How Does a Gap Year Affect Financial Aid?
By Joe Messinger, CFP®
July 7, 2017
One of America’s most famous college-bound teens, Malia Obama, announced her intention to take a gap year to intern at a movie production company in New York before beginning her college schooling the following year.
A gap year is a period of time when a student suspends schooling in order to explore the world through work, volunteering, and/or travel. Often a gap year is taken between high school and college, although it can be taken during college or even after college graduation. Students use this time to take a break from academic burnout, gain knowledge about themselves, experience the world around them, broaden their own skill set, and give themselves additional maturity they didn’t have as a high school student.
While much more common among students in other countries, gap year interest in the US is on the rise. Typically, students apply to college, get accepted, pay their deposit to hold their spot, and then request the college defer their admission for a year. Deferral requests are usually made between April and mid-June.
Acceptance of a deferral depends on the college, and if a gap year is important to your student, asking the hypothetical question before applying is important. Colleges do however recognize the value of a more mature student with life experience who is ready to tackle their academics.
When deciding if a gap year is right for your student, carefully consider these questions:
Do you have a clear plan for your gap year?
When seeking a deferral, colleges will want to know the specifics. Many companies exist that provide structured gap year programs. (Click here for a list provided by the American Gap Association.) Other options would include gaining experience in a potential career (is that the right career for you?) or volunteering with groups like Habitat for Humanity or World Wide Opportunities on Organic Farms. Even traveling to another country with a work visa and working in a restaurant can be a meaningful experience.
How will this gap year affect your student socially?
Will they miss not leaving for college at the same time as their friends? Will their career goals be impacted by starting a year later than their peers after graduation? If a student is going to be away from home during the year, the transition to living away from home at college may be an easier one.
How will the gap year affect your student academically?
Although 90% of students do return to attend college after a gap year, consider whether your student will be able to handle this gap in their academic momentum. They need to recognize they will jump back into writing papers and taking tests after a year away from that; however, many gap year students find themselves energized to begin studying again after being burned out from high school.
Finally, let’s address the financial considerations.
The Free Application for Federal Student Aid (FAFSA) will need to be filed again for the first year of college. If a student qualified for financial aid before their gap year and the financial situation has not changed in the past year, they will probably still qualify for that same aid. They will have to refile the FAFSA regardless.
If a family has multiple children, it is possible a gap year will put two students in college at the same time when they wouldn’t have been together before the gap year due to their age gap. For example, say a family’s EFC if $70,000. A student attending a $50,000 college which meets 100% of need would not receive any financial aid. However, if two students are attending at the same time, then the EFC is split in half ($35,000 per child) and they could be eligible for the $15,000 difference between the EFC and the college cost per student. Of course, both students would need to attend colleges that can meet this need.
Colleges who accept deferrals will be clear about whether awarded scholarships will still apply when a student begins school after their gap year. Often the scholarships will still be available, but you must confirm this fact with the institution.
Scholarships are available to pay for gap year programs. Formalized programs may not be cheap, but they may award some scholarships to pay for them. In addition, scholarships from outside companies encourage gap year experiences. You’ll need to do some legwork to apply for these scholarships. (A sample list can be found here.)
Some gap years provide college credit. College credit for gap year programs can be a double-edged sword and should be investigated based on your circumstance. On the positive side, because you are earning college credit you can use 529 money to pay the cost of the course. Earning college credit may save money if your total number of needed credit hours is reduced at your school, but rarely is that the case.
Be aware not all colleges will accept these credits. (Here’s a sample list from Outward Bound that accept their courses for credit.) In addition, taking outside college courses may change your status from incoming freshman to transfer student impacting your financial aid, housing, course registration, and even in some cases forcing you to reapply. Do your homework to understand your situation based on your chosen college’s rules and your chosen gap year program.
Working or volunteering may require you to shoulder food and housing costs; although, some volunteer positions cover those costs in exchange for your work. Paid employment can ease the price tag.
If your student may qualify for need-based aid, realize that earnings from work saved in the student’s name are assessed at a higher percentage when calculating the expected family contribution. It is better to put a student’s earnings in a 529 plan with a parent as the owner. Assets of the parent like the 529 are assessed at a much lower percentage. (You can learn more about how a family’s EFC is calculated on the Capstone blog.) If a family is not a need-based candidate, this does not matter, but if they are borderline careful planning is needed to position the student properly.
Is your family going to be taking out large student loans to pay for college? A gap year may be a financial burden you can’t afford. But imagine if a student who thinks their career path lies in one direction discovers through their gap year that they were wrong. Think of the money you have saved on a mistaken college major choice.
Gap years have many benefits and students report their college years are more valuable after taking them.Students come back with newfound knowledge about themselves and new experiences which will be invaluable. Students use their experience in their new lives. Think through the considerations to determine if a gap year is a good fit for your student.