You might think that moving out of your parents’ place means you’re ready for the real world. You’re not alone.
About 40 percent of millennials believe that reaching financial milestones like paying rent is the surest sign of independence, according to a Bank of America survey.
Regardless of where you live, however, the Department of Education (DOE) might still see you as a dependent. This status matters when it comes to receiving federal aid for college.
Here’s how to determine whether you’re truly independent or dependent, plus how that could affect your path to campus.
Independent and dependent student definitions
To receive financial aid from the federal government, filling out the FAFSA annually is a must. Your ability to receive government-funded grants, loans, and work-study opportunities is partly decided by your dependency status.
If you’re a dependent student, you’ll report your family’s income on the FAFSA, as it’s assumed you’ll have help paying for college. As an independent student, you’ll report your financial information (and your spouse’s).
Because being independent might lead to greater access to federal aid, you’ll need to prove your filing status. You won’t just self-identify and move on.
Consider these factors that determine your dependency:
- 24 or older
- Married or have a dependent
- A graduate or professional student
- A veteran or a member of the armed forces
- An orphan, a ward of the court
- An emancipated minor or homeless
To be deemed independent, you must fit into one of those buckets. If you don’t, you’re a dependent.
4 ways your dependency affects your financial aid
The requirements of being an independent student in the eyes of the DOE are pretty close to non-negotiable. You can’t change your age, marital status, and grade level at the drop of a hat.
So although you’re not in control of your dependency status, it’s important to be aware that how you’re classified affects how much federal aid you can receive.
Here are all four ways your status affects your finances.
1. Maximum borrowing amounts
Federal loan borrowing limits are decided by your dependency status and year in school. Freshman and sophomore students who are categorized as independent, for example, can borrow $4,000 more in loans per year than their dependent peers. Upperclassmen independents can borrow $5,000 more.
Here are the maximums for federal loans:
There’s one loophole to the dependent student definition. If your parents aren’t eligible for a Direct PLUS Loan to help pay your tuition, you could receive additional Direct Unsubsidized Loan funds.
It’s also important to point out that dependency status is not as big of a deal in the world of private student loans. With that said, as an independent student, you might be hard-pressed to find a cosigner if your parents are out of the picture.
2. Eligibility for grant aid
Although your eligibility for federal aid isn’t mentioned in the DOE’s dependent student definition, there’s still a connection. After all, dependent students are assumed to have more financial support from home. With higher Expected Family Contributions (EFC) than those of independent students, they’re less likely to receive need-based aid.
Work-study programs are based, in part, on financial need. Traditionally, grants are also need based while scholarships are often awarded for merit, like high marks in the classroom.
The DOE’s four grants are all need based:
- Federal Pell Grant
- Federal Supplemental Educational Opportunity Grant (FSEOG)
- Teacher Education Assistance for College and Higher Education (TEACH) Grant
- Iraq and Afghanistan Service Grant
Unlike loans, these grants are a form of gift aid. They don’t need to be repaid.
3. Qualifying for in-state tuition
If you’re an out-of-state student, you might think it’s easier to score an in-state tuition rate as an independent. That’s not necessarily true.
As a dependent student, you’d have to prove that you and your family lived in the school’s state for as long as two years before enrolling.
As an independent, you’d have to prove you earn and spend your own money. Providing bank statements and tax returns would be a good start.
Although your dependency status can change your path toward establishing residency for in-state tuition, it’s a rocky path nonetheless.
4. Receiving a tax deduction
Like the Federal Student Aid office, another branch of the federal government might classify you as a dependent — the Internal Revenue Service (IRS).
If you remain a dependent during your student loan repayment, you — and your family — should be aware of the tax implications. The IRS allows you to deduct up to $2,500 in paid federal and private loan interest from your taxable income. To be eligible, you can’t be a dependent on someone else’s tax returns.
Your parent could claim the student loan interest deduction if they took out a loan for you. But you could only claim it if you’re an independent.
Consider your dependency status
If you’re not sure whether you’re an independent or dependent student, check out the DOE’s infographic quiz. Once you know where you stand, you’ll know how you’re affected.
Most importantly, knowing your dependency status can help you understand your maximum loan allowances as well as your access to federal grants. You might not be able to go from a dependent to an independent overnight, but at least you can plan for your reality.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.04% – 13.04%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.12% – 10.98%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|4.92% – 10.01%7||Undergraduate and Graduate|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|