Understand the Snapshot of Your Family's Assets

When you enter in data about your assets on the Free Application for Federal Student Aid (FAFSA), it often feels like putting the information into a big black box.  So feel more in control by understanding how the feds will factor in your family’s assets.

Which Assets are Reported

Although most families must report the assets owned by both the student and the parent(s) on the FAFSA, some families get to skip these series of questions based on an annual income threshold, receipt of federal benefits and completion of certain types of tax forms. If you are not one of those families, then the FAFSA is going to ask you to report:

• The total sum in checking and savings account(s) as of the date you file the FAFSA
• The sum of other financial assets, such as brokerage accounts, certificates of deposit (CDs), stocks, bonds, mutual funds, money market accounts, the vested portions of stock options and restricted stock units, exchange-traded funds (ETF), hedge funds, trust funds, and private equity.
• The present market value of all other real estate other than the family’s primary residence) whether it is held in the family’s name, a real estate investment trusts (REIT), loans held, installment contracts, trust funds, or private equity.
• The total of Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts (reported as student’s asset, not the custodian).
• The total of college savings plans like 529 college savings plans, prepaid tuition plans, and Coverdell education savings accounts (reported as an asset of the account owner, not the beneficiary)
• Precious metals
• The net value of an investment farm
• The net value of a business with 100 or more employees

The good news is that the FAFSA does not ask you to report on the following:

• The net value of the primary residence
• The total sum of retirement accounts
• The net worth of small businesses owned and controlled by your family with less than 100 full-time employees
• The net value of the farm where the family resides and/or the family primarily operates
• Life insurance policies
• The value of your possessions, including any cars, boats, jewelry, coin, stamp, art, wine, or other collections that have a marketable value

Please beware that some colleges that use the CSS Profile or use their own financial aid forms may ask about these forms of assets in order to distribute their institutional aid.



View on Parent Assets

The FAFSA does not factor in every dollar of a parent(s) assets.  The reason the FAFSA asks the age of the older parent in the household is to use their asset protection allowance index by age.  Depending on the age of the older parent and the number of parents in the household, this amount varies.  For 45 year old parents, this amount is $4,900 for two parents households or $1,900 for a single parent household whereas for 65 year old parents, the amount is $9,400 for two parents households and $3,000 for single parent households. After the parent asset protection allowance is deducted from the reported parent assets’ net worth, the FAFSA will use 12% of the remaining value to calculate their asset portion of the expected family contribution (EFC).  This could mean that almost 6% of the reported net worth of the parent assets could be calculated as being available to pay for college in a given academic year.

View on Student Assets

For dependent students, the FAFSA assesses a flat 20% of the net worth is available in a given academic year to help pay for college costs.  For example, if a student has $5,000 in their checking account, $1,000 will be the asset portion of their EFC. 

For independent students, an asset protection allowance is calculated based on marital status and age of the student.  For an independent student who is age 26, the amount is $300 for a married student and $100 for a single student.  After asset protection allowance is deducted from the independent student without dependents other than a spouse assets’ net worth, the FAFSA will use 20% of the remaining value to calculate their asset portion of the EFC. Whereas the FAFSA uses a 7% calculation of the amount over the asset protection allowance for independent students with dependents

Ways to Reduce Asset Calculation

Many families want to find ways to reduce the impact for asset calculation of the EFC in order to maximize their need-based financial aid eligibility.  Since moving assets can have tax implications or cost you money in fees, this isn’t always the best option.  Consider consulting your financial and/or tax advisor to understand all the implications.

Reducing Assets Ahead of Applying 

Before a family completes the FAFSA, consider paying down debt.  Although you may have a portion of your assets earmarked to pay for these specific expenses, the FAFSA does not recognize such reserves.  Since credit card balances, auto loans, and mortgages are not included in the FAFSA calculations, some families consider using assets to pay down the debt ahead of completing the FAFSA.  Similarly, if a large car repair, washer or dryer replacement, or even a new roof is expected in the not too distant future, then consider paying for these necessary expenses with your assets before you complete the FAFSA. 

Moving Reportable Assets to Non-reportable Accounts

Some families may choose to move an asset from reportable assets to non-reportable assets prior to applying for college.  Just be aware that some forms of asset movements can create a taxable event that will need to be reported (and often taxed) on your annual tax return, such as realizing capital gains when an investment is sold.  In addition, other assets like life insurance and trusts may have a series of transaction or maintenance fees that may be charged to transfer the assets.

Move Asset Account Ownership

Dependent students' assets are “taxed” more heavily than their parents in the FAFSA view. Since 12% of net worth of parent assets is used for the EFC calculation vs 20% of dependent student’s assets is used, some families consider moving the student assets into parent assets or even a younger sibling’s assets.  For instance, some families move a student assets into a custodial version of a 529 college savings plan so the funds are reported in the parents assets, not the students.  Just be aware that in most cases, such adjustments may have little to no impact on federal and state grant eligibility.  However, it may make a difference for need-based grants from your college.