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Freshman Year

Students, Take Note: Your Summer Job Could Affect Your Financial Aid

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Graduates at the University of Michigan commencement ceremony in 2011. Paul Sancya / AP file

For cash-strapped college students, it pays to get a high-paying summer job — in most cases.

But making more than a certain amount can reduce the money a college gives to students who receive need-based financial aid. Many students have no idea that their own incomes can affect their financial aid package just as their parents' can, experts say.

"Depending on the individual circumstances, if you're receiving need-based aid, it may not be financially beneficial for you to work too much," said Mark Kantrowitz, senior vice president and publisher of Edvisors.com, a website about planning and paying for college.

It all comes down to what's called the income protection allowance, or the amount of total income made over a calendar year that students can make before their aid package is compromised.

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For the 2014 to 2015 academic year, the income protection allowance for dependent undergraduate students is $6,310. Half of whatever a student makes above that threshold is subtracted from their aid package. For the 2015 to 2016 academic year, earnings can be as high as $6,400. (The income protection allowance goes up each year based on inflation).

It's not unheard of to make that much in one summer, never mind over the course of an entire year. With the national average for babysitting at $12.50 an hour, according to the site Sittercity.com, babysitting full-time for three months could earn you as much as $6,000. Intern at a big tech firms, such as LinkedIn or Facebook, and you could pull in more than $6,200 a month, according to Forbes.

But experts say you shouldn't turn down a cushy summer job out of fear of what it will do to your financial aid. The taxes you pay on what you make will be taken into account when it comes to your total income. Plus, the type of aid you receive may make it more favorable for you.

"If it's replacing the loans, then you are actually coming out ahead because you're reducing your debt. If it's replacing the institutional grants, then you're coming out behind because you're having to work for something that you would have had anyway," Kantrowitz said.

"Depending on the individual circumstances ... it may not be financially beneficial for you to work too much."

There are exceptions. The income protection allowance is for students who apply for aid the traditional way — through the Free Application for Federal Student Aid (FAFSA) — rather than those who get scholarships.

Students who receive financial aid — which is about two-thirds of full-time college students, according to the College Board — must re-submit the FAFSA each year, and "when they apply for financial aid, they're going to need to report information not only about themselves, but also about one or both of their parents," said Kalman Chany, author of "Paying for College Without Going Broke" and president of Campus Consultants, Inc., which advises families on how to maximize eligibility for aid.

Families can already start planning for next year's aid eligibility.

"Parents ideally should be already thinking about what can we do with our finances, what transactions to avoid," Chany said. For example: "Not cashing in stock that's appreciated in value to pay for college because that capital gain is going to raise your income, reduce your eligibility in aid. Avoiding withdrawals from retirement plans to pay for college."

While income is the primary factor, lots of other life events can affect how much you receive. Parents often shy away from applying for aid when a second child goes to college because they didn't get much when the first was enrolled, Kantrowitz, of Edvisors, says. But two children in college at once is "like dividing parenting income in half," he said, which means eligibility goes up.

It's never too late to look for ways to squeeze in more financial aid.

"People seem to have this misconception that you can only apply for scholarships when you're a high school senior," Kantrowitz said. "You can actually apply for them every year you're in school, from kindergarten to the time you graduate."