Does FAFSA Look at Savings Accounts?

The Free Application for Federal Student Aid (FAFSA) is the primary mechanism for students to access federal financial aid. Its purpose is to evaluate a student’s financial capacity and determine the level of assistance needed. This article details how financial assets, including savings accounts, are considered within the FAFSA framework.

Understanding FAFSA Asset Assessment

The FAFSA evaluates a family’s financial strength by collecting information on student and parent assets to determine how much a family can contribute to college costs.

Assets typically counted include cash, balances in checking and savings accounts, and investments such as stocks, bonds, mutual funds, and certificates of deposit (CDs). The net worth of real estate, excluding the family’s primary residence, is also considered. 529 college savings plans and Coverdell Education Savings Accounts (ESAs) are reported as parental assets.

Conversely, several asset types are not factored into the FAFSA’s assessment. These include equity in the family’s primary home and funds held in retirement accounts like 401(k)s, IRAs, and pension plans. The cash value of life insurance policies and ABLE accounts are also excluded.

Treatment of Savings Accounts

The FAFSA considers funds in savings accounts when determining eligibility for federal student aid. Both student-owned and parent-owned savings accounts are reported, but they are assessed at different rates.

Student assets, including savings accounts, are assessed at a higher rate, with up to 20% of their value considered available for college costs. Parental assets, such as savings accounts held by parents, are assessed at a maximum rate of 5.64%. This means a dollar in a student’s savings account will reduce aid eligibility more significantly than a dollar in a parent’s savings account.

For the 2023-2024 FAFSA and subsequent academic years, the “asset protection allowance” has been reduced to zero. This means all reportable parental assets, including savings, are now subject to the assessment rate without exclusion. The balance reported for savings accounts should reflect the amount held as of the day the FAFSA is completed and submitted.

Reporting Financial Information on FAFSA

When completing the FAFSA, accurately reporting financial information, including savings accounts, is a crucial step. The form contains specific sections dedicated to both student and parent assets. Applicants are instructed to provide the net worth of their assets as of the date they file the FAFSA.

For instance, the current total of cash, savings, and checking account balances for both the student and parents (if applicable) must be combined and reported. While income information is often streamlined through tools like the IRS Data Retrieval Tool, asset values are self-reported as of the filing date. It is advisable to gather necessary documentation, such as recent bank statements and investment statements, to ensure the figures reported are precise and reflect the current financial standing.

Calculating Student Aid Index (SAI) and Aid

All reported financial information, including the values from savings accounts, contributes to the calculation of the Student Aid Index (SAI). The SAI is an index number used by colleges to determine how much federal financial aid a student is eligible to receive. It is not the amount a family will directly pay, but rather an indicator of a student’s financial need.

The basic formula for determining financial need involves subtracting the SAI from the institution’s Cost of Attendance (COA). The resulting figure represents the student’s financial need, which then guides the allocation of various types of aid. This aid can include grants, scholarships, work-study programs, and federal student loans. While savings accounts and other assets are components in the SAI calculation, they are considered alongside other factors such as income and family size. Income, for example, is generally assessed at a significantly higher rate than assets in the aid calculation.