Parents as well as students must report the net worth of their assets when applying for federal student aid. Here's how colleges evaluate assets reported on the FAFSA and how they factor them into your financial aid.
Student and Parent Assets Are Counted Differently
A student’s assets will have a far greater impact on a family's eligibility for financial aid than parents’ assets. An asset is essentially any money that you have readily available or something that can provide financial benefits in the future, such as property or stocks.
- Student's assets count for more. Colleges will generally expect families to use up to 20 percent of the assets owned by a dependent student to pay for college. This is true even if the student's assets are funded with other people's money. On the bright side, a custodial 529 college savings plan owned by a student, where the student is both the account owner and beneficiary, is counted as a parent asset if the student is a dependent child.
- Parents' assets count for less. Colleges will expect parents to use up to 5.64 percent of their "unprotected" assets toward college.
- Protected Assets. A portion of parents’ assets, referred to as protected assets, are not counted at all. The amount that is protected depends on the number of parents and the age of the older parent. The maximum asset protection allowance for the 2022-2023 financial aid award year is $5,900.
What's Counted As an Asset?
For purposes of the FAFSA, an asset is essentially any money that is readily available and includes but is not limited to:
- Bank and brokerage accounts
Net worth of a business with over 100 full-time employees
Real estate that is not the family's primary residence
Qualified educational benefits or education savings accounts such as Coverdell savings accounts, 529 college savings plans, and the refund value of 529 prepaid tuition plans.
Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts for which your parents are the owner, not the custodian
Stocks, stock options, bonds, and certificates of deposit
For purposes of the FAFSA, assets do not include:
Your family’s primary residence
ABLE (Achieving a Better Life Experience) accounts
Retirement plans (e.g., 401(k) plans, pension funds, noneducation IRAs, Keogh plans, and other similar plans)
Many private colleges use information from an additional aid application (CSS Profile) to allocate aid from their own resources. These colleges may count more assets, such as home equity and assets owned by divorced parents and siblings.
Some Assets Are Not Counted but Still Affect Financial Aid
Retirement accounts. The FAFSA does not ask about the value of retirement accounts, such as traditional and Roth IRAs, 401(k) plans, and pensions. But the untaxed contributions to and withdrawals from these accounts must be reported on the FAFSA as income.
- Assets held by others. You don't have to report assets intended for college that are owned by a third party (e.g., your grandparents) on the FAFSA. However, once the money is given to you or spent on your behalf, you must report it as untaxed student income on next year's aid applications. Student income is weighted more heavily than parent income in the federal financial aid formula, so any monetary gifts you receive could impact the amount of aid you will be eligible for.
Some students or families don’t have to report assets. If a dependent student’s parents, or an independent student and their spouse, have a combined income of $49,999 or less and meet additional criteria, their assets will not be considered in the FAFSA formula.
Transferring Assets Held in the Child's Name
Because assets that belong to the student have a higher impact on financial aid eligibility (a student’s asset will increase the EFC by 20 percent of the asset’s value, as opposed to 5.64 percent of a parent’s asset), some families transfer assets owned by a child to a parent. However, moving investments, assets, and income around can be a minefield with substantial consequences on financial aid and taxes. Be sure to consult a financial advisor before making any decisions.