSA filing all four years.

    @Zach- I don’t necessarily agree with using the governments low to no interest loans and keeping your cash invested. I had a number of families doing this a decade ago and they had great success with it. The families doing this in the last 2-3 years lost everything they had and are only now starting to break even using that approach. It is just a little risky and probably not the best advice. Besides…families with that kind of cash laying around will probably not qualify for the no interest (subsidized) loans.

    just my 2 cents..

  2. KK,

    you are right that the asset allowances being discussed above are for married parents and not a single-parent family. In the case of a single-parent family, using the Federal Methodology (FAFSA) the asset allowance does go way down (I don’t know if it’s 50% exactly or not, but it’s close give or take a few percentage points). I am not certain how it works for the CSS.

    As to Lynn’s general message that saving for college rarely hurts your chances of financial aid, I have mixed opinions because I think she left out some things to take into consideration (to be fair, she would have to write a novel to cover all the ins and outs of financial aid).

    Lynn, your first point about the colleges not caring if you save money for retirement is a good point, especially if you can provide some clarity on how one can use retirement money for QHEE (qualified higher education expenses). With that point in mind, I feel like socking money in a Roth IRA can be a great way to save and pay for the cost of college. But, keep in mind they will look at the contributions made to retirement accounts in the base year (Jan 1/Junior yr in high school through Dec. 31/Senior yr) as ordinary income.

    And for many families the asset protection allowance does allow you to save for the cost of college. But for families with the ability to save more than that, and for any student who will be attending a CSS profile-school, they will ultimately be penalized for the saving. CSS profile-schools asses the equity in your primary residence (and other property owned) as an included asset. So if a family has $100,000 dollars in home equity, they are already well over the asset protection allowance, and that isn’t even taking into account what money is in checking, savings, CD’s, brokerage accts, etc.

    I’m not saying don’t save for college. To not save would be truly foolish. But save wisely. There are ways to plan and save for the cost of college that will provide you with the opportunity to not only have accumulated cash for college, but to also have that cash excluded from the financial aid formula.

    Oh, and by the way, paying cash for college is probably the biggest mistake people make when it comes to the cost of college. Save all you want, but why pay cash??? Cash is King. Keep your cash. Finance it. The Government put programs/loans in place that are far more attractive (in my not-so-humble opinion) than paying cash for school.

    If I told you that you had to buy a $25,000 dollar car (average cost of a 4-yr college) every year for the next four years, are we ever going to be discussing the possibility of you paying cash?

    Great Blog, Lynn. Keep up the good work!

  3. Isn’t the Asset Allowance figure you mentioned for married parents? What about a single parent? I read somewhere that it is half (which is not much) but I am not certain. Could you please clarify in case of a single (divorced)parent for FAFSA and CSS?



    1. Hi KK — It’s true that the asset allowance for single parents is smaller than that for married couples filing the FAFSA. That’s because the allowance is intended to help parents save some money for retirement. Of course, no retirement assets are considered for financial aid purposes for the FAFSA or PROFILE.

      As for divorced parents, they enjoy a great perk that those of us who are married don’t enjoy. The income for only one parent is considered for the FAFSA. I suspect that many divorced parents have the ex-spouse who earns the least amount of money fill it out, which can lead to financial aid awards that married couples can’t get. That said, if the “custodial” parent has remarried that person’s income will be considered too.

      Many PROFILE schools also give a break to divorced parents.

      Hope that helps.

      Lynn O’Shaughnessy