The FAFSA income protection allowance used to compute financial aid eligibility is taking a big jump for 2010's dependent student filers. According to the Department of Education, the income protection allowance is being increased from $3,750 (2009/10) to $4,500 (2010/11). This is the largest single year increase I can recall in 10 years.
The income protection allowance is the amount of money a dependent student can earn in a non-work-study job, before that money is assessed towards their expected family contribution (EFC). The increase of the allowance will allow students to earn more money without fear of losing half of it on their EFC. This is very good news for many students who feel they are being punished for taking responsibility for their own education costs.
Here's how this works. Under the 2009 rules (applied to 2008 income), a student who earned $5,000, would be assessed on $1,250 of their income towards their EFC. This would increase their EFC by approximately $625. This year, the student earning $5,000 will be assessed on only $500 of their income; increasing their EFC by approximately $250.
Now here's the really good news. For many students, this will mean they could earn up to $7,000 or more in 2009 without it negatively impacting their expected family contribution. How is this so? Remember that work-study income is not assessed towards the EFC at all.
So let's assume that a student is awarded a work-study position at their college for $2,500. They work this job over the school year. The student can have a second part time job or a summer job as well where they earn up $4,500 for a total of $7,000 in annual income... and not increase their EFC.
The key is maximizing work-study income. The more you can gain in work-study, the more benefit the student gets out of their income protection allowance. If the student can get $1,500 in work-study, they can earn $6,000 total. If they can get $3,000 in work-study, they can earn $7,500 total. This is an excellent example of why you always want to include work-study in your FAFSA application.