How what you earn affects next year's aid

Money you earn while in school can change your financial aid, but the effect arrives later than most people expect. Here is how the timing works, how the FAFSA counts student income and savings, and when to talk to the aid office.

The two-year lag

The FAFSA uses tax information from two years before the school year it covers. A form for a school year that starts in the fall reads the tax year that ended about 20 months earlier. Pay you earn during this calendar year will be read by the FAFSA for a school year that starts roughly a year and a half after this year ends.

Because of this lag, pay from an ordinary part-time job usually leaves the aid offer you already hold for this year unchanged. The effect shows up on a later form, once that year's tax return is the one the FAFSA reads.

How student income is counted

The formula behind the Student Aid Index sets aside a protected amount of a student's income, and that amount is adjusted each year. Earnings above the protected amount add to the SAI, which can reduce need-based aid such as the Pell Grant. Parents' income counts as well for students who report as dependents.

If some of your pay came from Federal Work-Study, it is handled differently, and the aid office can explain how. Scholarships and grants that you reported as taxable income are also treated separately from wages.

Keep for the aid office

• Your tax return for the year the FAFSA reads
• Final pay stubs from any job that ended
• Any W-2 or 1099 forms
• Account balances on the day you file

Savings count too

Money you save from a job and keep in a checking or savings account may be reported as an asset. Depending on your family's situation, the FAFSA may ask for those balances as of the day you file. Retirement accounts are left out of the asset questions.

Saving is still worth doing. Because the form records balances on the day you file, it is reasonable to pay bills that are already due before you submit it rather than after.

When your income drops

Because the FAFSA looks back two years, it can show income you no longer have, for example after a job ended or your hours were cut. The financial aid administrator can use professional judgment to adjust the figures for special circumstances like these. Each school runs its own process and asks for its own documents.

Ask the aid office for its special circumstances or appeal form, and bring proof such as a final pay stub or a letter confirming the job ended. The office decides whether and how to adjust your aid.