A mom named Danielle called into The Ramsey Show with a question many parents wrestle with. Her youngest son heads to college in just over two years. She had been reading FAFSA guides that told families to spend down their cash before filing, and it did not sit right with her. “We’ve had our son take the Foundations course. We’ve gone through Financial Peace University. He’s been saving up from his church job for college, and that goes against what we’ve taught him,” she said. “We feel he should pay for part of his college, but we also don’t want to mess up our chance at financial aid.”
Dave Ramsey did not hedge. “Financial aid that is needs-based, like a Pell Grant, is for poor people. When a website or a person suggests that you spend all your money in order to qualify for welfare, that’s like saying quit your job so you can get welfare.” He went further on FAFSA itself: “FAFSA really is a funnel to get people into student loan debt, is mainly what it does.”
Dave’s Right: Spending $10,000 to Gain $564 in Aid Is a Terrible Trade
Deliberately draining a savings account to qualify for need-based aid is a bad trade for most middle-income families. The FAFSA calculates a Student Aid Index (SAI) that colleges use to decide need-based aid. Co-host George Kamel walked through the actual weights on the show.
Parent assets are counted at only about 6% in the Student Aid Index. Student assets are weighted at a flat 20%. That single difference is the whole game.
Here is the concrete scenario Kamel used. If parents have $10,000 in savings, roughly $564 of that gets added to the family’s SAI. A parent would need to spend down $10,000 of their own money to potentially reduce their expected contribution by about $564.
If that same $10,000 is held in the student’s name, it is subject to the 20% rate, adding roughly $2,000 to the SAI. That makes it more favorable for the son to reduce his savings. In principle, Dave’s arguing against trying to game the system.
The Same $10,000 Is Treated Very Differently Depending on Who Owns It
The one factor that most changes the outcome for Danielle’s family is where her son’s savings actually live. Money he earned at his church job, sitting in a custodial account or his own savings account, gets weighted four times harder than the exact same dollars in a parent account. The parents may want to review how the money is titled well before the FAFSA filing season and understand that a 529 plan owned by a parent is typically treated as a parent asset.
Ramsey’s second point is where his advice gets sharper: “School choice is the ticket. Working while you’re in school is the ticket. Applying for scholarships is the ticket.” He pointed to Kristina Ellis, who earned over $500,000 in scholarships in high school and attended Vanderbilt debt-free. “She wrote so many essays her fingers bled, you know, kind of thing. But she got half a million dollars worth. Hello! That means free college anywhere you want to go.”
Key Takeaways
Spending down $10,000 in parental savings to potentially gain $564 in financial aid is probably a poor trade. Danielle’s son will likely accomplish far more by filing the FAFSA, keeping savings appropriately titled, applying aggressively for scholarships, and choosing a school he can afford without taking out loans.
Danielle confirmed her son would not be taking loans. “That won’t be allowed,” she said. This is obviously a personal choice that works for their family, but the takeaway is that planning ahead can put a family in a better financial position down the road.
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