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?
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
Other investments are reported on the FAFSA, including bank accounts,
brokerage accounts and investment real estate other than the primary
A family can qualify for the simplified needs test, if the parents
have an adjusted gross income under $50,000 and
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 $50,000. Any remaining
assets are assessed according to a bracketed scale with a top bracket
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
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. For
example, 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.