What Is Considered an Investment for FAFSA?
Navigate FAFSA's investment rules. Learn which assets impact financial aid eligibility and how to report them accurately.
The Free Application for Federal Student Aid (FAFSA) is the primary application for students seeking federal financial assistance for higher education. It helps colleges and the U.S. Department of Education determine eligibility for grants, loans, and work-study programs. Financial aid awarded is influenced by reported financial information, including assets. Understanding what qualifies as an investment for FAFSA is key for accurate reporting and aid assessment.
Assets FAFSA Considers Investments
The FAFSA requires applicants to report the net worth of certain investments. “Net worth” refers to the current market value of an investment minus any debt specifically tied to that investment. For instance, if an investment property is valued at $200,000 and has a mortgage balance of $100,000, its net worth for FAFSA reporting would be $100,000. It is important to note that a negative net worth for any single investment should be reported as zero, and cannot be used to offset the value of other positive investments.
Many common financial instruments are considered investments. These include stocks, whether individual shares or stock options, which represent ownership in a company. Bonds, encompassing government, corporate, or municipal bonds, are also reportable assets. Mutual funds and Exchange-Traded Funds (ETFs), which pool money from multiple investors to buy a diversified portfolio of securities, are counted as investments.
Certificates of Deposit (CDs) are reported as investments, particularly if they are not directly linked to checking or savings accounts. Money market accounts, unless part of a regular checking or savings account, also fall under this category. Trust funds must generally be reported as an asset, even if access to the funds is restricted, with the value often determined by the beneficiary’s share of the trust.
Investment properties, such as rental homes, second residences, vacation homes, or raw land, are considered investments. The value of any real estate beyond the family’s primary residence must be included. Commodities like gold, silver, oil, or agricultural products, if held for investment purposes, are also reportable.
Qualified education benefits or education savings accounts, including 529 plans and Coverdell Education Savings Accounts (ESAs), are considered investments. These are typically reported as parent assets if the student is dependent. Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are also counted as investments, usually as student assets.
The net worth of businesses and investment farms must also be reported. For the 2024-2025 FAFSA, the previous exclusion for small businesses with fewer than 100 full-time employees has been removed, meaning all businesses and farms must be reported. This includes the market value of land, buildings, machinery, equipment, and inventory, minus any secured debt.
Assets FAFSA Does Not Consider Investments
The value of the family’s primary residence, the home where they live, is generally not considered an asset on the FAFSA. This exclusion applies even if the home is located on a family farm. Similarly, qualified retirement accounts, such as 401(k)s, 403(b)s, Traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and pension funds, are not reported as assets.
The cash value of life insurance policies, whether whole life or term life, is also excluded from FAFSA asset calculations. Annuities are typically not counted if they are held within a qualified retirement plan. Health Savings Accounts (HSAs) are another type of asset that does not need to be reported on the FAFSA.
Personal possessions, including cars, furniture, jewelry, clothing, and collectibles, are not counted as investments unless they are held strictly for investment purposes. Cash held in checking and savings accounts is also not categorized as an investment but is reported separately as cash on hand.
It is important to note that while the FAFSA Simplification Act initially removed the exclusion for small businesses and family farms for the 2024-2025 FAFSA, a new provision indicates that starting July 1, 2026, small businesses with fewer than 100 full-time equivalent employees that are owned and controlled by the family, and family farms where the family resides, will again be excluded. This upcoming change highlights the evolving nature of financial aid rules.
Reporting Investment Information on FAFSA
When completing the FAFSA, applicants must report the net worth of their countable investments as of the day they submit the form. This means providing the current market value, not the original purchase price, for each investment. For instance, if stock shares were bought years ago at a lower price but are now worth more, the current higher value should be reported.
To ensure accuracy, it is advisable to gather up-to-date statements from brokerage accounts, mutual fund companies, and banks. For real estate investments, recent appraisals or tax assessments can help determine the current market value. The FAFSA asks for the total net worth of all reportable investments as a lump sum.
Calculating the net worth involves subtracting any debt directly tied to a specific investment from its current market value. For example, a mortgage on a rental property would reduce its reported net worth. However, general personal debt or debt not secured by the investment cannot be used to lower the investment’s reported value. If an investment’s debt exceeds its value, its net worth should be reported as zero, not a negative amount.
The investment information is typically entered into specific sections of the FAFSA. While the form does not ask for individual account numbers, it requires the total value of all investments and total investment-specific debt.