Author: Don Obrien

Will an inheritance hurt my son’s financial aid for college?

Q. My son was given $15,000 via his grandmother’s trust. Will this affect his eligibility to receive federal student loans as this amount is not enough to cover all of his schooling costs? The amount was given directly to my son and not the college institution.

— Parent

A. You’re right to ask the question about how these funds will affect your son’s college costs.

It could have an impact.

Your son’s eligibility for federal student aid is generally determined by information provided in the Free Application For Federal Student Aid, or FAFSA.

In order to determine what amount of federal aid a student qualifies for, information provided in the FAFSA is used to determine your Expected Family Contribution (EFC), said Charles Pawlik, a certified financial planner and chartered financial analyst with Beacon Trust in Morristown.

“The EFC is the amount of money your family is expected to contribute to the cost of education, and is subtracted from the student’s cost of attendance at the school to determine the amount of need-based financial aid the student may be eligible for,” Pawlik said.

There are both need-based and non-need based federal student aid programs, he said.

Need-based student aid programs include Direct Subsidized Loans, Federal Pell Grants, Federal Work-Study, and the Federal Supplemental Educational Opportunity Grant (FSEOG), he said.

Non-need based aid includes Direct Unsubsidized Loans, Federal Plus loans, and the Teacher Education Access for College and Higher Education (TEACH) Grants.

In order to determine how much non-need based aid the student may be eligible for, the school subtracts financial aid already awarded, such as need-based aid and private scholarships, from the cost of attendance, he said.

Pawlik said the EFC is a formula that is based off of the income and assets of both the parents and the student, with “protection allowances” that exclude a certain level of income and assets from consideration.

Different assessment rates, or percentages, are applied to the income and assets of the parents and the child to determine the EFC, he said.

“Assets that are owned by the parent are deemed to be parental assets are assessed at a rate of up to 5.64% — the percentage of parental assets that are counted towards the EFC — whereas parental income has an assessment rate of up to 47%,” he said. “Student income and assets have higher assessment rates, in that 50% of the student’s income and 20% of the student’s assets count towards the EFC.”

Therefore, an inheritance of $15,000 that remains an asset of your son may increase the EFC by up to $3,000 ($15,000 x 20% assessment rate), potentially somewhat reducing your son’s eligibility for financial aid, Pawlik said.

“The potential level of impact to your son’s eligibility for financial aid will depend on your family’s unique financial circumstances in terms of the overall level of income and assets, and what level of income and asset protection allowances your family may have, amongst other things,” he said.

You may want to consult with a financial planner to see if you can better position your assets with financial aid in mind, and you can learn more with these websites:,, and

Email your questions to

Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for’s weekly e-newsletter.

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