Learn how to properly account for your assets and debts to maximize aid eligibility.
Last year my family had low income ($40,000) but high assets. The assets include $1 million in properties, other investments, the primary home, car, 401(k), IRA and pension plan. How are the assets counted for determining need-based financial aid? — S.S. Certain types of assets are not reported on the Free Application for Federal Student Aid (FAFSA). For example, the net worth of the family's principal place of residence is ignored on the FAFSA, as are any small businesses owned and controlled by the family. Likewise, pensions, 401(k) plans, IRAs and other qualified retirement plans are ignored. The car also isn't reported as an asset on the FAFSA. Other investments are reported on the FAFSA application, including bank accounts, brokerage accounts and investment real estate other than the primary home. A family can qualify for the simplified needs test, if the parents have an adjusted gross income under $50,000 and are eligible to file a simplified federal income tax return, such as an IRS Form 1040A or 1040EZ. The simplified needs test disregards all assets. If the family does not qualify for the simplified needs test, a portion of their reportable assets will be sheltered by an asset protection allowance. The asset protection allowance is based on the age of the older parent. For most parents of college-age children (median age 48), the asset protection allowance is about $6,600. Nationally, parental assets affect the aid eligibility of less than 4% of dependent students. I am curious to know if my college loan debt decreases my eligibility for financial aid. Does college loan debt affect my ability to receive financial aid at all? — Katherine A. Education debt is not reported on the FAFSA and has no impact on your expected family contribution (EFC). You could have $25,000 in student loans or no student loans and your EFC would be the same, all else being equal. However, certain types of student loans are subject to annual and aggregate loan limits. For example, the Stafford loan has an aggregate limit of $31,000 for dependent students and $57,500 for independent students. If your existing Stafford loans have reached the aggregate limit, you will be unable to borrow more from the Stafford loan program. As such, if you are a dependent student and already have $25,000 in Stafford loans, you will be able to borrow at most an additional $6,000 in Stafford loans (i.e., $31,000 - $25,000). If you are in default on your federal education loans, you will be ineligible for any more federal student aid until you cure the default by rehabilitating the loans. Defaulted borrowers regain eligibility for federal student aid after making six consecutive full voluntary on-time monthly payments. We are considering a prepaid tuition plan through our state for our 8th grader but it will be locked for 3 years. We did not purchase the prepaid plan for our senior, only a 529 savings plan. Since the plan is inaccessible for 3 years will we have to list it as a parental asset on the FAFSA and CSS Profile? — Donna J. Yes, you have to list the prepaid tuition plan as an asset on the FAFSA and PROFILE despite the 3-year lock, just as you have to report certificates of deposit and other time-locked investments. Investments must be reported on the FAFSA and PROFILE regardless of any voluntary restrictions on the use of the investment. When you list the prepaid tuition plan, report its refund value from the plan's most recent statement. All prepaid tuition plans send statements to the account owners at least once a year.