“I won’t qualify for financial aid.”  It’s a familiar refrain.  But how do you know?

The problem isn’t what you own – it’s that you feel like you own too much.

The solution?  Understanding which assets help/hurt the financial aid decision.

With parents filing for financial aid for the 2017-2018 school year this is a particularly relevant topic to address.  Below is a quick rundown of what assets parents must disclose.

FAFSA

The most well-known form is the Free Application for Federal Student Aid (FAFSA).  It’s the most widely-used form that millions of parents complete every year to be eligible for federal/state aid as well as aid directly from the majority of public/private colleges.

Assets that do not have to be included on FAFSA include:

  • home equity
  • retirement assets (401(k)/403(b), IRAs, pensions)
  • annuities
  • life insurance (death benefit or cash value)
  • personal use assets (cars, home furnishings, jewelry, etc)
  • family farm (if family resides there and materially participates in its operation)
  • family business (if it has less than 100 full-time employees and the family owns 50+%)
  • Assets that must be included on FAFSA include:
  • investments (checking/savings, CDs, savings bonds, taxable brokerage accounts, vested stock options, etc.)
  • equity in vacation homes and/or rental properties
  • college accounts such as §529s and Coverdells

PROFILE

The CSS/Financial Aid PROFILE is used by 229 schools – most of them private – to determine who qualifies for aid directly from the college’s investment funds.

PROFILE ignores a smaller set of assets relative to FAFSA.  While PROFILE schools will exclude retirement accounts and qualified annuities they require the disclosure of assets held in non-qualified annuities.  Some PROFILE schools will also consider the cash value inside of a life insurance policy and at least part of the equity in the family home.  The value of a family farm or business is includable but to what degree is unknown as the formula is proprietary.

The impact of savings:

  • FAFSA assesses parental assets at 5.64% vs. 5% for PROFILE.  For every $10,000 of savings accumulated by parents FAFSA and PROFILE will reduce aid eligibility by $564 and $500 respectively.
  • FAFSA assesses a child’s assets at 20% vs. 25% for PROFILE.  Includable items are checking/savings, UTMA/UGMA accounts and assets held in trust that designate the child as beneficiary (even if the child does not have current access to the funds).