What Are Typical Assets for College Financial Aid?
Planning for college? Learn how your family's assets are factored into financial aid decisions and what it means for your eligibility.
Understanding how assets factor into college financial aid calculations is an important step for families planning to cover higher education costs. Financial aid programs aim to bridge the gap between a family’s ability to pay and the total cost of attendance at a college. Assessing a family’s financial resources, including their assets, plays a significant role in determining eligibility for various aid opportunities. Knowing which assets are considered and how they are weighed can help families prepare for the financial aid application process.
Assets Included in Aid Calculations
Both parental and student assets are considered when determining eligibility for college financial aid, though they are assessed at different rates. Liquid funds held in cash, savings, and checking accounts are among the most straightforward assets to report. These balances, as of the day the financial aid application is completed, are fully included in the assessment.
Investments represent another significant category of included assets. This encompasses a range of financial instruments such as stocks, bonds, mutual funds, and certificates of deposit (CDs). Additionally, investment real estate, including rental properties or vacation homes that are not the family’s primary residence, must be reported at their net worth. This value is determined by subtracting any outstanding debts against the property from its current market value.
Education savings plans like 529 plans and Coverdell Education Savings Accounts (ESAs) are typically reported as parental assets on the Free Application for Federal Student Aid (FAFSA). This treatment applies even if the account is technically owned by the dependent student. The value of these plans is assessed at the parental asset rate, which is a lower rate compared to assets solely in the student’s name.
Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are considered student assets for financial aid purposes. These custodial accounts hold assets for a minor until they reach adulthood, and their value has a higher impact on aid eligibility. While the funds can be used for various purposes benefiting the child, their classification as student assets can significantly affect the aid calculation.
Under current federal financial aid rules for the 2024-2025 academic year, the net worth of any family-owned business, regardless of the number of full-time equivalent employees, is generally reported as an asset. This also applies to family farms, where the net worth of the farm is included, even if the family resides on it. These rules represent a change from prior years, which previously excluded small businesses and family farms below a certain size threshold.
Assets Excluded from Aid Calculations
The family’s primary residence is typically excluded from the FAFSA, meaning its equity does not directly impact federal aid eligibility. However, it is important to note that some institutional financial aid forms, such as the CSS Profile, may consider home equity in their assessment for non-federal aid.
Funds held in qualified retirement accounts are also generally excluded from asset calculations. This includes accounts like 401(k)s, 403(b)s, traditional Individual Retirement Accounts (IRAs), Roth IRAs, Simplified Employee Pension (SEP) IRAs, Savings Incentive Match Plan for Employees (SIMPLE) IRAs, Keogh plans, and pension plans. While the value of these accounts is not reported, contributions made to them during the relevant tax year may be considered income in some calculations.
The cash value of life insurance policies and annuities are generally not reported as assets on the FAFSA. Similarly, personal possessions such as clothing, furniture, household goods, and vehicles (unless used for business purposes) are typically not included in asset calculations.
How Assets Affect Financial Aid Eligibility
The information provided on financial aid forms, including reported assets, is used to calculate a Student Aid Index (SAI). The SAI, which replaced the Expected Family Contribution (EFC) starting with the 2024-2025 award year, is an eligibility index number that colleges use to determine a student’s federal student aid package. A lower SAI generally indicates a higher financial need and can lead to more financial aid opportunities.
Historically, a portion of parental assets was shielded from the SAI calculation through an asset protection allowance. However, for the 2024-2025 FAFSA and beyond, this asset protection allowance has been reduced to zero. This means that all reportable parental assets are now subject to assessment in the aid formula without an initial protected amount.
Parental assets are assessed at a maximum rate of 5.64% of their value that is considered available for college costs. In contrast, student assets are assessed at a significantly higher rate, typically up to 20% of their value. This differential assessment rate means that assets held in a student’s name, such as UGMA/UTMA accounts, can reduce financial aid eligibility more substantially than the same amount held in a parent’s name. Families often consider transferring student-owned assets into a custodial 529 plan, which then treats them as parental assets, to mitigate this higher assessment rate.
Beyond the federal FAFSA, some colleges and universities also require the CSS Profile for institutional aid. The CSS Profile often has a more comprehensive approach to asset assessment. While the FAFSA excludes home equity, the CSS Profile may request information about it, and some institutions might consider it when awarding their own aid packages. This can lead to varying financial aid offers from different institutions, as each may use its own methodology for evaluating specific assets beyond federal requirements.