How summer jobs play into students' financial aid

Can a summer job hurt a teenager's chances for financial aid? A teen's job at any time of year can affect a financial aid award, but it often won't because of the amount of money a student needs to earn before an award is jeopardized.

Here's what you need to know about financial aid and student jobs:

Students can shelter some income

Student workers can protect some or even all of their salary from the federal financial aid formula, thanks to an income protection allowance. For the current financial aid season, a student can shelter $6,310 of earnings for the year. This figure is automatically adjusted annually for inflation. For the 2015-2016 school year, a student will be able to shield $6,400.

Students can shield more than the allowance

In reality, a college student can shelter even more money because the federal formula takes into consideration what a student worker pays in FICA taxes (Social Security and Medicare), as well as other tax allowances, including state taxes. This can bump up the income allowance another 10 percent to 25 percent, according to Mark Kantrowitz, the publisher of Edvisors.com, a website about planning and paying for college.

Assuming the coming school year's income allowance of $6,400, Kantrowitz estimates that a student could earn up to $7,162 without experiencing a reduction in need-based aid.

The penalty is severe for students earning more

However, students who make more than the federal protection allowance will pay dearly if they're seeking need-based aid. Income that isn't shielded from the formula will reduce potential financial aid by 50 percent. So, if a child possesses $2,000 in unprotected income, aid eligibility will drop by $1,000.

Assets can also hurt aid chances

Student assets will shrink aid chances, and none of this money can be sheltered from aid calculations. This can be a shock to frugal students who squirrel away money.

Let's say a student earned $6,000 and saved all of it. The federal financial aid formula would assess this money at 20 percent. Consequently, her eligibility for need-based aid would decline by $1,200 ($6,000 x 20 percent).

One way to minimize this financial-aid hit is to reduce a child's assets before filing the FAFSA. Schools are interested only in the amount of money that a student possesses on the day the FAFSA is filed. So, if parents file the FASFA on March 15, 2016, it would be best for the student to spend money on things like a car payment, textbooks and test prep before the filing.

Another way to reduce a student's assets is to move money into a 529 college account. All money in 529 accounts are assessed as a parent's assets. The federal financial aid formula assesses parent assets at a much lower rate (5.64 percent).

The rules are different for some students

About 260 schools, nearly all private, use a different financial aid application, called the CSS/Financial Aid PROFILE, which looks at student jobs differently. Colleges using this application assume that students will get a job and will help pay for college.

The PROFILE will automatically assume that students will contribute $1,850 to their education, but some schools will require a different amount. A student who doesn't work will still be on the hook to contribute to his or her education.

When none of this matters

If a student comes from an affluent family and doesn't qualify for need-based aid, then how much the student earns or saves is irrelevant.