How Does Tax-Exempt Interest Income Affect FAFSA?

From Yahoo Finance: 2025-03-21 15:11:00

When applying for federal student financial aid, tax-exempt interest income can impact eligibility. Interest from municipal bonds, although not taxed federally, is included in adjusted gross income for FAFSA, potentially reducing need-based aid. Financial advisors can help manage the impact of tax-exempt interest on FAFSA.

FAFSA assesses financial aid eligibility based on income, assets, and household size. Tax-exempt interest income, like that from municipal bonds or Treasury securities, is considered in aid calculations. Despite being tax-exempt, this income affects aid packages, potentially reducing need-based assistance.

Tax-exempt interest income, like that from municipal bonds, is reported on tax forms and impacts financial aid eligibility. FAFSA includes this income in calculations, affecting the ability to pay for college. Families with significant tax-exempt earnings may see reduced need-based aid eligibility. Financial advisors can provide guidance on managing this impact.



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