FAQ: Does home equity affect financial aid?

Posit note asking Does home equity affect financial aid?It depends on which colleges you apply to. If you apply to colleges that use the FAFSA only for calculating financial aid, equity in your primary home is not considered.  However, if you apply to schools that use the CSS/Financial Aid PROFILE, home equity is likely to be considered.

Since each school decides if they use home equity in their methodology and how much to consider, how much home equity will affect financial aid will vary by institution. Mark Kantrowitz of  Fastweb, estimates that colleges cap the amount of equity considered to between two to three times annual income minus any mortgage. Troy Onink in Forbes reports that  “home equity counts under the Institutional Methodology, but only up to 1.2 times the parent’s adjusted gross income (AGI) under the Consensus.”

This is based on standards initially released by the 568 President’s Group where a group of schools agreed to a consensus methodology for calculating family financial assets. However, the formula has been adjusted since then and very few schools include the actual formula with their financial aid information.

Currently, Stanford provides information on how it uses home equity stating that “we cap the amount of home equity considered at 1.2 times the total family income.” Yet, it’s difficult to find any other schools as forthcoming.  You can get some idea of which schools count home equity by using net price calculators (NPC).

Of course, this assumes the NPC is accurate and that the school has a standard formula for considering home equity. Inside Higher Education reported that “Harvard is flexible in considering home equity: ignoring it entirely in some cases and taking it into consideration in others.”

Ask the if it Considers Home Equity in Financial Aid

If you want to know the actual figure, you’re best bet is to ask the college. According to Money Watch.com

If your home has appreciated a lot, ask private colleges how they factor in home equity when determining aid, advises Paula Bishop, a financial aid consultant in Bellevue, Wash. Their answers may differ dramatically. Some schools, such as Princeton University, ignore home equity. Others, such as Boston College and American University, include 100 percent of it as an asset.

You can find a list of schools that are using the CSS/Financial Aid PROFILE here.

Leave a Reply