What Assets Do You Have to Report on the FAFSA?

The Free Application for Federal Student Aid (FAFSA) serves as a gateway to various forms of financial assistance for higher education. It gathers financial information, including assets, from students and often their parents to determine eligibility for federal, state, and institutional aid. Understanding which assets are considered and how they influence aid calculations is important for families navigating the financial aid process.

Assets That Are Counted

The FAFSA considers several asset types when calculating a family’s financial strength, contributing to the Student Aid Index (SAI), previously known as the Expected Family Contribution (EFC). Reportable assets are those readily convertible to cash or representing significant financial value. Their value should reflect current market value as of the FAFSA submission date.

Liquid funds, such as money held in cash, savings accounts, and checking accounts, are counted. The total balance across all such accounts needs to be reported.

Investments include the net worth of various investment vehicles, such as stocks, bonds, mutual funds, certificates of deposit (CDs), and money market accounts. Net worth is determined by subtracting any debts specifically secured by these investments from their current market value. For example, if you took out a loan using your investment portfolio as collateral, that debt would reduce the reported net worth of the investments.

Real estate, other than the family’s primary residence, is considered a countable asset. This includes investment properties, vacation homes, or any other real estate held for financial gain. The net worth of these properties is calculated by taking their current market value and subtracting any outstanding mortgage debt or other debts directly secured by the property.

Businesses and farms are counted as assets on the FAFSA, with a significant change for the 2024-2025 FAFSA cycle. Previously, small businesses with fewer than 100 full-time employees were often excluded, but this exclusion has been removed. Now, the net worth of any business or farm, including investment farms, is reported. The net worth is calculated by subtracting business or farm debt from the current fair market value of the assets, including land, buildings, inventory, equipment, machinery, and livestock, provided the debt is secured by the business or farm itself.

College savings plans, specifically 529 college savings plans and Coverdell Education Savings Accounts (ESAs), are considered assets. If these accounts are owned by the dependent student or a parent, they are reported as a parental asset on the FAFSA. This applies even if the student is the beneficiary, resulting in these funds being assessed at the parent asset rate, which is typically more favorable than the student asset rate.

Assets That Are Not Counted

While many assets are considered on the FAFSA, several types of assets are explicitly excluded from the calculation of financial aid eligibility. These non-countable assets generally represent essential family resources or those that are not readily available for educational expenses.

The family’s primary residence is not considered an asset on the FAFSA, regardless of its value. This means the equity in the home where the family lives is not factored into the aid calculation.

Retirement accounts are excluded from FAFSA asset calculations. This includes funds held in 401(k)s, 403(b)s, individual retirement accounts (IRAs), pensions, SEP plans, and SIMPLE plans. The FAFSA does not require applicants to report the value of these accounts, recognizing that these funds are intended for future retirement rather than immediate educational costs.

Life insurance policies are not reported on the FAFSA. Specifically, the cash value of life insurance policies is excluded from the asset calculation.

Personal possessions, such as cars, furniture, clothing, and collectibles, are generally not counted as assets on the FAFSA. However, if collectibles are held primarily for their investment value, they might be considered an investment asset.

Prepaid tuition plans, specifically state-sponsored plans that are not 529s and are owned by someone other than the student or parent, are generally not reported as assets. Additionally, 529 plans owned by grandparents or other non-parent relatives are not reported as assets on the FAFSA, and starting with the 2024-2025 FAFSA, distributions from these accounts are not reported as untaxed income to the beneficiary.

How Assets Are Reported

Reporting assets on the FAFSA directly impacts financial aid eligibility. Applicants, and their parents if the student is dependent, must report the net worth of their countable assets as of the specific day they complete the FAFSA. This means the value should reflect the current balance or market value, not an average over time.

The FAFSA includes specific questions for “Cash, savings, and checking accounts,” “Net worth of investments,” and “Net worth of businesses and investment farms.” For assets like real estate or businesses, net worth is calculated by taking the current market value of the asset and subtracting any debts directly secured by that asset. For example, a mortgage on an investment property would reduce its reported net worth.

To accurately complete these sections, it is advisable to gather all relevant financial documentation before beginning the FAFSA. This includes recent bank statements for checking and savings accounts, the most recent statements for investment accounts, and records for any businesses or investment properties.

The reporting process differs for dependent and independent students. For dependent students, both the student’s assets and their parents’ assets are reported on the FAFSA. For independent students, only their own assets (and those of their spouse, if married) are reported, as they are considered financially self-sufficient for aid purposes.

How Assets Affect Aid Eligibility

The reported asset information plays a role in calculating the Student Aid Index (SAI), which determines how much federal student aid a student is eligible to receive. A lower SAI generally indicates a greater financial need and eligibility for more need-based aid.

Historically, the FAFSA applied an “asset protection allowance,” which shielded a certain amount of assets from being included in the SAI calculation. However, for the 2024-2025 FAFSA cycle, this asset protection allowance has been reduced to $0. This means that, in principle, all countable assets are now subject to assessment.

A percentage of the remaining assets is included in the SAI calculation. Parent assets are assessed at a lower rate than student assets. Specifically, parent assets contribute up to 5.64% of their value to the SAI, while student assets are assessed at a higher rate of 20%. This difference reflects the expectation that students have a greater capacity to use their own assets for education.

While assets are a component of the SAI calculation, their overall impact on aid eligibility is often less significant than that of income for many families. Income is typically assessed at a much higher rate than assets, making it the primary driver of the SAI for most applicants. Therefore, even with the elimination of the asset protection allowance, the effect of assets on the final aid package may be modest, especially for families with moderate incomes.