Chapter 4 - The Problem With QSTPs: Impact on Financial Aid

Before going any further, we turn our attention to probably the most significant concern that parents will face in their consideration of QSTPs. This concerns relates to the financial aid programs available to the student and the impact on financial aid awards of an account in a QSTP. This concern certainly has some validity, because at the present time the federal financial aid formula does not specifically exclude assets or income associated with a QSTP.

In short, saving for college with a QSTP can negatively impact your student’s financial aid eligibility. Of course, saving for college through other means can have a negative impact as well, perhaps even worse. This process is explained below.

…. The good news is that the treatment of QSTPs in the financial aid formula may change in the future. There is a significant effort on the part of the states to have the federal government exclude QSTP accounts in computing available assets and income on the FAFSA. Unfortunately, such a change was not made as part of the most recent reauthorization of the Higher Education Act which was signed by President Clinton on October 7, 1998.