The equity in your primary residence does not affect your expected contribution. The calculator at
http://npc.fas.harvard.edu/ has a box for "real estate equity", but the accompanying note says "This should represent the fair market value of your ownership share of any real estate (excluding your primary residence) not already reflected in the Business/Farm section, less your share of any debts."
The problem is that it punishes savers.
For instance, I don't really contribute to retirement accounts due to my inability to foresee tax changes 20 years down the road, but rather, I save mostly cash. I also recently downsized my house.
So I'm expected to use my retirement money to pay for the school just because it's not in a "retirement account."
