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The Impact of Assets on Financial Aid

Like many other parents, the day my kids were born, I vowed to save for their college education and started off diligently saving. After many years of saving, I began to doubt that it would matter or even worse, that it would hurt my children’s chances at getting any financial aid.  As an advisor, I have had many conversations with parents regarding being penalized for saving for college vs. parents who saved nothing.  You should know that families who have not saved for their child’s education are not rewarded with some magical financial aid package that allows their students to attend colleges for free.  You must remember that by saving for your child’s college education, you have opened the door to more college options vs. those families that have procrastinated or just ignored saving. 

What will Impact Financial Aid

Most of a household’s assets will not impact financial aid and below are a few reasons why:

  • Qualified retirement accounts are ignored in the calculations, (401k, 403b, IRA’s)
  • Most schools ignore home equity, annuities, and cash value life insurance policies
  • Financial aid formulas allow parents to shelter some nonretirement assets, including 529 plans

Whether a particular asset will be used during the application process depends on which application the college uses, (FAFSA or CSS Profile).  For the FAFSA application, below are some of the assets that should be excluded:

  • Equity in a primary home
  • Qualified retirement accounts
  • Personal possessions, (cars, jewelry, furniture, etc.)

Please note that assets in qualified retirement accounts are not included in the application, distributions from those accounts do count as income. 

It is important to understand what is and is not included in the application process as the directions are not as clear as they could be, and I have seen parents include assets that should be excluded. 

For the CSS profile there is a shorter list of the excluded assets:

  • Qualified retirement accounts
  • Qualified annuities
  • Cash value of life insurance

The CSS Profile does consider equity in your primary home and assets from a family farm or business. 

FAFSA Treatment of Parent Assets

The FAFSA process requires families to include the below assets on their application

  • Taxable bank and brokerage accounts
  • Equity in real estate other than your primary residence
  • College Accounts
  • Trust Funds
  • Commodities

The FAFSA formula assesses parent assets using a maximum percentage of 5.64%.  This means that for every $10,000 in parent assets, financial aid eligibility would drop by a maximum of $564.  Below is an example:

               Mutual Funds in a taxable account                                         $60,000

               529 account                                                                              $15,000

               Bank Account                                                                           $10,000

               Total Relevant Assets                                                              $85,000

               FAFSA formula percentage                                                         5.64%

               Impact to financial aid eligibility                                          $4,794

Once you have this number, there is one more step to the process as there is a parent age factor to incorporate.  The closer the oldest parent is to retirement age, the more the family can shelter.  Below is an example using The EFC Formula, 2021-22

               Mutual Funds in a taxable account                                                      $60,000

               529 account                                                                                           $15,000

               Bank Account                                                                                        $10,000

               Total Relevant Assets                                                                            $85,000

               Allowance with 3 members of household and 1 student                    $24,200

               Amount subject to FAFSA formula percentage                                  $60,800

               FAFSA formula percentage                                                                        5.64%

               Impact to financial aid eligibility                                                           $3,429

Each year the federal government adjusts the asset protection allowance table based on rules laid out in the Higher Education Act of 1965. 

FAFSA Treatment of Child Assets

The FAFSA formula is harsher on child assets vs. the parent assets because students are expected to contribute more of their money to pay for college.  The FAFSA formula percentage for child assets is 20% meaning there is a 20% reduction in aid eligibility for a child’s assets vs. the 5.64% of a parent’s assets. 

CSS Profile Treatment of Parent Assets

The CSS Profile formula assesses a parent’s assets at 5% vs. the 5.64% from the FAFSA formula.  The CSS Profile assesses the child assets at 25% vs. the 20% from the FAFSA formula. 


As you can see from this article, the treatment of assets for financial aid can be complex; what to include, what not to include, type of account, number of people in a household and the application you are using are just some of the items that are taken into consideration.  There are strategies you can utilize which might give you an opportunity to maximize your financial aid package from a school.  If you need assistance or would like to have a conversation on how your assets impact a financial aid package, please go to my website,  https://michaelrebischkefa.com/and schedule a 15 minute call to discuss your situation.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.

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