#2 in a series to help you prepare for filing financial aid forms. See first article, Top 5 Tips for Preparing for the FAFSA/Profile.
What counts as an asset?
January is approaching and parents are gathering their financial information for their FAFSA submission. Now is a great time to review the assets that are included in your Expected Family Contribution calculation and also understand how this calculation can change depending on school selection.
There is a great deal of confusion regarding the assets that are included in the EFC calculation. In the Federal or FAFSA method there are three major assets that are not included or should not be included when submitting the FAFSA. This is important to know because if you include these assets it will raise your EFC and may limit your access to financial aid.
- Retirement accounts
- Home equity
- A family business or farm with less than 100 employees
These three items are included if the colleges selected require a secondary financial aid form. This form is the Independent Method and the most common is the CSS profile (available through the College Board). The EFC Independent calculation results may vary greatly. The CSS Profile and other Independent calculations are unique to each college. These calculations generate a different number than the Federal or FAFSA method.
What goes into calculating an EFC number?
The EFC calculation includes four components:
- parent income
- parent assets
- student income
- student assets.
What counts as a student asset?
How the student’s assets affect the EFC calculation can be confusing to many parents. Parents often wonder whether they should take all the assets out of their child’s name. The answer to this question will depend on the colleges selected and the total value of the parent’s portion of the EFC calculation.
|Student name||20% counted toward family contribution||Straight calculation|
|Parent name||5.67% AFTER allowance based on age of oldest parent||Based on other factors in family situation|
Before moving the child’s assets, you need to remember this is their money. There are tax consequences to the liquidation and transfer decision that need to be understood. If you are a high net worth family, you actually may want to put assets in your child’s name. You need to know your EFC numbers before you make any decisions.
What about college savings plans?
The reporting of 529 Plan money is another common error in the FAFSA submission. These funds are parent’s assets in the financial aid submission but you must include the entire amount for all children in the asset number. Many make the mistake of putting this as a student asset and only the amount applicable to that student.
How can I learn more?
Join us to learn more from Fred Amrein at the upcoming College Affordability Tips for Procrastinators and Planners webinar, scheduled for Wed. Dec. 17 at 10:00 am PST, 1:00 pm EST. Click to register.