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Financial Aid Formula
To determine if a student qualifies for financial aid, a number of forms must be filled out. One of the most common financial aid forms is the Free Application for Federal Student Aid (FAFSA). To learn more about the FAFSA, see our articles Financial Aid Application – FAFSA and Free Application for Federal Student Aid (FAFSA) – Online Application.
However, in order to get a ballpark figure of eligibility before you apply, here is a formula to use:
1. Add the value of all the family assets, including equity in your home, your savings and checking accounts, and your investments. You do not need to include IRA or pension plan accounts.
2. Multiply the total of all your assets in number 1 by 5.6%.
3. Add the result you found in number 2 to your total gross income reported on last year’s tax return.
4. Divide the total you found in number 3 by the projected yearly college expense.
5. If the answer in number 4 is six or less, you may qualify for help. If the answer in number 4 is above six, it may be difficult for you to be granted financial aid. Below is an example of how the financial aid formula works:
| Family A |
Family B |
| Home equity: $100,000 |
Home equity: $125,000 |
| Savings and checking: $10,000 |
Savings and checking: $25,000 |
| Investments: $100,000 |
Investments: $125,000 |
| Total: $210,000 |
Total: $275,000 |
| 5.6% of total: $11,760 |
5.6% of total: $15,400 |
| Income: $100,000 |
Income: $80,000 |
| Income + $11,760 = $111,760 |
Income + $15,400 = $95,400 |
| College expenses: $20,000 |
College expenses: $15,000 |
| $111,760/$20,000 = 5.58 |
$95,400/$15,000 = 6.34 |
As we can see from the above example, many aspects come into play where financial aid is concerned. Though family B has a lower income than family A, they do not qualify for financial aid because the final answer is above six. It is important to note that income alone does not decide financial aid; assets, savings, investments, and college expenses play a vital role in the determination of financial aid.
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