Financial aid for small business owners

To preface, I know I should talk to my father about this and I will eventually, I just can’t for at least the next few weeks because he’s currently paying for my brother’s fall semester at college. Because of disagreements between my brother and my dad regarding my brother’s education, broaching the topic of my financial aid at this time would definitely not end well. My dad tends to be very mercurial when it comes to discussing financial matters, and my mom is completely clueless on this topic so I have nobody to go to for advice on how to approach my dad about paying for college. I’m hoping to get some general insight on what colleges are likely to be realistic for my family financially, and whether or not it’s even worth it to apply to higher ranked Liberal Arts Colleges (note that I’m not looking at ivies or most top 20s, just a few instate/tuition reciprocity options and LACs).

I’m looking for people who have experience applying to college/financial aid as a small business owner. My dad owns a small business that is still in the investment stage i.e. any money my dad makes is taken from investor’s contributions and the business is not currently generating profit. Because of this, the business will always be the highest financial priority.
His stated income on taxes is also a lot higher than what money actually goes towards the household, disposable income, etc. He also has some money in investments and stocks. I know that small businesses don’t count as assets on FAFSA, and I also know that the only financial aid my brother was eligible for was the 5k annual loan from the government. Basically, how screwed am I in expecting any liberal arts college (looking at Bates, Vassar, Bowdoin) to give any reasonable tuition price or financial aid? My family really cannot afford to pay a huge amount of money for college, huge being probably over 30k a year. Has anyone gotten generous aid offers from LACs or should I just start looking at merit aid and scholarship opportunities? Also general advice about what to expect with financial aid for small business owners is appreciated.

I know several farmers and have talked to a few small business owners. ALL of them have needed to send their children to either in-state public universities or to universities in Canada. I personally ran the NPC for Bowdoin and a few other top ranked northeast LACs and none of them were even remotely close to be possible for us.

Personally I think that this is lousy. In my experience small business owners and farmers tend to be very hard working and smart, and often have children who are the same and who are therefore very strong students.

However, the good news is that the vast majority of these students did find an affordable very good fit one way or another. Off the top of my head I think that all of them probably did.

Have you run the NPC for a few schools? Unfortunately owning a small business can make these inaccurate, but at least it will give you some probably too optimistic estimates of what the costs might be.

You could apply to a few of the potentially unaffordable schools if there are any that you are particularly attracted to, but you definitely need to apply to some good universities that you know that you can afford.

Early stage small businesses can be highly unpredictable in terms of whether they will be a great success in a few years or gone or just getting by.

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Unfortunately, you’re in a very bad position for financial aid. You need to focus on in-state public, and big merit options. If your brother was only eligible for the unsubsidized federal loan, then you should probably expect the same.

You can cut your total college expenses down greatly by planning for your in-state flaghip school, doing as many dual enrollment credits as possible in high school, self-studying for CLEP credits (use that your in-state flagship will accept, and completing your associate’s degree in one year at a community college that has an automatic transfer agreement with your in-state flagship. By these methods, people can get through their degree with only two semesters of community college and four semesters at their flagship state U. In some states, the maximum unsubsidized federal student loan can cover this, especially combined with summer work, and a part-time job during the school year.

The other option is going for big merit money. But you have to have the stats for that.

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I would suggest that you look at colleges where you will garner merit aid…which does not consider your family finances.

Alabama, Arizona, New Mexico…all have guaranteed merit awards based on stats.

The schools you listed use the CSS Profile for consideration of their institutional need based aid…and that business will not be excluded on the Profile.


Small business owners here, colleges wanted more than we could pay in almost every single case. We aimed for merit at the schools mentioned above, plus some less well known LACs. D is at Alabama on combination of merit awards which matches full tuition. Has had more opportunities than she could possibly take advantage of. And totally affordable for us, with money left over for travel, internships, extra curriculars. Plus graduating debt free. Many of her friends on the merit awards are also kids of parents with small businesses…


after talking to my dad, I am still waiting to see the 2019 tax forms that (if I’m not mistaken) are used for this fall’s fafsa and css in order to run the more in depth NPCs. I’ve run the rough estimate price calculator available (myintuition) and cost of vassar was surprisingly within price range, but I know it’s probably not 100% accurate + it’s using current financial information and not 2019 tax info regarding income. Do colleges consider change in circumstances since 2019 when calculating financial aid? The pandemic has been difficult for the business and accordingly my parents’ income has decreased, but how would we notify colleges of that?


Here is the rub. There are some deductions that are allowed for IRS purposes for business owners that are added back in as income for financial aid purposes at some schools. This is a potential issue for you. Schools reportedly (some schools) add back in deductions businesses take for things the owner would have anyway. Things like deduction for home office (it’s part of your house). Meals (you have to eat anyway). Day to day travel (most people drive or somehow travel to work). Cell phones and computers (you would have those anyway). Car expenses (because you likely would own a car anyway).

These are just probable examples of things that your parent could take as a self employed business owner for IRS purposes…but have the potential to be added back in as income.

Schools using the Profile to award their institutional money want all the info…and they use it.

Yes schools allow for special circumstances if income has reduced. You would need to file a special circumstances consideration with the college(s). These are handled on a case by case basis. Some colleges don’t do these at all.

Thank you for the advice. I know my instate flagship is affordable, even more so if I receive any sort of scholarship from there, and I also have enough credits to graduate either a semester or a year early if I want, so it is a safe option if I get in.


It depends on how the business is structured. Many of the comments above relate to LLCs and S corporations where the business income is reported on your own tax return, whereas a C corporation with its own balance sheet will not have anything like the same effect because you receive a normal salary (plus possibly dividends). In fact a C corp that is closely held and only employs family may even be more advantageous for college aid than being a regular employee because you can use things like SEP IRAs and healthcare reimbursement plans that are never reported on your W-2 and therefore don’t count as income for FAFSA purposes (although note that some private colleges may dig into this if they ask for the business tax return and valuation).

You don’t talk about the business structure above, although investors may decide to structure a business that requires substantial upfront investment as an S corp if they want to offset initial losses against other income (and saying his “stated income on taxes is also a lot higher” is suggestive of this being the path that was chosen). Very few people would consider the impact on college aid when setting up their business.

This takes years of planning, plus most schools that would give fin aid to biz owners, require the CSS, which is a very thorough financial biopsy.

Completely agree. It was entirely accidental on our part, not due to college but mainly structured that way to maximize healthcare deductions. Just pointing out that this can have a meaningful impact on your EFC, especially FAFSA, and from what we saw with CSS there wasn’t any substantial difference in our specific situation (ie no adding back of company contributions to a pension).

I agree with @Twoin18 that the business structure likely plays a role in this. In my experience, those with S Corp or C Corp structures don’t face many surprises and find the NPCs to be pretty accurate. My relatively small sample is the roughly half dozen business owners I know with kids at (or with financial aid offers from) selective schools with a reputation for generous financial aid. We had all heard these stories about business owners facing FA problems due to business income. None of us experienced any of these examples of legitimate business expenses being added back in, or any of the other examples I’ve read here of business owner income treated in ways that reduce aid. Things might be different for sole proprietors and of course this all varies by school.

I’d suspend judgment until you can input the correct tax numbers and have a thorough discussion with your dad. He should know if there is anything in the business or personal return that would raise eyebrows, and you’ll need his estimate of the business value. Honestly, the scenario you’re describing is usually one in which income is set relatively low in expectation of future growth in business value. That’d be an ideal situation from a financial aid point of view. One thing I’d let go of though is the idea that the income on your parents’ tax return overstates their actual income; not many FA offices will accept that. Most of the generous schools will make changes based on drops in income, but I’d worry about that if and when you get accepted.

I would look into Dickinson College. They do a great job with financial aid and they gave me the most money out of all the schools I applied to. During my time in school both of my parents lost their jobs at separate times, and the school did a wonderful job with adjusting my financial aid. I recommend going onto the college’s website and finding out who your regional counselor is. They are a great resource to ask questions just like this one and will give a better idea of how everything works. They can also put you in contact with someone within the financial aid department if need be.