Before College: Will Your Student Lose Financial Aid If You Save for College?

A young father recently said, “I’m not saving for college. Everybody knows that anything I save will just make my kids ineligible for government grants!”

There’s some truth to this. The Expected Family Contribution (EFC) is what Washington believes the student and his family can afford to spend on a year at college. It also determines the student’s eligibility for need-based grants. And assets such as savings and investment accounts can enlarge the EFC.

This year, the government’s only large-scale grant program, Federal Pell Grants, is reserved for students with EFCs of $6,094 or less so, if savings or other assets would push an EFC above this amount, the student would become ineligible for federal grants.

Still, there are excellent reasons to save for college:

1. Savings and investments don’t add that much to the EFC. For every $100 a parent owns in assets, just $5.60 count toward the EFC, and the EFC includes only $20 out of every $100 in student-owned assets.

2. Even children with small-dollar savings accounts designated for college are three times more likely attend college and 4.5 time more likely to graduate. These ratios rise as the amounts in college savings accounts grow.

3. Federal grants are already inadequate for financially needy students. The maximum Pell Grant covers just 23.5% of 2018-19 costs at the average state college or university, so even with that maximum Pell award, your student will still need another $19,800 to make ends meet.

4. This problem will only get worse. Student costs are expected to rise sharply over the next several years — partly because inflation has reemerged and partly because legislatures keep forcing tuition increases by downsizing college appropriations. At the same time, Washington’s massive tax cuts for corporations and the wealthy are increasing the pressure cut spending on domestic programs such as Pell Grants.

What does all this mean? Don’t save for college and, if your student does qualify for federal grants, they’ll cover a smaller and smaller share of his college costs. As a result, he (and you) may have to borrow more and more in the student loans that make up 61% of all federal student aid. And since interest rates on these loans are rising, it’s increasingly costly to borrow for college.

There are many ways to amass the money your child will need for postsecondary education. But no matter how you do it, even just a little bit of saving and investing for college is a winning strategy, and a way to reduce your child’s dependence on educational debt.

Contact College Affordability Solutions for a free consultation if you’re looking for ways to make college more affordable for you or your student.

4 thoughts on “Before College: Will Your Student Lose Financial Aid If You Save for College?

  1. My favorite statistic is #2! Students with their own savings have a much greater chance of success in college. Everyone’s so focused on the parents having a savings account for their kids. If the student is putting aside their own money, they are already taking up responsibility and caring about the cost.


    • Erin, I think you’re exactly right. When I was working in the financial aid office, I noticed that students holding part-time jobs were also more likely to succeed in terms of persistence and GPA. I think it was a matter of them having “skin in the game” — money for which the had worked hard. Pre-college students with college savings accounts of their own have skin in the game, too. So small wonder that they, too, outperform their peers! Thanks for sharing your observation with me. Have a happy Thanksgiving! Tom


    • In our College Transitions course, we’ve created a mid term project on an executive functioning essentials. With an average of 60 percent of freshman retention rate in the US, this information is key. Save your own money, get a job, get yourself to the point that the feeling of losing money hurts. Receiving a failing grade = how much money lost?


    • That is a terrific idea for your College Transitions course. The earlier traditionally-aged postsecondary students become sensitized to the link between dropping/failing courses and squandering money, the better it’ll be for them when they begin independently their money and their lives at college — and later in life!

      By the way, if you’re not already doing so you might tell them that, should failing and/or dropping courses happen multiple times, it can also cost them more than tuition and fees. Too many drops and failures unproductively use up the limited time undergraduates have to be eligible for Federal Pell Grants and, in Texas, all state grants. Federal regulations have the effect of limiting Pell Grant eligibility to 12 semesters, and students generally lose eligibility for grants from the State of Texas 5 years after they receive their first grant (3 years at community colleges). Unfortunately, while working on campus I saw far too many students who, while trying to retake and pass dropped and failed courses, used up these limited eligibility periods. Once they lost their grants, many of them ended up relying solely on loans, forcing them into abnormally high debt loads.

      The long and the short of it is, there are way too many costs that come with dropping and failing courses, and there are practically no benefits!


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