“Financial Aid for college to middle class students will suffer due to the reduction in the Asset Protection Allowance.”, according to William Porti at The College Advisor; a Wexford, PA College Planning firm.
Your family’s EFC is the number one driver of Need based aid and the Asset Protection Allowance takes a certain portion of savings and removes it from the equation used to calculate your EFC.
Every $10,000 decrease in the asset protection allowance may cut a student’s financial aid eligibility by as much as $564. So, the $33,700 decrease in the asset protection allowance for a 48-year-old parent from 2009 school year to 2016 school year may decrease a student’s eligibility for need-based financial aid by as much as $1,900 per year. For a dependent student whose parent is 65 years old, the $54,400 decrease in the asset protection allowance over the same period may reduce aid eligibility by as much as $3,068 per year.
The asset protection allowance is now so low that it does not protect basic assets from being assessed by the federal financial aid formula. For example, personal finance experts recommend that people save at least 6 months’ salary in an emergency fund to cover unforeseen expenses and job loss. The asset protection allowance now covers only a portion of the money in the typical parents’ emergency fund.
The asset protection allowance also does not protect money that parents have saved to pay for their children’s college education. The money that you’ve saved for college will actually count against you in the financial aid formula. The average amount of money in a 529 college savings plan was $20,700 according to the College Savings Plan Network, an amount greater than the asset protection allowance for most parents of college-age children.
Cause of the Decreases in the Asset Protection Allowance. The asset protection allowance tables are revised annually according to rules specified by the Higher Education Act of 1965 in 20 USC 1087rr(d). The asset protection allowance depends to a great extent on the difference between the current moderate family income and the current average Social Security retirement benefits, which can change significantly from one year to the next. When average Social Security retirement benefits increase faster than the increase in a moderate family income, the gap is smaller, leading to a smaller asset protection allowance. The moderate family income has been flat or decreasing while the average Social Security retirement benefit has continued to increase, causing a sharp decline in the asset protection allowance.
If current trends continue, the asset protection allowance will disappear entirely in just a few more years.
Since the asset protection allowance depends on current income and retirement benefit figures, it can vary significantly from one year to the next. Even college financial aid professionals often find this lack of stability in the asset protection allowance to be confusing. If you do not know your EFC or your families Asset Protection allowance, please contact The College Advisor at 866-244-9971. We will provide this information to you Free of charge.