Does a Savings Account Affect Your Student Loan?
The price for education requires that many families or students establish some form of savings account. In 2010, for example, college students paid between $9,000 and $35,000 per year, or more, for tuition and fees, according to College Board. When qualifying for student loans, grants or scholarships, however, savings accounts can affect award amounts. The owner of a savings account has a significant bearing on the amount of aid received.
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Assets in a Student's Name
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The Free Application for Federal Student Aid, or FAFSA, considers up to 20 percent of a student's assets. Assets include savings accounts, trusts, checking accounts and cash. Non-traditional students, such as those currently working or making a career change, must also consider 401k plans and traditional individual retirement accounts, or IRAs. Students who make withdrawals from retirement savings accounts must report them as taxable income, which can affect the amount of aid received. As a general rule, savings accounts, no matter what type, have a bearing on student loan amounts. Savings accounts that receive funding from parents are also subject to the 20 percent calculation.
Assets in a Parent's Name
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A parent's assets, including savings accounts, are assessed at a much lower percentage. Accounts in a parent's name will account for up to 5.64 percent, as of 2011. Students who have non-custodial accounts, such as regular savings or certificate of deposit accounts, should request that parents transfer the account to their name. However, the transfer must take place at least one year prior to filing FAFSA. Otherwise, the accounts must be reported on the FAFSA or they will affect the amount of student loans.
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Asset Protection
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Some assets qualify for asset protection, which means FAFSA does not consider a portion of the asset or account information for the student's contribution. Parents filing for assistance on behalf of students qualify for asset protection, but dependent students do not. Asset protection calculations depend on a number of factors, including the age of the parents and the number of parents in the household.
529 Plans
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The 529 plan is a type of education savings account. Parents, students or other non-beneficiaries can own a 529 plan. The owner of the plan determines how student loans are affected. Plans owned by parents are subject to the standard 5.64 percentage calculation. Those owned by students who must report parental assets are also assessed at the same percentage. Furthermore, distributions from the account for college expenses are not considered income when completing the FAFSA.
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