When it comes to college planning, one of the largest aspects you have to consider is your college finances. Before attending college, you’ll have to complete several financial aid forms to determine if you are qualified for additional support. All students who are entering college will be asked to complete a Free Application for Federal Student Aid (FAFSA) application. The FAFSA is used to collect information concerning the income and assets of students and their parents. This document will use a variety of factors to determine the expected family contribution (EFC) which determines how much a family can financially provide to put their child through college.
What Role Do Assets Play in Financial Aid?
An asset is essentially any money that you have readily available or something that can later provide financial benefits. To put it as simply as possible, the more financial assets you have, usually means you will be qualified for less supportive aid when it comes to paying for college. When it comes to the FAFSA, there are assets that you have to report, and others that you don’t.
Assets That Need to be Factored Into FAFSA:
- Investment products like trust funds and College 529 Plans
- Checking and Savings accounts
- Mutual funds
- Stocks and bonds
- Money Market accounts
- Real estate outside of the primary residence
Assets That Do Not Need to be Factored Into FAFSA:
- Your primary home equity
- Retirement plans such as 401K, IRAs, and ROTH IRAs
- Life insurance
Asset Protection Allowances
The FAFSA handles assets differently depending on if they are in the student’s or parent’s name. For students, there is a flat rate of 20%. For parents, there is asset protection allowance. This allowance is calculated using an approximate difference between social security retirement benefits and the average family income according to the U.S. Bureau of Labor Statistics. It was created with the intention to shield a portion of parents’ assets from being declared on financial aid applications. This lowered the EFC and allowed more students to be approved for financial aid. Unfortunately, the asset protection allowance is dropping to zero for single parents and a record low for married parents for the 2022-2023 FAFSA.
Understand Assets and College Financial Aid Eligibility
College finance planning can feel overwhelming. Numerous factors are used to determine how much aid you can receive and how much is expected to be paid out of pocket. The FAFSA is the most commonly used measure of financial determination. The allowances shift year to year, but there has been a steady decline over the past few years. This is putting increased financial pressure on families. Speaking with a trusted accountant could be beneficial to assess the most economical use of your money when it comes to investing in a college career. Another great way to gain a better understanding of this aspect of college planning is by attending a virtual workshop hosted by the College Benefits Research Group. These workshops cover several important aspects to plan for when applying for financial aid and college in general.
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