Working your way through college is a reasonable response to paying for an education. But, it can end up costing students when it comes to federal financial aid.
Federal law sets a cap on how much students can earn before the amount of federal need-based aid they are entitled to is reduced. This cap is known as the Income Protection Allowance (IPA).
The IPA was intended to allow students to earn an amount that would offset their living expenses before it would impact the amount of an aid package. While it makes sense to assume that a portion of those additional earnings would be used to help pay for school—the aid formula deducts 50 percent—it creates a bit of a catch-22. The more a student makes, the higher the dollar reduction in aid and the more they have to earn to avoid taking on additional student loans, generally with less attractive terms.
The IPA is not new. But at the time it was introduced, earnings from a summer and a part-time job during the school year, in combination with a financial aid package, were sufficient to cover the expense of attending college. Since then, the rate of inflation has significantly lagged the annual rate of increase in the cost of attending school. The result has been a widening funding gap.
This gap is especially troublesome for full-time students who are also supporting families. The extra income they are earning for their children’s needs can end up being redirected toward their own education expenses by the aid package calculations.
The situation isn’t an isolated one. Today, 66 percent of all college students work to make up the difference between financial aid and the cost of college. Some students pursue work-study programs. These programs are excluded from the IPA, a fact that can make them an attractive alternative despite their lower wages and depending on how close a student is to their IPA with other employment commitments.
Congresswoman Tammy Duckworth (IL-08) recently introduced legislation that would readjust the IPA, raising it by 35 percent to lower the gap with tuition costs. Concurrently, Senator Tammy Baldwin (D-WI) introduced a companion measure in the Senate.
According to Duckworth’s press release, the Working Students Act would allow a working single parent with two children to earn approximately $10,000 more each year without jeopardizing their student aid, pushing the cap to over $16,000 annually. An independent student would be able to earn an additional $3,400 annually, allowing for income just shy of $10,000, based on 2015–2016 numbers. A student who can still be declared as a dependent on their parents’ return would be allowed to earn an additional $2,200 over the current limit.
To learn more about how your earnings could affect your financing options, and the best strategy for minimizing that impact, contact us to talk to an NFCC certified professional near you.