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Question for the Money Doctors

Question submitted on Jan 3, 2017.


We have a small nest egg in our savings account and are getting ready to fill out the FAFSA for our oldest child to prepare for his college. In order to have a better chance at receiving some financial aid/grants, should we use the savings account before we complete the paperwork? We have some work we want to do in the kitchen.


Congratulations on this exciting time in your life! 

In order to determine how much your family should be expecting to contribute toward the cost of college, the government uses multiple methods based upon the income and assets of the parents and student .  This information is reported and gathered by the family on the FAFSA (Free Application for Federal Student Aid) and/or the CSS (College Scholarship Service) Profile.  This calculation is called the EFC (Expected Family Contribution.)

Retirement assets such as 401k, 403b, IRAs, SEP, SIMPLE, Keogh, profit sharing, pensions and Roth IRAs are not included in the calculation of EFC.

Assets in checking, savings, CDs, stocks, bonds, mutual funds, ETFs, brokerage accounts, money market, investment real estate, commodities and 529 college savings - are included in the EFC formulas.

The good news is that the government allows families to have an "emergency reserve" savings account with about $15,000 to $25,000 that can be subtracted from your overall assets.  Therefore, depending on the value of your savings account, this account may not have any effect on your EFC.  If your savings account is above the threshold, you could consider putting the extra money in a retirement account to plan for your future, and/or make the improvements  to your home. 

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