How to Calculate Net Worth for FAFSA

The Free Application for Federal Student Aid (FAFSA) serves as a gateway to various forms of financial aid. Calculating net worth is a significant component of this financial assessment. This article guides readers in understanding and accurately calculating net worth for FAFSA submission.

Understanding FAFSA Net Worth

Net worth for FAFSA represents a family’s assets minus their debts. Unlike general personal net worth, FAFSA has specific rules for included and excluded assets. The Department of Education uses this information to gauge financial strength and determine an Expected Family Contribution (EFC), or Student Aid Index (SAI) for aid years starting July 1, 2024.

Only certain assets are “countable” by the FAFSA, while others are “non-countable” and do not factor into financial aid calculations. Accurate reporting of net worth directly impacts a student’s financial aid eligibility and the amount of assistance received.

Assets Included in FAFSA Net Worth

Several asset types must be accurately reported for FAFSA net worth. Include cash and current balances in savings and checking accounts at their total value on the day the FAFSA is completed. This applies to funds held by both the student and parents.

Investments also contribute to FAFSA net worth. This category includes the current market value of stocks, bonds, mutual funds, certificates of deposit (CDs), and money market accounts (if not retirement accounts), valued on the day the FAFSA is completed.

Education savings accounts, such as 529 plans and Coverdell Education Savings Accounts (ESAs), are generally reported as a parent’s asset if the parent is the account owner. If an independent student owns a 529 plan, it is reported as a student asset.

Real estate equity, excluding the family’s primary residence, must be reported. This includes the net value of rental properties, vacation homes, and undeveloped land. Calculate equity by subtracting outstanding mortgage balances and other related debts from the property’s current market value. For example, a $300,000 investment property with a $150,000 mortgage has $150,000 equity to include.

Assets Excluded from FAFSA Net Worth

Many assets are excluded from FAFSA net worth calculations. A family’s primary residence is one such excluded asset; its value is not considered when determining financial need.

Retirement accounts receive special treatment and are not included in the FAFSA asset calculation. This covers funds held in 401(k)s, 403(b)s, traditional and Roth IRAs, pensions, and other qualified retirement plans. These assets are generally considered long-term savings for retirement, not readily available for educational expenses.

The cash value of life insurance policies is an excluded asset and not reported on the FAFSA. The value of a small business is typically excluded if family-owned, controlled, and employing fewer than 100 full-time equivalent employees. However, recent changes may require reporting small business net worth, depending on the FAFSA award year and specific criteria.

Personal possessions like family vehicles, furniture, clothing, and collectibles are exempt from FAFSA asset reporting. Funds received through federal student aid programs or military benefits are also not counted as assets for subsequent FAFSA applications.

Performing Your Net Worth Calculation

After identifying and valuing all included assets and understanding exclusions, perform the net worth calculation. The formula for FAFSA net worth is straightforward: total value of included assets minus total value of related debts.

Only consider debts directly tied to included assets. For example, subtract an outstanding mortgage on an investment property or a margin loan against an investment portfolio from the asset’s value. Consumer debts, such as credit card balances or car loans, are not included in this net worth calculation.

Gather statements for all countable bank accounts, investment portfolios, and real estate properties. Sum current balances for cash, savings, and checking accounts. Add current market values of reportable investments and calculated equity for non-primary residence real estate. Subtract permissible debts from this total. If an asset has a negative net worth, report it as zero.

Reporting Net Worth on the FAFSA

After calculating your net worth, report this figure on the FAFSA form. The application guides you through financial sections, typically separating student and parent assets. Questions will ask for total current balances of cash, savings, checking accounts, and the net worth of investments and businesses.

Enter exact figures, not estimates, as these amounts directly influence financial aid eligibility. The FAFSA may prompt for a single aggregated net worth for investments, or it might require a breakdown into specific asset categories. Carefully review each question to ensure components are entered in the correct fields.

Once submitted, your reported net worth and other financial information contribute to calculating your Expected Family Contribution (EFC) or Student Aid Index (SAI). This figure represents the amount the Department of Education believes your family can contribute towards college costs. In some cases, FAFSA information, including reported assets, may be subject to verification by financial aid offices, potentially requiring supporting documentation like bank statements or investment records.