Should I Empty My Bank Account for FAFSA?

The Free Application for Federal Student Aid (FAFSA) is the gateway to federal financial aid for college students. Many individuals worry about how their personal finances, particularly bank account balances, might affect aid eligibility. This article clarifies how assets are treated by the FAFSA, explaining the actual impact of financial holdings on aid determinations. Understanding these rules helps families maximize their potential for federal student assistance.

Understanding Assets for FAFSA

Assets play a role in determining a family’s financial strength to contribute to college costs, as measured by the Student Aid Index (SAI). The SAI is a formula-based index number, ranging from -1500 to 999999, that colleges use to gauge a student’s eligibility for federal financial aid. A lower SAI indicates higher financial need, potentially leading to more aid.

The FAFSA collects asset information, alongside income data, to assess a family’s capacity to pay for higher education. This assessment helps financial aid offices determine the appropriate level of assistance. For dependent students, both their assets and their parents’ assets are considered in the SAI calculation.

Types of Assets Considered for FAFSA

The FAFSA specifically identifies which assets are factored into aid calculations. Cash, savings, and checking account balances are generally included as reportable assets. This also extends to non-retirement investment accounts, such as brokerage accounts, mutual funds, stocks, bonds, certificates of deposit (CDs), and money market funds.

Other included assets are the net worth of investment real estate (excluding a family’s primary residence) and certain trusts. Funds held in 529 College Savings Plans and Coverdell Education Savings Accounts (ESAs) owned by a dependent student or their parents are also reported as parental assets. Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are typically student assets, though if held by a parent as custodian, they are treated as parent assets on the FAFSA.

Conversely, several asset types are specifically excluded from FAFSA calculations. These include the equity in the family’s primary residence and qualified retirement accounts like 401(k)s, IRAs, 403(b)s, and pensions. While their balances are excluded, any distributions from these accounts may count as income. Life insurance policies and ABLE accounts are also not considered.

Personal items such as cars, furniture, and clothing are excluded. Small businesses, previously excluded if family-owned with fewer than 100 employees, are now generally reported for the 2024-2025 FAFSA cycle. Health Savings Accounts (HSAs) and outstanding credit card debt balances are also not considered.

How Assets Impact Financial Aid

Included assets influence financial aid eligibility through specific assessment rates. Student assets are assessed at a significantly higher rate of 20%. This means for every dollar a student holds, twenty cents is considered available for college expenses.

In contrast, parent assets are assessed at a much lower rate of 5.64%. A dollar held in a parent’s bank account or investment portfolio has a smaller impact on aid eligibility compared to a dollar in a student’s account. This differential rate often encourages families to hold assets in the parent’s name when possible.

For the 2025-2026 FAFSA, the asset protection allowance has been removed. This means nearly all reported assets are now factored into the SAI. Assessed contributions from student and parent assets are combined with income to determine the overall SAI, which then dictates eligibility for federal and institutional aid programs.

When Assets Are Reported for FAFSA

Asset reporting on the FAFSA is based on a specific snapshot date. Asset information must be reported as of the day the FAFSA is submitted. This means the values of bank accounts, investments, and other reportable assets reflect their balances on the date the application is completed and filed.

Unlike income, which uses prior-prior year tax data, there is no “look-back” period for assets. The FAFSA considers a current snapshot of financial holdings. This precise reporting date implies that any significant changes to asset levels, such as making large, necessary purchases, should ideally occur before FAFSA submission to accurately reflect current financial standing.