Does a Change in Income Change the FAFSA?

by Morgan Rush ; Updated July 27, 2017
Changes in income may increase your FAFSA financial aid award.

The FAFSA stands for Free Application for Federal Student Aid, and helps the government determine what types of aid, if any, should be awarded to students for college. Aid might include grants, which don’t have to be repaid; student loans, which must be repaid; and work-study arrangements, which permit students to work on campus for extra income. Changes in income may affect your FAFSA application.

Family Contribution

The FAFSA application helps the government determine how much you and your family can be expected to contribute to your college education by evaluating factors including income, savings, household size and assets. After determining your family’s expected family contribution, or EFC, the government compares this figure with the estimated cost of attendance for your schools of choice. The difference between the two sums may be filled with a government financial aid package.

Income and FAFSA

The government’s FAFSA application asks for your adjusted gross income when determining your family’s EFC. Adjusted gross income, or AGI, comes straight off your family’s tax form and is considered to be your income once adjustments have been subtracted. Adjustments can favorably reduce your income so that your EFC is lowered, increasing your federal financial aid package. Changes in income, such as a salary boost, will otherwise increase your EFC and reduce your financial aid package. A decrease in income may decrease your EFC and increase your financial aid package. Keep in mind that student aid is generally not considered income, although you’ll still need to report them when filing taxes. They’ll be listed as an exclusion on your FAFSA form.

Adjustments

If your income has changed for the better but you’re hoping not to change the FAFSA outcome, there are ways to legally lower your AGI to hopefully improve financial aid packages. Make the maximum allowable contribution to retirement funds, or consolidate existing student loans. Since student loan consolidation initially frontloads interest payments, and federal student loan interest is deducted from your AGI, this is another way to reduce adjusted gross income.

Honesty

If you’re planning to do extensive tinkering with FAFSA applications given income changes, consult with a professional to make sure that you don’t accidentally violate reporting laws. Deceptive reporting on the FAFSA can result in severe penalties, including loss of federal student aid. Such applications are considered fraudulent, and your college’s financial aid professionals are required to report your application to the U.S. Department of Education. Student aid received because of incorrect FAFSA information must be repaid, plus fines and fees. Purposely providing incorrect information about FAFSA information, including income, may result in prison time or $20,000 fines in 2010, according to FinAid.org.

About the Author

Morgan Rush is a California journalist specializing in news, business writing, fitness and travel. He's written for numerous publications at the national, state and local level, including newspapers, magazines and websites. Rush holds a Bachelor of Arts from the University of California, San Diego.

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