Whether a school expects you to use your earnings to pay for college will depend on the institution and how it calculates financial aid eligibility.
If you earn $4,000 this summer and attend a college next year that only uses the Free Application for Federal Student Aid (FAFSA), your earnings aren't likely to impact your financial aid award. In contrast, if you attend one of the 270 schools that also uses the CSS/Financial Aid PROFILE, your earnings could lower your financial aid, but only slightly.
The current FAFSA formula allows a student to earn roughly $5,900 before it impacts his or her eligibility for need-based financial aid. Any earnings in excess of $5,900 will be considered a resource for financial aid purposes and assessed at 50 percent.
If your summer earnings of $4,000 represent your only income for the year, it won't be counted. But let's say you make another $3,000 during the year for a total annual income of $7,000. The portion that exceeds $5,900 — $1,100 — would be assessed at 50 percent. This would increase your Expected Family Contribution (EFC) by $550.
The current PROFILE has a similar approach, expecting students to use 50 percent of any earnings above a certain amount to pay for college. The threshold is $3,850 for freshmen and $4,400 for other undergraduates. As a prospective freshman with $4,000 in earnings, the college would expect you to contribute 50 percent of the amount that exceeds $3,850. This would increase your EFC by only $75.
On the surface it looks like the PROFILE is more generous than the FAFSA when it comes to assessing student income. However, the PROFILE formula includes something that the FAFSA doesn't, which evens things out somewhat. The PROFILE builds in an automatic annual contribution for ALL students: $1,750 for freshmen and $2,000 for other undergraduates, regardless of income.
A prospective freshman who has no earnings will still be expected to kick in $1,750. And a prospective freshman who has a paying job will be expected to contribute $1,750 plus 50 percent of any earnings above $3,850.
The PROFILE automatically lowers the contribution levels for lower-income students. In addition, schools may customize the formula to raise or lower the default contribution and income thresholds for other students.
It's not just income that shows up on W-2 forms that counts in financial aid calculations. If a student babysat, mowed grass or did other jobs that didn't generate a paper trail, those earnings still need to be declared on financial aid applications.