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How Common Assets Can Affect Your Financial Aid Eligibility

December 28, 2016


 Financial aid is a valuable resource for students and their families. And sending a child off to college is one of life’s biggest (and often most expensive!) events. Unfortunately, certain assets may adversely affect student financial aid eligibility.  That’s why careful financial planning is particularly important for families with college-age children.


Federal financial aid eligibility is calculated using many variables including parental income & assets, and your child’s income & assets, as some of the most significant. Income and assets attributed to the child (rather than you as the parent) will increase the EFC, or Expected Family Contribution.


The EFC is a measure of the family’s ability to pay for college. But strategic financial planning can help you save funds for college without increasing your EFC and reducing your child’s financial aid eligibility. Let’s look at the ways some common assets affect financial aid eligibility.


Retirement Accounts

401(K)s, and Roth and traditional IRAs are not used to determine your EFC. However, funds withdrawn from these accounts, even if not used for college expenses, are counted as income and thus can affect your EFC.


Home Equity

Federal financial aid calculations do not include equity in the parent’s primary residence. Individual institutions, however, may include equity when determining aid eligibility.


UGMA/UTMA Accounts

These can be considered either the parent’s or the student’s asset, depending on how the account is titled and who is named as beneficiary.


Life Insurance Policies and Annuities

The cash values of these assets are not included in the federal aid calculation.


Mutual Funds

The value of mutual funds is considered an asset, while distributions and capital gains are considered income. This is an important distinction because the portion of income that can be included in the federal aid calculation is much more than the portion of assets that can be included.


529 Savings Accounts and Coverdell ESAs

These are typically considered parental assets. Withdrawals are not included unless coming from a third-party account, such as that of a grandparent.


As you can see, planning for college requires consideration of many factors, such as which assets affect financial aid and how they do so. You can maximize your student’s financial aid eligibility, however, by developing a financial plan that will allow you to take advantage of asset exclusions when filing the FAFSA.


We don’t just draft documents, we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge. 

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