Starting at midnight on July 1, when name, image and likeness rights officially went into effect, college athletes across the country began announcing a flurry of deals—ranging from social media endorsements to paid autograph-signing sessions. Apparel lines were launched; unpaid off-field endeavors turned into moneymakers. Each deal that pays, though, also comes with financial implications, particularly for college athletes receiving need-based financial aid.
“Everyone is talking about taxes; no one is talking about how this will impact grants and aid,” a Power Five athletic director said, granted anonymity as his department has not yet finalized how it will approach financial advice. “Kids can figure out taxes—18-year-old TikTokers are having to do that—but they’re probably not [figuring] out how to calculate what kind of income puts your [aid] at risk.”
Money made from NIL is considered additional taxable income, which would be reported on any need-based financial aid application. A change to an athlete’s adjusted gross income, then, could change their financial aid profile and potentially reduce eligibility for need-based aid—though not immediately.
Federal need-based aid is awarded using information provided on the Free Application for Federal Student Aid (FAFSA), which most schools also use in their own financial aid decision-making. FAFSA forms use two-years-prior income information, meaning money earned, say, during a college athlete’s freshman year won’t affect their financial aid profile until their junior year. Similarly, today’s juniors and seniors shouldn’t be affected from a financial aid standpoint by NIL income they earn now, based on their FAFSA forms, but even then that might not be the case in this complicated financial web.
“There are rules [that apply] if the institution has conflicting information about a student’s level of income,” National Association of Student Financial Aid Administrators director of policy analysis Karen McCarthy explained. “It’s a really gray area as to what is considered conflicting information, but if people have very public financial situations that the school knows about, is that something that needs to be taken into account for right now? We’re not really sure how that will all play out.”
NIL income is much more likely to affect freshman and sophomore athletes’ future aid eligibility, given that it will be reported on their applications during their final years at school—“even if they’ve flamed out by their senior year and aren’t making any money on deals anymore by then,” the same AD noted.
This endorsement conundrum could affect substantial numbers of athletes. According to the National Postsecondary Student Aid Study, 48.5% of students on athletic scholarships also received need-based aid in 2015-16, the most recent year for which data is available. Among scholarship athletes, 31.3% specifically received a Federal Pell Grant, the largest post-secondary education aid program, which disburses around $30 billion annually.
To qualify for a Pell Grant, which also relies on FAFSA information, a student’s total family income must be $50,000 a year or less, though the most recent Department of Education data from the 2017-18 academic year says 80% of Pell Grant recipients have a family income of less than $40,000. The maximum grant for the upcoming school year is $6,495, with the average award around $4,000 annually.
Pell Grants take many factors into consideration, including cost of attendance at the particular institution, status as a full-time or part-time student and expected family contribution, which considers the whole family’s income and assets among other factors. That would include, say, income earned by a student athlete, if they are listed as a dependent on a parent or guardian’s tax return (which most are).
So athletes now earning NIL compensation, who also receive some form of this need-based support, have an important math problem to solve: How much money is worth making?
“The hardest part is that they’re going to ask us, ‘Well how much can I make to not lose my Pell?’ and I have to tell them, I don’t know,” FSU senior associate AD Jim Curry said. “And I certainly don’t want to tell you, because if we do one thing wrong in the calculations, or if another element of your tax calculation changes and you’re leaning on that…”
In the calculations for federal need-based aid, students do get an income protection allowance of around $6,000 per year, according to financial aid expert Mark Kantrowitz. Any additional income, however, would reduce their aid by half the amount over that threshold.
Athletes could still come out ahead, even if some aid money is lost as a result of NIL earnings.
Let’s say an athlete has $1,000 in need-based aid, and then gets $1,000 from an NIL deal (and has already earned enough from other NIL income to meet the $6,000 threshold). Kantrowitz does the calculations like this: That $1,000 in aid will likely get reduced to $500, and in addition to that reduction, taxes are owed on the additional $1,000 that was earned, probably around 14%. The total takeaway, minus half the aid ($500) and tax liability ($140), comes out to $1,360. “That’s still more than $1,000 in aid you originally had.”
“The taxes that they’re going to pay and the reduction in financial aid is going to be less than the increase in their total income from these licensing fees in a lot of cases,” Kantrowitz said. “But they still need to pay attention to it. The first thing [an athlete] should do is talk to the financial aid office to ask how this extra money will affect their need-based aid.”
There could also be implications at the conference and athletic department levels. Pell Grants are the largest of three factors that go into the NCAA’s Special Assistance Fund (created to assist college athletes with certain financial needs), which are part of its Division I revenue distribution. If athletes start earning enough income to lose their eligibility for Pell Grants, schools could see less SAF funding (which was approximately $418 per Pell Grant in 2018, according to NCAA data).
“The biggest issue is that most athletes, coaches, trainers and advisers don’t know what they don’t know when it comes to financial details like this,” James Moore & Co. partner and CPA Katie Davis, who oversees the firm’s collegiate division, said in an interview. “They could be caught by surprise.”
-Additional reporting by Eben Novy-Williams