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Navigating College Costs: What Every Parent Needs to Know About Federal Financial Aid

Have you ever wondered how federal financial aid is determined? If you have a student heading to college soon, you won’t want to miss this quick 4-minute episode of Coffee with Waymark. In it, Brendan explains what factors are involved in calculating a student's eligibility for federal financial aid.

Topics Discussed:

  • Overview of federal financial aid calculation

  • Breakdown of student aid index

  • Impact of parent and student income/assets on aid eligibility

  • Impact of grandparent income/assets on aid eligibility


Hi, and welcome to another edition of Coffee with Waymark. Today's episode is kind of near and dear to my heart because my senior in high school, now she's 17 going on 18 in June, is applying to college and we are right in the thick of financial aid. So I've been doing a lot of extra research on financial aid. 

I always had a general understanding of financial aid, but now that it's very relevant to me as my firstborn is going into college, I'm paying a little bit more attention to it. In my research, I came across a really neat chart that does a really good job in one slide on how to determine how federal financial aid is actually calculated. So let me share that with you. 

What you see here is, and let me get my little pen here, what you see here is total costs per year minus this thing called student aid index is your financial aid eligibility. What that pretty much means is not that the purple box is how much you're actually going to get in financial aid, but how much aid a student is eligible to receive. 

So how is that student aid index actually calculated? Well, this is one of the most misunderstood things in financial planning. I've heard all sorts of different theories on how this is calculated, but it's here black and white. This is, as I said, the best summary that I've seen for financial - federal financial aid eligibility. And so what you see here is that yes, parents and how much money they're making and what their assets are dictate a portion of that student aid index, but look at the student section. Instead of 22 to 47% of the parents' income being taken into account, 50% of their income is taken into account. Similarly, assets are only valued at 5.64% and taken into consideration at that level, whereas a student's is up to 20%. So, long story short, students, and trying to get assets, you know, significant assets, significant assets away from the student is a thing that you should be thinking about, probably freshman and sophomore years of high school in order to reduce the amount of impact that the student portion has on the student aid index. 

And one of the most important things and one of the things that I've been asked about a lot is grandparents and others. None of their assets are taken into consideration. So even if there is an inheritance that could be coming the student's way, if it's still at the grandparent level, it does not apply. And so, long story short, this is how the student aid package for federal is taken into account. 

Now, individual schools have their own way of calculating need as well, and in some cases, grandparents and other amounts of money that are slated for the child can be a part of this equation. But as I mentioned, this is  for federal which is for a lot of people the bulk of financial aid for federal purposes in FAFSA, this is the calculation that people use to calculate what the financial aid is. 

So real quick one here today, I came across this in my own research and I thought I'd share it with you. Hopefully, it's helpful and that's really all I got for today. So hopefully this was helpful, and I look forward to the next time we get together for Coffee with Waymark. Take care.

Brendan is the Managing Director for Waymark Wealth Management. He has extensive experience in comprehensive wealth management. His focus includes retirement planning, behavioral finance, investment portfolio construction, education funding, insurance & risk management, taxes, charitable giving, and estate planning. Brendan has an ability to take clients' complex visions and distill them down to simple action plans, helping them move from where they are today to where they want to be tomorrow.

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.

The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents in specific states which are listed on our website at

The opinions voiced in this video are for general information only and are not intended to provide specific advice or recommendations for any individual.


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