NCAA Athlete Pay Confounds Financial Aid Forms and Pell Grant Awards

Starting at midnight on July 1, when naming, image, and likeness rights officially went into effect, college athletes across the country announced a flurry of deals – from social media endorsements to paid autograph sessions. Clothing lines were introduced; unpaid efforts outside of the field turned into money-makers. However, any deal that pays off also has financial implications, especially for college athletes receiving on-demand financial assistance.

“Everyone is talking about taxes; Nobody is talking about how this will affect grants and aid, ”said a Power Five sports director, who granted anonymity as his department has not yet finalized how it will handle financial advice. “Children can charge taxes – 18 year old TikToker must do it – but they probably aren’t [figuring] learn how you can calculate what kind of income yours [aid] in danger.”

Funds from the NIL are considered to be additional taxable income that would be included in any need-based grant application. A change in an athlete’s adjusted gross income could therefore change his or her financial assistance profile and possibly reduce the right to need-based assistance – albeit not immediately.

The granting of needs-based federal funding is based on the information provided in the free application for federal study grants (FAFSA), which most schools also use when making their own funding decisions. FAFSA forms use income information dating back two years, which means that money earned during a college athlete’s first year of study, for example, does not affect the financial aid profile until the junior year. Similarly, from a financial aid perspective, today’s juniors and seniors shouldn’t be affected by NIL incomes they now earn based on their FAFSA forms, but even then, it might not be the case in this intricate financial network.

“There are rules [that apply] when the institution has conflicting information about a student’s income, ”said Karen McCarthy, director of policy analysis for the National Association of Student Financial Aid Administrators. “It really is a gray area of ​​what is considered conflicting information, but when people have very public financial situations that the school knows about, does this need to be considered now? We’re not sure how this will all play out. “

The story goes on

NIL income is much more likely to affect the future eligibility of freshman and college students as this is indicated in their applications during their senior years – “even if they expire by the senior year and don’t make any more money by then for business, ”noted the same AD.

This consent puzzle could affect a significant number of athletes. According to the National Postsecondary Student Aid Study, 48.5% of students with physical education scholarships continued to receive needs-based support in 2015/16, the last year for which data is available. Among the fellows, 31.3% received a specific Federal Pell Grant, the largest post-secondary educational assistance program that pays approximately $ 30 billion annually.

To qualify for a Pell Scholarship, which is also based on FAFSA information, a student’s total family income must be $ 50,000 per year or less, although the latest data from the Department of Education for the 2017-18 academic year suggests that 80% of Pell Grant recipients have family incomes less than $ 40,000. The maximum grant for the upcoming school year is $ 6,495, with the average grant being around $ 4,000 annually.

Pell Scholarships take into account many factors, including the cost of attending college, full-time or part-time student status, and expected family contribution, which includes the income and wealth of the entire family, among other things. This includes, for example, the income a student athlete earns when listed as a dependent on a parent or guardian’s tax return (which most are).

Athletes who now earn NIL compensation who also receive some form of this needs-based support have an important math problem to solve: How much money is it worth to earn?

“The hardest part is that they’ll ask us, ‘Well, how much can I make not to lose my Pell?’ and I have to tell them, I don’t know, “said FSU Senior Associate AD Jim Curry. “And I definitely don’t want to tell you, because if we go wrong with the calculations or another element of your tax calculation changes and you rely on it …”

According to financial aid expert Mark Kantrowitz, students receive an income protection grant of around US $ 6,000 per year when calculating federal aid based on their needs. However, any additional income would reduce their allowances by half of the amount above this threshold.

Athletes could still stay ahead even if some of the aid money is lost due to NIL revenue.

Let’s say an athlete has $ 1,000 in on-demand assistance and then receives $ 1,000 from an NIL deal (and has already made enough from other NIL revenue to hit the $ 6,000 threshold). Kantrowitz does the following: That $ 1,000 in aid will likely be reduced to $ 500, and on top of that reduction, taxes will be owed on the additional $ 1,000 earned, likely around 14%. The total takeaway, minus half the allowance ($ 500) and the tax liability ($ 140), is $ 1,360. “That’s still over $ 1,000 in aid that you originally had.”

“The taxes you will pay and the cut in grants will in many cases be less than your total income from these license fees,” said Kantrowitz. “But you still have to pay attention. The first thing [an athlete] you should speak to the Financial Aid Office to see how this extra money will affect your needs-based assistance. “

This could also have implications at the conference and sports department level. Pell Grants are the largest of three factors fed into the NCAA’s Special Assistance Fund (created to support college athletes with specific financial needs) that are part of Division I revenue distribution. If athletes start earning enough income to lose their eligibility for Pell grants, schools could get less SAF funding (which was roughly $ 418 per Pell grant in 2018, according to NCAA data).

“The biggest problem is that most athletes, coaches, coaches, and consultants don’t know what they don’t know when it comes to financial details like this,” says James Moore & Co. partner and CPA Katie Davis, who heads the college of the Company oversees department said in an interview. “You might be surprised.”

– Additional coverage from Eben Novy-Williams

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