A series about college financial aid for parents of high school students.

My husband and I both graduated from college with sizeable amounts of student loan debt. We got married soon thereafter, bought a house, and had a few kids, but we are still paying off our own student loans. How will this affect our child’s ability to receive college financial aid?

It is important to note that there are different types of financial aid available, and the majority of federal student aid is not contingent on student or parent credit history, including student loan debt the parents may have.

What types of financial aid are available?

There are several types of college financial aid available. Some financial aid is based on need and some is based on merit; some has to be repaid; and some requires your child to work to earn money. Aid may be provided by the federal or state government, the college itself or charitable and private organizations. Generally, college financial aid falls into four categories: grants, scholarships, work-study programs and student loans.

How is financial aid awarded?

The first step in the financial aid process is completing the Free Application for Federal Student Aid (FAFSA®), usually using financial information from both the student and the parents. Parents report their adjusted gross income for the appropriate year on the FAFSA. This can be populated through the IRS Data Retrieval Tool (DRT). There are also other questions about assets and untaxed income. Based on this information, the Department of Education calculates an Expected Family Contribution (EFC), which is then forwarded to students and their parents, as well as the selected colleges for a final aid determination.

How will my student loan debts affect my student’s financial aid?

In certain financial situations, your tax preparer may be including a tax deduction for the student loan interest you are paying. This lowers your adjusted gross income and may therefore decrease your EFC. Other factors that may affect an EFC are household size, the number of household members currently attending college, and the age of each household member.

Should I pay off my own student loans before filing the FAFSA?

If you have a large cash reserve, it may make sense to use it to pay down some of your student loans so that your assets are not too high. It is wise to check with a financial advisor before making such a move.

Will we be able to get student loans for my child if we have other student loan debt?

Eligibility for most federal student loans does not depend on the parent’s credit history. It may, however, be more difficult for parents who don’t have a positive credit history to receive a PLUS Loan or to qualify as a cosigner on a private student loan.

Also keep in mind that it may be difficult to pay off your own student loans while trying to also pay for your child’s education. Parents should discuss the situation with their student so they will understand the impact it may have on their college choices and how to pay for school.


About the Author

Jodi Okun is founder and president of College Financial Aid Advisors and a Discover Student Loans brand ambassador. Visit her website at collegefinancialaidadvisors.com. She is also the About.com Money Expert on “Paying for College,” and was recently featured as one of the “Top 30 Social Influencers in Personal Finance & Wealth.” She has been featured in The Wall Street Journal, Mashable, US News & Education and The Huffington Post. The opinions expressed in this article are Jodi’s and do not necessarily reflect the opinions of Discover Student Loans.

FAFSA is a registered service mark of the U.S. Department of Education.