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Asset Sheltering and Financial Aid

It’s that time of year – time to fill out the Free Application for Federal Student Aid used by more than 99% of public universities.

Many parents take the “why bother” approach.  “We have too much money.  We’ll never get any aid.”

The first thought is usually “why did I have kids” while the second, slightly more logical thought is “maybe I should hide money.”

Here’s the bad news…

Hiding assets is a myth.  Conscientious savers are generally not punished through diminished chances for financial aid.

Factors that impact financial aid include:

  • parental income
  • number of children in college simultaneously
  • parents’ marital status

Assets on the other hand are a limited factor.  For example aid formulas don’t consider:

  • IRAs
  • Roth IRAs
  • SEP-IRAs
  • 401(k)s
  • 403(b)s
  • 457s
  • Keoghs
  • home equity
  • annuities
  • life insurance cash value

So what assets are considered in the financial aid calculus?

  • checking/savings accounts
  • CDs
  • taxable brokerage accounts
  • §529s
  • Coverdell IRAs
  • Trusts
  • equity in investment properties

Assets included/excluded in the financial aid stew work towards deriving the Expected Family Contribution.  Here’s the 2018-2019 formula.

Note that FAFSA assesses parental assets up to 5.64% so for every $10,000 of parental assets the eligibility for financial aid drops by $564.

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