Financial Answer Center

Financial aid is usually based on need. The more assets and income you have, the less financial aid you will receive. However, having assets in your name instead of your child's name could mean that you receive more financial aid. The financial aid formula assumes that a parent has to use 5.6% of their assets to pay for college and a child has to use 20% of their assets—a much higher percentage. (Parents' assets may be disregarded for federal aid purposes if adjusted gross income falls below a certain amount.)

IMPORTANT NOTE: All assets are reduced by the amount of the qualifying loans against them.

SUGGESTION: Using retirement accounts to save for retirement will help you when you apply for financial aid. These accounts are not considered assets for the federal financial aid calculation. 

IMPORTANT NOTE: Contributions to retirement plans (excluding Defined Benefit Plans) are added back to the FAFSA formula for determining financial aid eligibility.

SUGGESTION: Consumer debt (credit cards, car loans) does not reduce the amount of your assets for the calculation. This is yet another reason not to run up consumer debt. The value of your home is not considered an asset for federal financial aid purposes.