NerdWallet: How a summer job can affect college financial aid

The benefits of working likely outweigh the risks, but income of students is partly considered for aid. Read More...

This article is reprinted by permission from NerdWallet.

Roughly one-third of teenagers have summer jobs, according to the Pew Research Center. Some of these jobs may make you very familiar with the letters “SPF.” But every working student should know a different abbreviation to avoid getting burned: EFC.

While you may be working to help pay for college, the money you earn could affect the financial aid you receive. Here’s how.

Income and financial aid

Every student who wants federal financial aid must complete the Free Application for Federal Student Aid, or FAFSA. Colleges use this information to calculate how much a student and their family can pay for school. This is known as the expected family contribution, or EFC.

The EFC considers the income and assets of parents and students. In general, those with more money pay more money — and may not qualify for more desirable aid as a result.

“Typically, students with higher EFCs won’t be eligible for need-based money,” says Lauren Brantley, an eAdvisor for the College Advising Corps, a nonprofit organization based in Chapel Hill, North Carolina, that works with low-income, first-generation students.

Need-based aid includes Pell Grants, which you don’t repay, and subsidized federal loans, whose interest the government pays while you’re in school. Schools may also use the FAFSA to determine institutional aid, awarding some scholarships and grants based on financial need.

Student income protection

Penalizing working students may sound unfair, but annual earnings are excluded from the financial aid formula — to a point.

For dependent students, “The FAFSA wipes out any income earned at $6,660 or below,” says MorraLee Keller, director of technical assistance for the National College Access Network, a nonprofit organization in Washington, D.C. If you exceed the maximum, the formula counts half the excess earnings.

For example, say you worked at an ice cream shop earning $10.45 an hour, the median for food service workers according to the Bureau of Labor Statistics. You’d have to work more than 630 hours to hit the income maximum.

That’s not likely over the summer, but you could earn more than $10,600 by working 20 hours a week at that salary for the entire year. In that instance, the FAFSA would ignore $6,600, and $2,000 of the remaining $4,000 would affect your EFC.

It’s tough to say how much need-based aid that $2,000 could cost you — it would depend on your entire financial picture — but Pell Grant amounts and EFC are directly correlated.

Currently, if you attend college full time and have an EFC of $3,000, you’d qualify for a Pell Grant of $3,245, provided the school’s cost of attendance exceeds $6,195. If your EFC increased to $5,000, your grant would decrease to $1,245.

You can estimate this potential effect on your situation with the U.S. Education Department’s FAFSA4Caster.

Details to know

If you make a lot of money, you’ll want to understand the school year those earnings affect because the FAFSA uses income information from two years ago.

“For a student who’s an incoming freshman, calendar year 2017 is what is being taken into account on their FAFSA,” Keller says.

This wrinkle means college students close to graduating who land high-paying jobs or internships would likely finish school before that money counts toward their EFC.

Work-study jobs also don’t count toward the amount of income students can earn. You could make $3,000 from a work-study job and $4,000 from a summer job, but only the latter would go into the EFC calculation — keeping you below $6,660.

These details mean the benefits of working likely outweigh the risks.

“I think that students need to work when they’re in college,” says Jodi Okun, founder of College Financial Aid Advisors, which helps families understand the financial aid process. “It’s going to help them get employed faster.”

Independent students can earn more

Independent students, who don’t provide parent information on the FAFSA, can earn more before affecting their financial aid — $10,360 for single students and up to $16,620 for married students.

However, independent students might easily surpass those limits. They are typically older and may be working their way through school.

Okun advises these students to “do what you need to do, and try to stay away from worrying about income protection.” She says colleges will analyze these students’ situations differently when calculating financial aid.