How Much Do Parents’ Assets Affect FAFSA?

Understanding the Impact of Parental Assets on FAFSA Eligibility

Paying for college often starts with filling out the FAFSA, or Free Application for Federal Student Aid. One major concern for many families is how parents’ assets affect eligibility for student financial aid. Understanding how these assets are counted can help you plan ahead and unlock more opportunities for grant and scholarship money.

What Are Parental Assets on the FAFSA?

The FAFSA collects detailed information about your family’s finances. It looks specifically at your parents’ income and certain assets to calculate your Expected Family Contribution (EFC), sometimes known as the Student Aid Index (SAI). The result helps determine your eligibility for need-based aid, such as Pell Grants, subsidized loans, and work-study.

• Cash, savings, and checking account balances
• Investments: stocks, bonds, mutual funds, CDs, money market accounts
• Trust funds in parents' names
• 529 college savings plans (owned by parents)
• Real estate (not the primary residence)
• Businesses and investment farms (with exceptions)

Not all assets are treated equally on the FAFSA, and some are not counted at all. Knowing the difference can significantly affect the amount of aid you may receive.

Assets That Are Not Counted on FAFSA

When you fill out the FAFSA, you’ll notice that certain assets are ignored. These can include:

• Primary residence (your home)
• Value of retirement plans (401(k)s, IRAs, pensions)
• Life insurance policies
• Annuities
• Personal possessions (cars, furniture, etc.)

This distinction helps many families by protecting the value of their home and retirement savings from affecting financial aid eligibility.

How Much Do Parental Assets Affect Financial Aid Calculations?

The FAFSA has a formula to determine how much parental assets will increase your family’s contribution. Generally, up to 5.64% of your parents’ reportable assets are considered available to pay for college each year. This is significantly less than the 20% rate used for student-owned assets.

• If your parents have $50,000 in countable assets, roughly $2,820 is added to your family’s expected contribution for the year.
• If the parents’ assets fall below the Asset Protection Allowance (which is based on parents’ age), no assets will be counted at all.

Income plays a much bigger role in determining need-based aid. In fact, parents’ income is weighted up to 47% in the financial aid formula, while assets are assessed much more lightly.

What Is the Asset Protection Allowance?

The Asset Protection Allowance is a number that shields some of your parents’ assets from being counted on the FAFSA. This figure is based on the age of the older parent. As parents get older, more assets are protected.

• If the older parent is 50 years old, around $9,400 (2023–24 cycle) in assets could be protected.
• As parents age, this shield increases slightly.

If your family’s assets are under this threshold, none of your parents’ assets will count against your aid eligibility.

Do 529 Plans and Other College Savings Accounts Count?

Yes, a 529 college savings plan is reported as a parental asset if the parent or a dependent student is the account owner. This is good news: FAFSA counts only up to 5.64% of it in the expected family contribution, and not 20% as student assets. Accounts owned by grandparents do not need to be reported on the FAFSA.

Tips to Maximize FAFSA Aid If Parents Have Significant Assets

• Apply early: Schools have limited aid funds. Applying as soon as FAFSA opens may increase your chances.
• Spend down savings: Pay down debt, make home repairs, or cover large expenses before the FAFSA filing date. This lowers the amount of reportable assets.
• Avoid student asset accumulation: Assets in the student’s name are penalized more heavily than those in parents’ names.
• Consider shifting assets: If possible, move savings into retirement accounts, which are not reported on the FAFSA.
• Double-check your FAFSA: Ensure you accurately report only what’s required to avoid overestimating your assets.

The Role of Income vs. Assets in FAFSA Calculations

Many parents worry about how their savings could reduce financial aid. In reality, parental income has a much bigger impact on the FAFSA formula than assets do. If your family’s income is moderate or low, even large savings may not drastically change your aid eligibility.

Families with high income and significant assets will qualify for less need-based aid, but may still be eligible for merit scholarships or unsubsidized loans regardless of financial need.

Common FAFSA Mistakes Related to Parental Assets

• Reporting the value of the family’s primary home
• Listing retirement accounts as assets
• Reporting qualified small businesses or family farms that should be excluded

Make sure to read FAFSA instructions carefully or consult your college’s financial aid office if you’re unsure.

Frequently Asked Questions About Parental Assets and FAFSA

How do parents’ assets affect FAFSA eligibility?

Parental assets can affect eligibility for need-based student aid, but only a small percentage (up to 5.64%) of reportable assets are counted when calculating the Expected Family Contribution. Most families find that income is a bigger factor than assets.

Which parental assets must be reported on the FAFSA?

Report cash, savings, checking balances, investments (stocks, bonds, mutual funds), 529 college savings plans owned by parents, and non-primary real estate. Do not report retirement accounts or the value of your home.

Are there assets that FAFSA does not count?

Yes, FAFSA does not count the value of your primary home, retirement accounts (like 401(k)s and IRAs), life insurance, annuities, or personal possessions. These assets are excluded from the financial aid calculation.

Does having high assets always mean less aid?

High parental assets may reduce need-based aid, but the impact is usually smaller than most families expect. If your income is low or moderate, assets often have a minimal effect, especially after the asset protection allowance is applied.

How can families reduce the impact of parental assets on financial aid?

Families can pay down debt, make large purchases, contribute to retirement accounts, and avoid keeping large balances in student accounts before the FAFSA filing date. These steps lower the amount of reportable assets.

Do grandparents’ assets or 529 plans count on the FAFSA?

Assets owned by grandparents or 529 plans in the grandparent’s name are not reported on the FAFSA. However, distributions from these accounts used for college expenses may count as untaxed student income on future FAFSAs.