You must fill out the Free Application for Federal Student Aid to receive most types of financial aid, including federal grants and loans. Your financial aid award is based on a variety of factors, including the parents' income for dependent students. In general, the more money your parents make, the less aid you will receive because they can contribute more to your education.

Dependent Students

Parent income only affects financial aid for dependent students. For the FAFSA, dependency is based on the federal government's criteria, not whether the parent claimed the student as a dependent on last year's tax return. Students are dependent for the FAFSA unless they meet one of the criteria for independence. These include being at least 24 years old, being married, providing the majority of financial support a child or other dependent, pursing a graduate degree or having no parents. Parent income does not affect financial aid at all for independent students.

Which Parent?

If you are a dependent student and your parents are married to each other, you report their joint incomes and assets on the FAFSA. If your parents are divorced or separated, things get a little more complicated. You only report the income and assets of the parent who you have lived with most during the year leading up to filing the FAFSA. If that parent is remarried, you must report your stepparent's income and assets on the FAFSA as well. The federal government does not distinguish between parents and stepparents when calculating aid.

Parent Effect on EFC

The federal government uses a detailed formula to determine the estimated family contribution -- EFC -- based on the parents' and student's income and assets. The income you report on the FAFSA is from your tax return for the year before you file. If your parents' adjusted gross income is $31,000 or less, your EFC is automatically zero. Otherwise, the federal government subtracts several allowances, including taxes paid, protected income based on the number of family members and employment expense allowance in families without a non-working parent. The EFC includes at least 22 percent of the parents' available income, and up to 47 percent of available income above a specific threshold.

EFC Impact on Aid

The federal government and individual schools use your EFC as the main determinant of what need-based financial aid you receive. Some types of aid, such as Pell Grants, go to students with very low EFCs. Other types of aid, such as student loans and institutional grants, are awarded to make up the difference between the EFC and the cost of attending that school. The lower your EFC, the more financial aid you are likely to receive.

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