Published in: Student Loans | Sept. 18, 2019

How Parent Income Can Impact Your Federal Student Aid

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If you’re applying for federal student loans to help fund your college education, you’ll likely need to take your parents’ income into account. 

Parents never want to saddle their children with having to repay huge student loans after they graduate. However, the cost to attend colleges and universities keeps getting more expensive every year, and aid packages can be hard to come by. Because the process for evaluating federal student aid involves an extensive financial examination that takes into account parental resources as well as student resources, the amount of income parents earn can have a direct impact on the size of the aid package that the student receives. The smaller the package, the more likely it is that students will have to overcome difficult financial obstacles as they enter the workforce after finishing school.

college student and his mother moving his belongings into a dormitory.

Image source: Getty Images

When do you have to include parental information?

The U.S. Department of Education's federal student aid office requires students to complete the Free Application for Federal Student Aid (FAFSA) form in order to qualify for assistance. If the student is considered a dependent student for federal purposes, then the FAFSA rules require that the student include parental information on the form. In general, in order to be treated as an independent student and therefore not have to include parental info, you have to meet at least one of the following tests: 

  • You'll be 24 or older by Jan. 1 of the school year for which you're applying for aid.
  • You're married or separated but not divorced.
  • You're working toward a master's, doctorate, or certain professional degrees.
  • You have children who get more than half their support from you.
  • You have dependents other than a spouse or children who live with you and receive more than half of their support from you.
  • You serve on active duty in the U.S. armed forces for purposes other than training, or are a veteran.
  • At some point since turning 13, you were in foster care, were a ward or dependent of a court, or both of your parents were deceased.
  • You're an emancipated minor or are in a legal guardianship as determined by a court.
  • You're an unaccompanied youth who's homeless, or self-supporting and at risk of being homeless.

If none of those things apply to you, then you'll generally be considered a dependent student and have to include parental information.

Which parent's information do I have to include?

If you have to put any parental info on the FAFSA, the next question is whose information to include. If your parents are married or live together, then the Department of Education wants you to include information about both parents. However, the FAFSA rules acknowledge that some family situations raise different issues, so the rules address many of them directly. They include the following:

  • If your parents are divorced or separated and don't live together, then you should include information about the parent you lived with more during the past 12 months, or the one who provided more financial support if you lived with each parent equally.
  • You generally have to include stepparent information if your parent is married to the stepparent, but if your parent is deceased, you don't have to put stepparent information unless your stepparent legally adopted you.
  • Same-sex marriages are treated the same way as any other marriage.

What if my parent won't provide the information?

The Department of Education won't treat you as an independent student just because your parents refuse to complete the form. However, if your parents won't give you the information, the FAFSA offers an option to say that you're unable to provide information about your parents. Complete that part of the form and then see if you qualify for the special circumstances that are listed. 

You can submit a FAFSA without parental information if your parents won't provide information, but typically you'll only receive unsubsidized student loans in your aid package in that case. Grants and more favorable student loan options won't be available to you.

Parent resources and the expected family contribution

A formula determines eligibility for aid, and it relies the most on two figures: your expected family contribution and the cost of attendance at your school. The expected family contribution (EFC) in turn determines your financial need. If the EFC is higher than the cost of attendance, then you won't have any financial need and therefore won't qualify for need-based aid. If the EFC is lower, then need-based aid might be available.

The EFC formula for most dependent students requires you to take either your parents' adjusted gross income if they file tax returns or their income from work if they don't file, and then add in any untaxed income and benefits. That determines their total income. Parents are then allowed to deduct amounts for federal and state taxes as well as Social Security payroll taxes. Parents also get what's called an income protection allowance, which varies according to family size and the number of college students in the household at the time, as well as an employment expense allowance which in most cases is 35% of earned income up to $4,000. Add up all these deductions, subtract them from income, and you're left with available income. 

Parents also have to make a contribution from their savings. You'll typically add up the value of bank accounts, investments, businesses or farms, and other assets to determine net worth, and then subtract various allowances. A percentage of assets -- usually 12% -- gets added to available income to become what's known as adjusted available income.

The final step is to run the adjusted available income through a bracket-based formula:

If adjusted available income is:

Then parent contribution is:

Less than ($3,409)

($750)

($3,409) to $16,600

22% of adjusted available income (AAI)

$16,601 to $20,800

$3,652 + 25% of AAI above $16,600

$20,801 to $25,100

$4,702 + 29% of AAI above $20,800

$25,101 to $29,300

$5,949 + 34% of AAI above $25,100

$29,301 to $33,600

$7,377 + 40% of AAI above $29,300

$33,601 or more

$9,097 + 47% of AAI above $33,600

Data source: Department of Education.

That parent contribution defines how much the Department of Education will assume that your parents should contribute toward your educational costs. But it's irrelevant whether they actually do give you that support. Your aid package will be calculated as if that money's there. You may also be required to make a student contribution depending on your own income and financial resources. Add together any student and parent contributions, and that's how much will get taken away from the cost of attendance in determining financial need.

The one thing you need to know

All of this is complicated, and it's hard to come up with examples that would apply to many individual cases. Every student's situation is different.

However, the general idea is that the more income your parents have, the higher their expected parent contribution will be, and therefore the less you're going to get in need-based student aid. That doesn't mean that you won't qualify for student loans, but they might not be the favorable federal loans you'd prefer to have. You can also expect less in outright grant money if your parents' income is higher.

Dealing with the FAFSA to report parent income is the first exposure that many students get to their family's true financial situation. Gathering the information can be a burdensome process, but you'll simply have to do it if you want to get the best possible aid package available to you. 

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