http://www.theatlantic.com/business/archive/2011/09/how-colleges-punish-families-who-choose-to-save/245901/hroughout the U.S., millions of parents struggle to save for their children's college education. It isn't easy: in a consumer culture like ours, there's always something new to buy. Driving an older car, using an out-of-date computer, and ignoring cool new gadgets like the iPad aren't easy -- particularly when you've got some income that you could be spending on such luxuries. No wonder seeing the U.S. savings rate as high as 6% is unusual. But those parents who do the responsible thing and save are discriminated against: students whose parents save less often qualify for more financial aid.
If you or one of your children has gone to college over the past 15 years, then you're probably familiar with the Free Application for Federal Student Aid ("FAFSA"). This is a form that must be filled out by anyone hoping to get financial assistance for college. It requires a heap personal and financial information about a student's family, such as income, savings, and investments. Using this data, the government calculates how much financial aid the it will provide the student through grants and loans.
FAFSA's influence doesn't begin and end with the government. Many colleges also use the form as a way to streamline the information needed for their financial aid process. Like the government, many colleges also take savings into consideration.
From a pure logic standpoint, this makes sense: if a family has savings with which it can pay for college tuition and related expenses, then it should. But this logic has a clear flaw -- saving doesn't get there by accident; it is a behavior that you generally have some control over. Unless a family has very high income, it can always spend its income on something else instead of saving if it chooses. And those very high-income families wouldn't qualify for aid anyway.