Gifted Issues Discussion homepage Forums Age or Ability Specific Forums College How Home Equity Impacts College Aid

I don't think balances in retirement plans affect financial aid, so maximizing contributions to them rather than paying off a mortgage quickly may increase the amount of financial aid your child receives.

How Home Equity Impacts College Aid
By Beth DeCarbo
Wall Street Journal
October 3, 2019 5:30 am ET

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Almost all U.S. colleges and universities require financial-aid applicants to fill out the Free Application for Federal Student Aid (FAFSA), which doesn’t ask parents about home equity. However, several hundred other schools—many of them elite, private institutions—also require the College Scholarship Service Profile (or CSS Profile), an application created by the College Board for nonfederal financial aid. It asks applicants for the home’s purchase price, purchase year, current value and current debt and determines the home’s equity (value minus debt).

Here’s the catch: Schools that require the CSS profile handle the home-equity information differently. Boston College, for example, looks at 100% of home equity. Stanford University announced last year that it won’t consider home equity all. Cornell University will limit home equity to 1½-times the family’s adjusted gross income. So for a household with $800,000 in home equity making $200,000 a year, home equity is capped at $300,000 (200,000 x 1.5).

The school isn’t necessarily expecting parents to tap their home equity to cover their child’s tuition. Instead, the school considers home equity and other assets to determine how much parents can contribute toward college costs. The higher the assets, the more parents are expected to pay. Generally, the parental contribution is calculated at 5% of assets. At Cornell, the family with $300,000 in home equity will be expected to lay out $16,500 a year. Had the “true” home equity of $800,000 been used, the parents would be expected to cover $44,000 in costs a year.

This formula is actually more complex than I describe because schools consider other assets—not just real estate—and a number of other variables, such as the number of siblings attending college simultaneously.

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Sounds like being fiscally responsible is being penalized to me.

I can see some home remodeling and a home equity loan in my future...

Certainly an awesome way to penalize (again) parents in high cost-of-living areas. Home equity is only really useful when you sell your house. Nobody should be expected to sell their house to pay college tuition.

Exactly. Were income and equity to be weighted depending on cost of living and average cost of a home in the state of residence then it would be easier to swallow.

A family living in SF on $200k would basically be borderline homeless whereas on 100k in South Dakota would be living large.

When I hear of some of the scams - people with 3rd world family and joint income >800k sending their kids back to get better scholarship money, taking on ridiculous mortgages just to lower their home equity - I am not making this up, it is nauseating.