New aid rules make student work a better deal
Every June, millions of parents say the same three words to newly graduated high school seniors: "Get a job!" But work-averse teens sometimes argue that it isn't worth the effort, since every dollar they earn could reduce future college financial aid by as much as 50 cents.
Teens: Get ready to put those work gloves on. In a move that will no doubt delight parents, the government has reduced that penalty for working students.
Starting July 1, 2007, the federal government won't deduct any of the first $3,000 of the student's earnings against need-based financial aid, such as Pell grants. The government will continue to expect students to contribute to their college costs 50 cents of every dollar earned above that, however.
For the coming academic year, the government will shield only $2,550 of student earnings (the amount has gradually increased from $2,200 in 2001). Above that amount, 50 cents of every dollar the student earns is added to the family's "expected family contribution." That is the official estimate of what a family can afford to pay for college.
Students who are offered work-study jobs by their schools get an even bigger break, because those wages are also exempted from need-based financial aid calculations. (Earnings typically don't affect the amounts of merit-based scholarships, though, such as those given for top grades or test scores.)
All this adds up to some tough-love advice for students, say college finance experts. The way the government penalizes the financial aid of hardworking, low-income students is unwise and unfair, says Susan Dynarski, a Harvard economist. But students have little choice but to suck it up. They shouldn't use the possible reduction in aid as an excuse to avoid gainful employment, Dynarski says. About half of all students don't get any scholarships or grants, and they can keep everything they earn (after taxes and work-related expenses, of course). And for those who do receive need-based aid, keeping 50 cents of every dollar earned is still much better than nothing, Dynarski notes.
Stuart Siegel, an independent college finance adviser in Erie, Pa., advises his clients that not only should students take summer jobs but "they'd better save that money." After all, schools may expect some of those earnings to help pay tuition bills, he notes.
During the school year, it can really pay to work. Studies show that students who work 10 to 15 hours a week get better grades. But those receiving need-based financial aid should consider sticking to a work-study job, unless an off-campus job pays more than 50 percent more, to make up for the possible reduction in aid.
One caution: There is a danger to overworking. Studies show that students who punch in for more than 15 hours a week during the school year are more likely to drop out.
advertisement
