What Counts as Student Assets for Financial Aid?
Understand how student assets are evaluated for financial aid. Gain clarity on their impact for securing college funding.
Understanding how student assets are considered in the financial aid process is important for families planning for higher education. Financial aid eligibility relies on assets held by both the student and their parents. This assessment helps determine eligibility for various forms of assistance, and accurately reporting these assets directly influences the amount of funding a student receives.
Categories of Student Assets
Financial aid calculations consider various types of assets that are readily available or convertible to cash. These include funds held in cash, savings accounts, and checking accounts, which represent liquid assets immediately accessible to the student. Any money present in these accounts is counted.
Investment accounts also fall under the umbrella of student assets. This category encompasses brokerage accounts, mutual funds, certificates of deposit (CDs), stocks, and bonds. The current market value of these investments factors into the financial aid assessment.
Certain types of trusts where the student is the beneficiary and has access to the principal or income are counted as assets. The specific terms outlined in the trust document determine how these funds are treated. If the trust allows for the use of funds for educational expenses, they are included in the asset calculation.
If a student directly owns real estate, such as an investment property or land, the equity value is also considered an asset. This value is determined by subtracting any outstanding debt from the property’s market value. However, a student’s primary residence is treated differently and may not be counted.
Excluded Assets
Several types of assets are not counted when assessing a student’s financial standing for federal financial aid purposes. The equity in a family’s primary residence is excluded from calculations for the Free Application for Federal Student Aid (FAFSA). However, some institutional aid applications, such as the CSS Profile, may consider home equity.
Qualified retirement accounts are another common exclusion. Funds held in accounts like 401(k)s, 403(b)s, Individual Retirement Accounts (IRAs), and pension plans are not considered available for educational expenses. These accounts are designed for long-term retirement savings, and their inclusion would contradict their intended purpose.
Personal belongings, such as clothing, furniture, household goods, and vehicles used for daily transportation, are not included in asset calculations. These items are illiquid and are considered necessities for daily living rather than sources of funds for education. Similarly, the cash value of life insurance policies is excluded from asset assessments.
Small businesses and family farms have seen changes in their treatment. Recent updates to the FAFSA require reporting the net worth of all businesses, regardless of size. Currently, their value may be included.
Asset Reporting for Financial Aid
The process of declaring student assets for financial aid involves completing forms like the Free Application for Federal Student Aid (FAFSA) and the CSS Profile. These applications gather detailed financial information from both the student and, if dependent, their parents. The data collected helps determine a family’s capacity to contribute to college costs.
A distinction exists in how student-owned and parent-owned assets are assessed in financial aid calculations. Federal aid formulas assess student assets at a higher rate (around 20%) towards the Expected Family Contribution (EFC) or Student Aid Index (SAI). In contrast, parent assets are assessed at a lower percentage, up to 5.64%.
This difference means every dollar held in a student’s name can reduce aid eligibility more significantly than a dollar held by a parent. For example, a student’s $1,000 in savings could contribute $200 to their expected contribution, while the same amount in a parent’s account might contribute around $56.40. This disparity can influence how families choose to save for college.
Assets are reported based on their value on a specific “snapshot date,” which is the day the financial aid application is signed and submitted. This means that the balances in bank accounts and the market values of investments on that precise day are what count. Applicants should ensure the information provided is accurate and may need to provide supporting documentation if requested by financial aid offices.